European governments need to start taking defense innovation seriously

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The writer is the general partner of Capital of the airway and co-author of the State of AI report

The way we fight wars is changing. We’ve all seen the pictures from Ukraine of kilometer-long convoys of Russian tanks being blown apart by cheap drones. And already in 2010 the Stuxnet worm devastated the Iranian nuclear program.

Considering the rapid growth of Europe’s technology ecosystem in recent years, Europe’s lack of track record in defense innovation is surprising. A new €1bn Nato initiative will provide funding for future deep-tech start-ups, but so far the continent’s sole tech champion, Helsing, is almost entirely backed by an entrepreneur’s family office.

Artificial intelligence is already disrupting defense and Europe must decide whether to accept this challenge or outsource it. While outsourcing might be easier in the short term, it means leaving control of strategically important technology in the hands of others, including autocracies.

European venture capital fails to tackle the most difficult problems. Democracy won’t defend itself with the next grocery delivery app. While Andreessen Horowitz’s American dynamism project may have been derided by some in Europe, no one has been brave enough to initiate an equivalent impetus for a “European dynamism.”

VC has a crucial role to play on defense. In the United States, venture capital-backed companies such as Palantir and Anduril have grown to significant sizes. European VCs, however, have sidetracked the industry out of ethical distress, choosing to avoid the tough questions, rather than supporting both their supporters and their teams on why this field matters. Meanwhile, many European limited partnerships exclude defense investments altogether.

But governments also have a responsibility to fuel this evolving sector. I have met entrepreneurs working on critical challenges, both in multisensory perception and drone technology, whose businesses live under constant existential threat, from their clients in national governments.

The sector is hampered by lengthy procurement procedures that favor incumbent incumbents. Challengers find themselves fighting for small exploratory projects with little conversion to large-scale contracts. This makes it difficult to build a business sustainably. Unsurprisingly, investors are reluctant to back the sector.

These flaws stem from a cultural issue in European innovation.

First, there is a lack of political courage. Partnering with early-stage companies risks investing governments in technologies that may not be successful. It also means, in some European countries, diversifying away from producers in which they hold significant shares. Considering the dismal track record of deliveries of major defense companies, viewing them as the “safe” option is perverse. General Dynamics’ £5.5bn UK Ajax tanker – which is six years late and riddled with flaws – is just one example of such programs running into difficulties.

Secondly, there is a reluctance to make choices. European countries should focus more on a small number of key technologies. While hardware is important, we will never be able to produce more than the US or China. However, being relatively smaller makes it easier for Europe’s militaries to digitally transform.

Finally, we are plagued by a culture of pinching. Vast sections of our economy are being rebuilt from the bottom up, AI first and foremost. This work is essential but it is not cheap. Low levels of uncoordinated defense spending in Europe have already resulted in underinvestments of around €160 billion, compared to 2008 spending levels.

The first waves of AI progress stemmed from 20th century cooperation between industry, investors and government in the United States. Europe will need to muster similar ambition and collaboration to succeed in the 21st.