Defence beyond the virtue signaling

0:08European sovereignty is increasingly shaped by technology, capital and security. not policy alone. The NATO Innovation Fund is a multi-sovereign deep tech venture capital fund backed by 24 allied nations, investing more than a billion across defense, security, and resilience. Carl Christian Agarup, Vice Chair of the Board of Directors at the NATO Innovation Fund, will outline the fund's role in strengthening Europe's strategic autonomy through innovation and capital deployment. Please welcome Carl Christian Agarup from the NATO Innovation Fund. Go West has really become an essential part of the Nordic VC and tech ecosystem.

0:52And the fact that Gothenburg is a relatively close drive both from Oslo and Copenhagen makes it the perfect vantage point for advancing the competitiveness of the Nordic region as well. So my name is Casey. My background as an entrepreneur and venture capitalist brought me into the NATO Innovation Fund and the board. The fund is a 1 billion euro tech fund, deep tech fund, set up by NATO and backed by 24 allied nations. NIF's board, in case you wonder, is to ensure the link between the limited partners in many instances the defense departments and sovereign investment funds of the allies and investment partnership.

1:45But it's investment partnership that makes the investment decisions in NIF. Let me start with a few of the reasons for why NIF was established. Some main points. NATO innovation. Next slide here. Thank you. So NATO Innovation Fund was established in the realization that Europe was lagging behind in the development and ownership of critical capabilities and technologies needed in order to secure a future independent and secure Europe. At the time of inception, Europe's share of deep tech investments was less than 10 % of the global spending. And the VC deep tech infrastructure in Europe was really, really thin and concentrated around a very few core areas of Europe.

2:51It was also quite clear that Europe's defence capabilities were insufficient to the future needs of Europe. The traditional... This was sort of accentuated by the fact that the traditional security structures and relationships in Europe was being challenged. you could no longer trust the established structures that was established a long time ago.

3:26We also saw that a lot of European countries did not have the integration between the tech environments and the defense units of Europe. That was sufficient in order to provide tech into the ministries of defense and into the defense departments. So there was really a poor integration between tech capabilities and defense needs. And this led to the fact that sovereign European capital availability for these types of investments was becoming a focus point. and let me also add to the fact that there's a war in Europe now and it's close Kharkiv in Ukraine is closer to where we are today than Hammerfest north in Norway where the country that I am from thank you so the threat is at our doorstep of the future of Europe.

4:40This urgent realization has increased the focus and willingness to invest into a multitude of tools in order to address the situation. NATO Innovation Fund is one such tool. Re-evaluating how NATO Defense Forces is organized and work together is another.

5:03And I think this realization that the NATO nations have sort of experienced back when the NATO Innovation Fund was set up in 2022 is definitely resonating with the investment community as well. Deep tech investing is the highest growth-growing sector within VC investments in Europe, and it has been growing more than 40 % two years in a row now, and within deep tech investments, tech investments into defense security and resilience has almost doubled in 2025.

5:44This is encouraging, but we are still light years away from what is being invested in other regions of the world, like the US and in China. But the good news is that the VC investors are attracted to the sector and contributing to its growth. So what is the difference that the NATO Innovation Fund can make? Well, first of all, it's about catalyzing opportunities. The NATO Innovation Fund is the most active funder and investor into European dual-use and defense tech in Europe since 2024. We also have a pivotal role in crowding in more capital into these companies by co-investing with our investment partners across the ecosystem.

6:33Second, by using our voice and position in the market, we can help identify the importance and the need for technology leadership and independence over time. We want to be able to create this and strengthen the ecosystem for defense security and resilience across Europe. And we want to be a kite mark for the industry. I think also we have a very important voice into the Allies, into NATO, in terms of what types of policies and practices needs to be changed in order for us to be more competitive. And two words, sort of two key words here. One is procurement, and the other one is ownership to data, whether or not data is shared across all the allied nations, or whether or not all the sovereign data is kept within each nation, making it very difficult for suppliers and others to deliver seamless products across all the NATO countries.

7:37And finally, it's about scale and industrialization. The NATO Innovation Fund has that ability to be the link between the entrepreneurs and the customer, and also have the ability to secure contracts with our investment companies, and also the funds that we cooperate with, in order to create a difference in the market size and the market access for these companies. I mentioned the fund-in-fund investments. we are spending 20 % of our fund into funded funds. That might be relevant for some of you here that are emerging deep tech fund managers. We want to be able to build long-term venture capacity in Europe.

8:26We want to contribute to more investments into the deep tech sector in Europe. And we also want to invest into what we call underserved regions of Europe, where we know there is technology and leading technology, but also where the capital markets are insufficient to fund these technologies. We also work closely with other LPs so that we can crowd in more capital into these funds so that we can create a vibrant deep tech ecosystem in Europe. I'm ending this with just a few sort of summary slides. We are well on our way. We are less than halfway into our investment period at the moment. We have made 17 direct investments.

9:18Look it up on our website if you wonder which companies that is. We've made nine fund-in-fund investments. We have a separate department in NIF called the Mission Platform Group, where we help our companies and the fund that we invest in getting access to NATO exercises and to the NATO needs. We have had, through the two years that we have been operating, had more than 100 of these adoption campaigns where we take these companies and put them in front of real problems and real exercises where entrepreneurs can test and get their technology proven in real-time environments. So I think that is what I had.

