Germany to Take Direct Stakes in Defence Startups under New Strategy

Startups

Economy Minister Katherina Reiche says the plan will boost funding, secure production, and strengthen defence readiness.

Germany will fund defence startups using a state direct-stakes vehicle.
Reiche says defence could add 0.5%–1.0% growth if invested wisely.
The plan targets financing gaps as Europe lags in large rounds.

Germany said it will create an investment mechanism enabling the state to take direct stakes in defence startups as part of a broader plan to strengthen the country’s security and industrial base. The move comes as Berlin, spurred by Russia’s war in Ukraine and continued concern over the dependability of U.S. security commitments, pushes to rebuild European defence capacity after years of underinvestment.

Under the strategy, the government will set up “a new vehicle for direct federal investments in startups and scale-ups” developing products and services with clear military applications. Officials described the approach as a way to improve access to capital for security and defence companies, particularly those operating faster than traditional procurement pipelines. The government paper highlighted how startups and scale-ups have become increasingly important for bolstering Germany’s readiness.

Economy Minister Katherina Reiche said the defence sector could generate additional economic growth of between 0.5% and 1.0% if the new funding is used effectively. At a press conference, she argued that state orders could provide companies with economic security without requiring large upfront capital injections or relying heavily on subsidy programs. In her framing, securing production and business deals through major procurement could reduce uncertainty for young firms while supporting domestic capability development.

German AI defence firm Helsing and autonomous ground-systems startup ARX Robotics have both provided battlefield-relevant systems used in Ukraine, where rapid deployment has accelerated the testing and adoption of emerging technologies. Officials pointed to such examples to underline the case for quicker investment and closer integration between emerging firms and defence needs.

The value of the proposed fund has not been disclosed. The investment vehicle is also linked to a wider startup strategy led by the economy ministry, designed to improve financing access, attract skilled workers, and cut bureaucracy for newly founded companies. Deutsche Bank Research characterized the shift as a sign that, after years of stagnation, parts of Germany’s economy are regaining momentum in entrepreneurship.

Germany’s startup environment has been expanding quickly, with 3,053 startups founded in the first half of 2026, up 52% from the second half of 2025. The bank noted that while Europe performs well in early-stage funding, larger rounds often push companies toward the United States, where venture capital scales faster. Germany’s planned direct-stake framework is intended to address that gap and encourage growth.

Business Honor views Germany’s direct-stake plan for defence startups as a decisive shift toward securing faster security innovation.