Defence Tech and Regional Security: Strategic Opportunities in Eastern Europe

Geopolitical Risk as a Catalyst for Military Technology Investment

The war in Ukraine and the broader destabilization of Eastern Europe have ignited a seismic shift in defense spending and technological innovation. According to a report by the International Institute for Strategic Studies (IISS), global defense expenditures surged to $2.46 trillion in 2024, with Eastern Europe accounting for $457 billion—an 11.7% real-term increase since 2023. This surge is not merely a reaction to immediate threats but a strategic recalibration driven by the need to modernize capabilities and secure long-term autonomy.

The Technology Imperative: AI, Cybersecurity, and Dual-Use Innovation

Eastern European nations are prioritizing technologies that address both military and economic resilience. NATO's 2025 The Hague summit underscored a commitment to allocate 1.5% of GDP to security-related investments, including cybersecurity, AI, and critical infrastructure protection. For instance, Estonia—a digital innovation leader—is channeling significant R&D funds into AI-driven command systems and drone technologies. Similarly, Poland's €43.7 billion EU SAFE loan is accelerating the development of autonomous systems like the Bluszcz unmanned mine-layer and Stormrider combat boat, designed for rapid terrain modification and maritime operations.

The dual-use nature of these technologies is a key driver of economic growth. The European Commission's Strategic Compass emphasizes leveraging civilian advancements in AI and quantum computing for defense applications. This convergence is evident in startups like Romanian Orbotix Technologies, which develops operator protection systems, and Ukrainian Frontline, a drone manufacturer whose products have seen battlefield deployment.

EU/NATO Programs: Fueling a Defense Tech Ecosystem

The European Union's Rearm Europe initiative—a €800 billion plan with €150 billion in loans—has become a cornerstone of this transformation. Complementing this, the European Defence Fund (EDF) and European Defence Industrial Programme (EDIP) are allocating €8 billion and €1.5 billion respectively to foster collaboration among defense firms and research institutions. NATO's DIANA program, launched in 2023, has selected 75 startups by 2025, focusing on energy resilience, surveillance, and data security.

Private investment is also surging. Defense VC funding in Europe reached $5.2 billion in 2024, a 30% increase from 2022. Ondas Holdings, a U.S.-based firm, has deployed $150 million to invest in Eastern European startups specializing in autonomous systems and AI-driven operations. Meanwhile, the UK's £5 billion defense tech fund is backing laser weapon systems and advanced munitions.

Strategic Opportunities for Investors

The defense tech boom in Eastern Europe presents three key investment themes:
1. Automotive-to-Defense Conversions: Poland, Hungary, and the Czech Republic are repurposing automotive factories to produce armored vehicles and drones, leveraging skilled workforces and EU incentives.
2. Cybersecurity and AI Startups: Eastern European firms are addressing gaps in sovereign data infrastructure and AI-driven threat detection, supported by NATO and EU grants.
3. Dual-Use Infrastructure: Investments in quantum computing and energy resilience are creating cross-sectoral value, aligning with both defense and civilian demand.

However, challenges persist. Supply chain vulnerabilities for semiconductors and rare earth materials remain a bottleneck. Additionally, late-stage funding for European startups still relies heavily on U.S. capital, highlighting the need for regional investment ecosystems.

Conclusion

Geopolitical risks have transformed Eastern Europe into a hotbed of defense innovation, with strategic investments in AI, cybersecurity, and autonomous systems driving both security and economic growth. As NATO and EU programs scale funding and private capital follows, the region is poised to become a global hub for dual-use technology. For investors, the window to capitalize on this shift is narrowing—but the rewards for aligning with this trajectory are substantial.

Source:
[1] Global defence spending soars to new high,
https://www.iiss.org/online-analysis/military-balance/2025/02/global-defence-spending-soars-to-new-high/
[2] The resurgence of European and UK defence tech,
https://www.taylorwessing.com/en/interface/2025/defence-tech/the-resurgence-of-european-and-uk-defence-tech
[3] European defense tech start-ups: In it for the long run?,
https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/european-defense-tech-start-ups-in-it-for-the-long-run
[4] European ICT spending implications of NATO's 5% GDP spending target,
https://blog-idceurope.com/european-ict-spending-implications-of-natos-5-gdp-spending-target/
[5] Poland allocated largest share of new EU defence programme with €43.7 billion in loans,
https://notesfrompoland.com/2025/09/09/poland-allocated-largest-share-of-new-eu-defence-programme-with-e44bn-in-loans/
[6] The Dual-Use Tech Surge: Innovation's Double-Edged ...,
https://news.crunchbase.com/defense-tech/global-dual-use-tech-surge-onetti-mindthebridge/