10:12These are the companies and these are the funds that we invested in. And please, if there are any questions on NATO or NATO Innovation Fund, I'll be here both today and tomorrow. So look me up. Thank you.

10:30Defense has moved quickly from frontier to mainstream venture. As capital scales into defense and dual use, the real questions are about capability and delivery. Nicholas Nelson from Archangel Ventures and Sebastian von Ribbentrop from Joint Capital will discuss what serious defense investing looks like beyond just signaling. Please welcome Nicholas and Sebastian in conversation with yours truly, Andreas Moncom, co-founder of UVC.

10:59Gentlemen, we're talking about virtual signaling and defense here. Nick, let me start with you. You have for quite some time been quite vocal about how you're thinking about this. Is the defense boom a real thing in Europe, or is it VCs washing their name in a Ukrainian flag? I think it's a good question, and I'll say, if nothing, in my fourth time back here talking on the same subject, nothing if not consistent. But with that said, I think your mileage may vary. In short, dual use, especially in Europe, is often used as a crutch, and my company once upon a time sold something to its respective ministry or department of defense, thus go with God, you are now dual use.

11:42In theory, sure, but it doesn't actually result in any net new capabilities. When we look at what dual use is, in some markets it can mean mainly commercial with some defense or mainly defense with some commercial. In Europe it's had, for a lot of reasons we can unpack as we go today, a lot of different meanings. but predominantly depends on what ontology you use. It involves no kinetics as well as less than 50 % of your market being within the defense sector or defense uses. So that includes respective ministries or departments of defense as well as big aerospace companies. I think a lot of people in Europe are still uncomfortable for said legacy reasons that I'm happy to unpack about doing defense or getting into kinetics.

12:25You see a lot of funds or companies saying, well, we're dual use or dual use in defense, but really it's about what does that mean? And for us and what I focus on is I believe the best capabilities and the best financial returns comes from defense only or defense first. And you can kind of look at this a number of different ways, but if you only focus on dual use at the end of the day, it generally in Europe, yes, is a cop-out and also results in, I would say, below average returns for investors as well as bifurcated and below average capabilities for the end user. And I'll use a term that I'm going to use the rest of our talk and I like to use, but really gets down to the brass tacks, which is the warfighter.

13:02Sebastian, that was a very opinionated take on how dual use fits into the defense ecosystem. What's your take? I love it since I've also been next to Nicholas for the last four years, and he is very consistent, so that's a good thing. And it's very important also for the environment. I approach it in a different way because of the way JOIN evolved into the defense sector. And basically it came through the evolution of investing in industrial automation, which is also an important part of defense. For me, defense is not only kinetics, but its heritage in very many factors. And one is targeting software.

13:50Second could be underwater surveillance. and you see those in the different challenges that are done throughout the world. So there's no different of opinion, but there's a different way I approach it in regards to investing into the market. And I would say I would test the defense-only return multiple. I would say that in a long-term point of view, The dual use is definitely a much more promising case because of the, let's say, dependency on the end-to-end system integrator that you have in that market. So, to those of you that cannot see the energy on stage, we have two people here that very wholeheartedly disagree on many things, though Sebastian tried to say they did not.

14:44while we had on the right side of Sebastian a person that was jumping to take the mic and say I do wholeheartedly disagree. Nick? Yeah, so let's talk, let's actually delineate what we're talking about here, which I would never say the defense is only kinetics because it's not. With that said, when we talk about why we view defense first as best, let's go back about 14 years of historical data. And right now, if you look at early stage predominantly, and we can use banner examples like Palantir, Andrel, Helsing even more recently, but also you look at the private equity roll-ups, the exits across the board.

15:19Over the last 14 years in Europe, so this isn't a U.S. example, this is just on the last 14 years in Europe, defense technology early stage only, and again, keep in mind this was a wasteland for a long time, on average outperformed by over 60 percent. It's dual use from inception. That's not to say you should never be dual use. Let's look at a good case study. We're all familiar with Palantir in this room, yes? Maybe? Okay, fantastic. So Palantir did not have a single commercial contract for the first eight and a half years of its life. When it did finally get commercial contracts, what did it get?

15:53It was a bunch of folks getting out of CIA, getting out of DIA, NSA, or special forces, going to large oil and gas companies, financial services, who said, hey, I want that same thing that I had when I was Afghan when I was in Iraq, and I want to use it there. That then bifurcated their products into what became Palantir Metropolis and Palantir Gotham. Metropolis was the exact same thing, just white labeled. It eventually did evolve and result in really positive gains for them into what is now Foundry. But eight and a half years in, not a single dollar of commercial revenue. You can do the same thing for SpaceX.

16:27Andrel now valued over 30 billion, not a single dollar in there. So it's not to say you can't go into commercial markets eventually, but if you try to build from inception, and we are an early stage fund, so pre-seed or seed, into dual use, you have two different go-to-market motions, oftentimes two different engineering staffs, as well as different fundamental requirements on the engineering side. So you end up doing both poorly, and you end up getting pulled in the wrong direction. A good example of this, historically, if anyone wants to go through it, is the iRobot case. Because we've got to get Sebastian in on that.

