Berlin, July 22, 2026 – Germany is embarking on a significant shift in its industrial policy by creating a new scheme enabling direct state investment in start-ups and scale-ups focused on military technologies. This initiative, part of the new national strategy for start-ups, aims to attract private investors to a sector deemed strategic, a development that echoes defence financing instruments already established in Luxembourg.
Germany’s Direct Investment in Defence Tech
The German government intends to establish a dedicated investment vehicle to directly acquire stakes in companies developing products or services with clear military applications. While the exact size of the fund, investment amounts, and rollout schedule are yet to be announced, the Financial Times reports that operations are expected to be channeled through the state-owned development bank KfW.
This marks a departure from previous policy, where Berlin primarily supported venture capital funds investing in the defence sector. Now, the state itself could select specific companies and become a direct shareholder. This approach is designed to address the financing needs of companies reaching the industrialization stage. Despite a dynamic ecosystem, Germany has struggled to transform its start-ups into world-class companies. Venture capital investment in Germany reached €7.2 billion in 2025, significantly lower than levels observed in the United States and the United Kingdom.
“When we look at the United States, we see that far too little private capital is being channelled into start-ups in Germany,” stated German Economy Minister Katherina Reiche to the NTV channel, as reported by Reuters. She emphasized the importance of directing private capital towards innovation to enhance supply chain resilience and prepare Germany for the future.
Key Players and Broader Financial Framework
The war in Ukraine has accelerated the emergence of new European companies in areas such as drones, robotics, artificial intelligence (AI), secure communications, and battlefield surveillance. Prominent German companies in this space include Helsing, specializing in AI systems for defence, and ARX Robotics, which develops autonomous ground vehicles. Both have provided technology used in Ukraine.
Beyond direct investment, Berlin also aims to facilitate access for start-ups to military procurement contracts, review certain export authorization mechanisms, and mobilize more private capital for strategic technologies. The Future Fund public program, launched in 2021 to support German venture capital, is also slated for extension beyond 2030.
This new strategy is integrated within a broader financial framework. The Germany Fund, scheduled for launch in late 2025, is projected to mobilize up to €130 billion in investment, backed by €30 billion in public capital and guarantees. Additionally, on July 15, the government and KfW announced an extra €1.5 billion in funding for start-ups, scale-ups, and SMEs.
Luxembourg’s Established Role in Defence Funding
While no direct link has been announced between the future German vehicle and a Luxembourg-based organization, its launch coincides with the Grand Duchy’s growing prominence in European defence funding:
- Nato Innovation Fund (NIF): Based in Luxembourg, this €1 billion venture capital fund, supported by 24 NATO member countries, invests in dual-use technologies, including AI, robotics, new materials, and space technology. ARX Robotics is among its initial investments.
- European Investment Fund (EIF): Located in Kirchberg, the EIF implements the InvestEU Defence Equity Facility, which supports venture capital and private equity funds investing in European companies involved in defence or dual-use technologies. The EIF has committed €50 million to Join Capital’s third fund, aiming for €235 million.
- Defence, Security and Resilience Bank: Luxembourg is also set to host the European headquarters of this future multilateral bank. Currently under construction, it aims to raise $135 billion to finance defence and security-related companies and projects.
These developments underscore a growing European focus on bolstering defence technology through strategic investments and collaborative financing mechanisms.
Source: https://delano.lu/article/berlin-is-to-invest-directly-in-defence-tech
