UK defence firms eye funding surge as demand rises

Almost all UK defence companies and defence technology start-ups surveyed expect to raise significant external funding over the next 12 months, according to research commissioned by White & Case.

The survey found that 97% of respondents were likely to seek substantial outside capital as they respond to rising demand for defence technologies and look to expand.

Companies are not relying on a single source of funding. Of those surveyed, 49% said they were looking to raise equity finance, 47% debt finance and 39% government grants, suggesting blended financing structures are likely to be common.

The figures also point to a divide between younger defence technology ventures and more established groups. Start-ups were more likely to target equity funding, with 59% planning to do so, compared with 49% of established defence companies. More mature businesses were more likely to seek debt, with 51% planning to raise it, versus 41% of start-ups.

That reflects the different stages of development across the sector. Many newer businesses are still developing products and remain pre-revenue, while established operators may already hold major government contracts that make borrowing more feasible.

Investor mix

Among companies seeking equity finance, government-backed investors were ranked the most attractive source by 37% of respondents. Corporate venture investors followed at 36%, while strategic corporate investors and private equity firms were each cited by 34%.

Venture capital investors were identified by 30% of respondents, while family offices accounted for 20% and sovereign wealth funds 12%. The range suggests defence technology businesses are considering a broad mix of capital providers rather than depending on one part of the market.

The research also points to stronger overseas interest, although domestic money still dominates. The number of businesses expecting investment from UK sources alone exceeded the total expecting capital from Asia-Pacific, the United States and the Middle East combined.

That suggests that while international investors are showing greater interest in the sector, UK-based funding networks remain central to deal flow. It also underlines the role of local venture capital, private capital pools and established financial markets in supporting fundraising by defence-related businesses.

Rising interest

The push for funding comes against a wider shift in investor attitudes towards defence technology. The research said some restrictions that had previously held back investment have eased, helping attract private capital to a sector many investors now see as offering long-term growth.

According to the findings, the sector's appeal is tied to higher government spending, more visible contract pipelines, recurring revenues and the barriers to entry associated with defence procurement and specialist technology development.

The report also highlighted broader geopolitical pressures. Governments are placing greater emphasis on resilience, domestic production and sovereign industrial capacity, factors that could support demand for defence technologies over the longer term.

The research also cited the possibility that technologies first developed for military use may later find civilian applications in larger commercial markets, broadening their investor appeal.

Daniel Turgel, Partner and Co-head of White & Case's Global Technology Industry Group, said: "With global military expenditure soaring, defence firms are looking to scale rapidly to meet growing demand for the latest defence technologies. However, scaling defence technology start-ups is expensive, and given their significant capital requirements and high cash burn rates, many earlier-stage firms are likely to undertake successive funding rounds to ensure they have sufficient runway to support growth.

"For the most promising businesses, there is no lack of equity financing. A wall of private capital is looking for a home in defence technology as previous investment restrictions are relaxed and investors rush to gain exposure to a highly attractive sector, with long-term structural growth tailwinds that extend beyond current conflicts and even defence itself."

The survey was conducted by Censuswide among 250 senior decision-makers at Director level and above across the UK defence and military sector. It covered UK-headquartered defence companies as well as military and defence technology start-ups.

Tom Clarke, Partner in the Global M&A Practise and Global Private Capital Industry Group at White & Case, said: "While there has been a marked increase in interest among overseas investors, it is no surprise that UK investors remain, for now, the predominant source of expected capital for these companies, with the number of businesses expecting investment from UK sources alone outstripping investment from APAC, the US and the Middle East combined. This reflects the UK's unique strengths in matching capital with investments, underpinned by a mature VC ecosystem, deep pools of private capital and ready access to global money markets.

"The UK's private markets already have a strong track record of generating more fintech unicorns than any country outside the United States*, and are now poised to repeat that success in defence technology. Home to some of the world's most exciting and innovative early-stage defence technology companies, supported by a leading legal framework and an extensive network of experienced investors and advisers, the UK could potentially see significant fundraising announcements over the next 12 months, making this an exciting sector to watch."