• Report identifies key barriers to building a robust defence
  industrial base in Europe, including financing restrictions, lack of experties, varying regulatory requirements and the risk profile of DSR companies.
• For the commitment to 5% defence spending to drive economic growth and national security, financing must flow without friction to high-growth innovative startup-ups and SMEs.

At the 2025 NATO Summit, leaders made a historic commitment to shared transatlantic security announcing an increase in annual defence spending to 5% of GDP: 3.5 % for traditional defence and security and an additional 1.5 % for resilience including for protection for networks, civil preparedness, and innovation in the defence industrial base.

Many of the solutions needed to support the future goals of the Alliance will be generated by early-stage innovative dual-use companies in the defence, security, resilience (DSR) sector. Across the Alliance, these startups must work closely with SMEs (Small and Medium-Sized Enterprise) and traditional Primes to rebuild the Alliance’s defence industrial base so that innovative solutions can not only be imagined but also deployed at scale.

At the earliest stages of innovation, venture capital is becoming more plentiful for DSR startups: Our work with Dealroom shows a 30% uplift in VC for DSR investments: marking the strongest growth among all VC segments. Since Russia’s invasion of Ukraine, VC funding in DSR is at an all-time high, reaching $5.2 billion in 2024, with defence startups among the leading recipients. Despite this, challenges remain in the capital stack especially as companies grow and build their innovations to industrial scale.

Banking in particular plays a crucial role in financing the DSR sector by providing access to credit, guarantees, export finance, equity investments and general services but has not kept pace with the needs of the rapidly expanding DSR sector. Part of the challenge lies in longstanding perceptions of the defence industry, that have seen it as operating at odds with a strong ESG orientation.

With the changing geopolitical landscape, public and investor perceptions of defence have started to shift, but barriers remain. Limits in banking services and bank-led financing are felt across the entire defence industry, but particularly for early-stage DSR companies. We identified four key challenges that must be resolved if capital commitments are to be leveraged into vibrant DSR innovation ecosystems and a robust defence industrial base:

• Restrictions on financing conventional weapons, dual-use startups, or the defence industry at large remain.
• Lack of familiarity with the sector limits banks’ ability to support DSR ventures.
• Regulatory requirements for DSR companies are not standardized
  and may vary.
• Capital flows into DSR ventures are hindered because the companies
  are often considered riskier.

If the commitment to 5% defence spending is to truly drive economic growth and national security, then financing must flow without friction to high-growth innovative startup-ups in our innovation ecosystems as the start to grow and industrialise. The same is true for SMEs that are key to our industrial base.

Simple solutions could reduce these barriers and facilitate the banking industry’s support for the DSR sector, including the reduction and revision of exclusion lists; the development of sectoral expertise within banks; the improvement of procedural efficiencies by conducting processes in tandem and considering expedited due diligence for MOD-approved suppliers; and de-risking lending through public-private partnerships.

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