Germany’s Defense Tech Revolution: AI to Bio-Robots
- Germany is rapidly transforming its defense sector, embracing advanced AI and robotics. The shift, driven by geopolitical changes, sees increased investment and a focus on innovative startups to modernize the military.
Russia’s invasion of Ukraine has fundamentally reshaped Germany’s perspective on defense. This shift is particularly evident for companies like Helsing, a German startup focused on military AI and drones, which has seen its valuation more than double to $12 billion. Gundbert Scherf, Helsing’s co-founder, noted that Europe is now outspending the U.S. on defense technology acquisition for the first time in decades. He believes Europe is on the brink of a significant transformation in defense innovation, comparable to the Manhattan Project.
Germany, Europe’s largest economy, intends to play a central role in rearming the continent. Chancellor Friedrich Merz’s administration sees artificial intelligence and startup technology as crucial to its defense strategy. Sources indicate that Berlin is streamlining bureaucracy to directly connect startups with the military’s top echelons. This marks a departure from Germany’s traditionally cautious defense posture, shaped by post-war pacifism and a preference for incremental improvements.
Shifting Priorities and Increased Investment
With diminished certainty regarding U.S. military support, Germany, a significant backer of Ukraine, plans to nearly triple its regular defense budget to approximately 162 billion euros ($175 billion) annually by 2029. A substantial portion of this funding is earmarked for redefining the nature of warfare. Helsing is among a new wave of German defense startups developing cutting-edge technologies, ranging from AI-powered robots resembling tanks and unmanned mini-submarines to surveillance-ready bio-robots. Scherf stated their ambition to help “give Europe its spine back.”
These smaller, innovative firms are now advising the government alongside established defense contractors like Rheinmetall and Hensoldt. A new draft procurement law, recently approved by Merz’s cabinet, aims to reduce barriers for startups to participate in tenders by enabling advance payments. This legislation would also allow authorities to restrict tenders to bidders within the European Union. Marc Wietfeld, CEO of ARX Robotics, a maker of autonomous robots, recounted a pivotal meeting with German Defense Minister Boris Pistorius, who emphasized that “money is no longer an excuse – it’s there now.”
Germany’s Leadership in European Defense
Germany has committed to meeting NATO’s new target of 3.5% of GDP on defense spending by 2029, a faster timeline than most European allies. This commitment comes amid renewed questioning of America’s dedication to NATO by figures like Donald Trump. Berlin officials have consistently stressed the importance of fostering a robust European defense industry, rather than solely relying on U.S. companies. However, scaling up industry leaders in Germany and across Europe presents considerable challenges.
The European market is fragmented, with each country having distinct procurement standards for contracts. In contrast, the United States, the world’s leading military spender, boasts an established roster of defense giants and an advantage in key areas like satellite technology, fighter jets, and precision-guided munitions. The U.S. also began supporting defense tech startups in 2015, awarding them portions of military contracts. European startups, conversely, have historically received limited government backing.
Innovative Technologies and Economic Impact
Despite past disparities, an analysis by Aviation Week in May projected that Europe’s 19 top defense spenders, including Turkey and Ukraine, would collectively spend 180.1 billion euros on military procurement this year, surpassing the United States’ 175.6 billion euros. While Washington’s overall military spending remains higher, Europe’s increased focus is evident. Hans Christoph Atzpodien, head of Germany’s security and defense sector association BDSV, noted that the military’s procurement system has historically favored established suppliers, posing a challenge for rapidly evolving technologies. The German defense ministry affirmed it is taking steps to accelerate procurement and better integrate startups to expedite the deployment of new technologies for the Bundeswehr.
Annette Lehnigk-Emden, head of the armed forces’ powerful procurement agency, emphasized that drones and AI are emergent fields crucial for Germany’s development. She described their battlefield impact as “as revolutionary as the introduction of the machine gun, tank, or airplane.” Sven Weizenegger, who leads the Bundeswehr’s Cyber Innovation Hub, observed a shift in societal attitudes due to the war in Ukraine, reducing the stigma associated with working in the defense sector. He now receives a significantly higher volume of LinkedIn requests from individuals proposing defense technology ideas.
Some concepts under development verge on science fiction, such as Swarm Biotactics’ cyborg cockroaches. These insects are equipped with specialized miniature backpacks enabling real-time data collection via cameras. Electrical stimuli allow human operators to remotely control their movements. The goal is for these bio-robots to provide surveillance in hostile environments, offering insights into enemy positions. CEO Stefan Wilhelm explained, “Our bio-robots – based on living insects – are equipped with neural stimulation, sensors, and secure communication modules.” He added, “They can be steered individually or operate autonomously in swarms.”
Historically, German scientists were pioneers in many military technologies that became global standards. However, following World War II, Germany underwent demilitarization, and its scientific talent dispersed. The expansion of military research now offers a potential economic boost for Germany’s $4.75 trillion economy, which has contracted recently due to high energy prices, reduced export demand, and competition from China. Markus Federle, managing partner at Tholus Capital, a defense-focused investment firm, asserted, “We just need to get to this mindset: a strong defense industrial base means a strong economy and innovation on steroids.”
Escaping “The Valley of Death” and Funding Surge
In the past, European investors’ aversion to risk often disadvantaged startups, making it difficult for them to secure the capital needed to navigate the “valley of death”—the critical early stage characterized by high costs and low sales. However, the post-invasion surge in European government defense spending has prompted investors to seek new opportunities. Europe now boasts three defense tech startups with “unicorn” valuations exceeding $1 billion: Helsing, Germany’s Quantum Systems (a drone manufacturer), and Portugal’s Tekever, another drone producer. Sven Kruck, Quantum’s chief strategy officer, highlighted the considerable pressure on Germany to lead European defense efforts.
Germany has emerged as Ukraine’s second-largest military supporter after the United States. Approval processes for orders that once took years now take months, providing European startups with opportunities to quickly field-test their products. Venture capital funding for European defense tech reached $1 billion in 2024, a notable increase from $373 million in 2022, with further growth anticipated this year. Christian Saller, general partner at HV Capital, an investor in ARX and Quantum Systems, commented, “Society has recognized that we have to defend our democracies.”
Data analysis by Dealroom for Reuters indicates that venture capital funding has grown faster in Germany than elsewhere in Europe. German defense startups have attracted $1.4 billion from investors over the past five years, surpassing the UK. Jack Wang, a partner at Project A, a venture capital firm, noted that many German defense startups excel at integrating established components into scalable systems, leveraging the country’s engineering prowess. He added, “Quality of talent in Europe is extremely high, but as a whole, there’s no better country, no better talent that we’ve seen other than in Germany.”
Furthermore, weaknesses in Germany’s automotive industry have freed up production capacity, including within the Mittelstand—the small and medium-sized enterprises that form the backbone of the German economy. Stefan Thumann, CEO of Donaustahl, a Bavarian startup producing loitering munitions, reported receiving 3 to 5 applications daily from automotive industry workers. He stated, “The startups just need the brains to do the engineering and prototyping.” Thumann concluded, “And the German Mittelstand will be their muscles.”