16:59What's your take? Why do you say that on the early stage, you do actually want to do dual use? Well, I can only speak of... Is this on? Now it's on. Okay. So I can only speak of real examples. So if you try... So venture capital is a market on its own. It's the most riskiest, probably, equity investment that you can do. And so you need governance, you need law, you need quite a few macroeconomic factors for it to work. and you need customers and you need to be able to sell it. So Helsing, I don't know who they sold to, but for me it's still a paper valuation. So I look at revenue. If I have a company that can solve with their software two different use cases, whether it's defense or not, I'm more than happy because I can lower the risk in the allocation of customers.

17:54I'll give you an example. Underwater surveillance. We have a portfolio company in Holland called Optics 11. It started using fiber optics to help energy companies pinpoint power surges within larger transformers. You saw what happened at Heathrow. Heathrow went down, transformer burnt. The problem with that is that the civil market takes way too long to be able to implement it, to test it, to pay for testing. And we've seen that in the last 11 years with deep tech in Europe, where the huge opportunity comes with the defense market. So this is Ministry of Defenses that can do contracts up to 25 million euros.

18:40For example, Germany, you don't need to go via the MOD. You can go directly to the Bundesverfassinistan, and they can sign up up to 25 million, which for me is better than a Series C or D round, because it's non-dilutive and it's revenue. But to the point I'm trying to make is that this company was able to attract the underwater surveillance market with the exact same software that used to analyze fiber optics for the power surges for underwater object verification. And that company now has an order book of over 220 million euros without having to do one further round of financing. and that's why I speak about the dual use case.

19:25I agree one should focus on one thing only. One shouldn't build parallel teams but find the opportunity where you don't need to where you can use the software for multiple cases like Palantir did but they did have to sue the US government to get their first contract. So did SpaceX which Anderil of course is taking benefit from. So it's not always as easy as that. I want to ask you both a question that has been on my mind And that is, as a defense company, will you have to pick a flag? And does such a thing as a European flag exist? And when we receive historically so much venture funding from the States into European companies, is there then a venture journey that will not force you to pick the U.S.

20:09flag in the end? I hope so. But right now, we have to be honest on where we are so we can identify the gaps that are out there. and having spent half my life in the US and half in Europe, I kind of have foot in both camps, so to speak. We can talk about major European champions like Helsing I referenced before, whatever one that sounds like Sebastian may disagree here, may think of them, but three of their five highest positions on their cap table are US investors, despite the narrative. So why is that? It's because that's where the growth funding is coming from. Similarly, we have companies in our own portfolio because I've been investing in this space in Europe since 2020.

20:44Back when I was getting called a warmonger at the same conference a few years back, as Andreas will remember. But we've now seen people gain their Series A, their Series B of our portfolio. And from a valuation standpoint, from a source of capital, it's the Middle East, it's the United States, and a handful of investors over here, but very few true growth. Now, there have been some great funds. I'll always call out our friends over at Plural and Project A who have followed on to a lot of our investments, but it can't just be that. So there is a gap in the market. With that said, I would say the one thing I am pessimistic on within this market is I fundamentally don't believe there will be a European andrel or a European palantir because it's effectively 30 fragmented markets.

21:25Where I do think you're going to find success and champions, if you will, for Europe are going to be those companies that can scale across so-called coalitions of the willing. That's one of the reasons we focus on the GEF region, which stands for the Joint Expeditionary Force. It's a sub-NATO construct, but spans the UK, the Nordics, and Baltics. And that's because of a number of factors to include low prime penetration, fairly low lander requirements in most cases, as well as a greater propensity to acquire direct from startups and scale-ups. Sebastian, I want your final take on this. Will European companies end up having to pick a flag?

22:02And in that case, the US flag far too often. So I think if you split it into a platform, so a system, they will probably have to, which makes Europe a difficult place to operate. Just look at the drone market or the UXVs, so the underwater and above water vehicles. Every country wants their own, whether it's Finkandaria in Italy, TKMS in Germany, Thales in France, BAA in the UK. and then you have Kraken and a few others trying to break it, which I hope they will. I agree with Nikola's strategy for the early stage, but when you're going later, you need larger contracts. You're usually a TRL level further down the road, and that's why we focus on the subsystems.

22:52So basically, to take the analogy of the previous example, the company Optics 11 can deliver to any prime or non-prime. So it's not only the primes, those are the ones that do the end-to-end contracting that are politically dependent, but you have other companies that are smaller, around a thousand of them in Europe, that you can also be a contractor to. And that's where European strengths lie. If you look at the automotive industry or the aerospace industry, you have a huge cluster of Middleston companies in northern Italy, in Sweden, in Denmark, in Germany, in France that just supply that market.

23:36And those are the ones we focus on and they can be also then exported. So we have, for example, Sumitomo and Mitsubishi Industries in our fund can also be exported to other friendly nations as South Korea, Japan, so it turns it again into Europe a global market specialist provider where we're good at.