The writer is a general partner of Air Street Capital and co-author of the State of AI report
The way we fight wars is changing. We’ve all seen the images from Ukraine of miles-long Russian tank convoys being picked apart by cheap drones. And as early as 2010, the Stuxnet worm wreaked havoc with Iran’s nuclear programme.
Considering the rapid growth of the European tech ecosystem in recent years, Europe’s absent track record in defence innovation is striking. A new €1bn Nato initiative will provide finance for future deep-tech start-ups, but so far the continent’s sole tech champion, Helsing, is almost entirely backed by one entrepreneur’s family office.
Artificial intelligence is already disrupting defence and Europe has to decide whether it wants to embrace this challenge or outsource it. While outsourcing might be easier in the short term, it means leaving control of strategically important technology in the hands of others, including autocracies.
European venture capital is failing to go after the hardest problems. Democracy won’t defend itself with the next grocery-delivery app. While Andreessen Horowitz’s American Dynamism project may have been mocked by some in Europe, no one has been brave enough to start an equivalent drive for a “European Dynamism”.
VC has a crucial role to play in defence. In the US, venture-backed companies such as Palantir and Anduril have achieved significant scale. European VCs, however, have swerved the sector out of ethical discomfort, opting to avoid difficult questions, rather than make the case to both their backers and their own teams on why this field is important. Meanwhile, many European limited partner agreements rule out defence investments altogether.
But governments also have a responsibility to nurture this evolving sector. I’ve come across entrepreneurs working on critical challenges, whether in multi-sensor perception or drone technology, whose businesses live under a constant existential threat — from their own customers in national governments.
The industry is hamstrung by lengthy procurement procedures that favour entrenched incumbents. Challengers find themselves fighting for small exploratory projects with poor conversion to large-scale contracts. This makes it hard to build a business sustainably. It’s unsurprising that investors are reluctant to back the sector.
These failings stem from a cultural issue in European innovation.
First, there is a lack of political courage. Partnering with early stage businesses risks governments investing in technologies that may not succeed. It also means, in some European countries, diversifying away from manufacturers in which they own significant stakes. Considering the major defence companies’ dismal track record of delivery, viewing them as the “safe” option is perverse. The UK’s £5.5bn Ajax tank from General Dynamics — which is running six years late and beset with flaws — is just one example of such programmes running into difficulty.
Second, there is a reluctance to make choices. European countries should bet bigger on a small number of key technologies. While hardware is important, we will never be able to outproduce the US or China. However, being relatively smaller makes it easier for European militaries to digitally transform themselves.
Finally, we are plagued by a culture of penny pinching. Vast sections of our economy are being rebuilt ground-up, AI-first. This work is crucial but it is not cheap. Europe’s low levels of uncoordinated defence spending have already given rise to under-investment of about €160bn, compared to 2008 spending levels.
The first waves of AI progress stemmed from 20th century co-operation between industry, investors and government in the US. Europe will need to summon up similar ambition and collaboration to succeed in the 21st.
