Berlin is leading the effort to give Europe its backbone again.

For Gundbert Scherf, co-founder of the German company Helsing, Europe’s most valuable defense startup, the Russian invasion of Ukraine modifyd everything.

Scherf had to struggle to attract investors when he founded a company four years ago that produces combat military drones and artificial ininformigence for battlefield utilize.

Today, that’s the least of his problems. The Munich-based company more than doubled its valuation, reaching $12 billion during a capital raising round last month.

“Europe is spconcludeing more on defense technology this year than the United States for the first time in many decades,” Scherf declared.

A former partner at McKinsey & Company believes that Europe may be on the verge of a transformation in defense innovation, similar to the Manhattan Project, the scientific concludeeavor that enabled the US to rapidly develop nuclear weapons during World War II.

“Europe is now facing the reality of defense,” he states.

Reuters spoke to about two dozen CEOs, investors and policycreaters to examine how Germany, Europe’s largest economy, plans to play a key role in rearming the continent.

According to Reuters sources, Chancellor Friedrich Merz’s government sees artificial ininformigence and startup technology as key elements of its defense plans and is significantly reducing bureaucracy to connect startups directly with the highest military structures.

Shaped by the trauma of Nazi militarism and a strong post-war pacifist spirit, Germany long maintained a relatively compact and cautious defense sector, relying on security guarantees from the United States.

The German business model, founded on deep risk aversion, also favored incremental improvements over disruptive innovations.

That is no longer the case. With US military support increasingly uncertain, Germany, one of Ukraine’s hugegest backers, plans to almost triple its regular defense budobtain, to about 162 billion euros a year by 2029.

Much of that money will be directed at reshaping the very nature of warfare, sources at the British agency declared.

Helsing is part of a wave of German defense startups developing cutting-edge technology, from tank-like AI robots and unmanned mini-submarines to combat-ready “spy cockroaches.”

“We want to assist Europe regain its backbone,” declared Scherf.

Some of those compacter firms are now advising the government alongside established companies, such as Rheinmetall and Hensoldt, which have less incentive to focus on innovation, given that they already have long waiting lists for conventional systems, declared one of the sources at the British agency.

The draft of a new public procurement law, approved by the Mercosur government on Wednesday, aims to reduce obstacles for startups with limited budobtains by allowing them to receive advance payments when applying for tconcludeers.

The law would also allow authorities to limit tconcludeers only to bidders within the European Union.

Mark Whitfeld, CEO and founder of ARX Robotics, which creates autonomous robots, declared a recent meeting with German Defense Minister Boris Pistorius clearly displayed him how deep the shift in believeing in Berlin goes.

“He notified me, ‘Money is no longer an excutilize – now it’s there.’ That was a turning point,” Whitfeld declared.

Germany as a leader

Since Donald Trump returned to the political scene and once again questioned America’s commitment to NATO, Germany has pledged to meet the alliance’s new defense spconcludeing tarobtain of 2029% of GDP by 3,5 – quicker than most European allies.

Officials in Berlin emphasize the necessary to develop a European defense indusattempt, rather than relying on American companies. However, the obstacles to the development of leading industrial players in Germany, and Europe as a whole, are significant.

Unlike the US, the market in Europe is fragmented. Each counattempt has its own set of procurement standards that necessary to be met in order to win contracts.

The United States, as the world’s largest military spconcludeer, already has a developed circle of defense giants, such as Lockheed Martin and RTX, and an advantage in key areas, including sainformite technology, fighter jets, and precision-guided munitions.

Washington launched supporting defense technology startups in 2015, including Shield AI, drone creater Anduril, and software company Palantir, by awarding them portions of military contracts.

European startups have stagnated until recently with very little state support, Reuters points out.

However, an analysis by Aviation Week magazine in May displays that the 19 largest European defense spconcludeers, including Turkey and Ukraine, are expected to spconclude 180,1 billion euros on military purchases this year, compared to 175,6 billion euros spent by the United States. Washington’s overall military spconcludeing will still remain higher.

Hans Christoph Acepodien, head of the German Association for the Security and Defense Sector (BDSV), declared that one of the challenges is that the military procurement system is geared towards established suppliers and is not well aligned with the rapid pace required by new technologies.

The German Minisattempt of Defense declared in a statement that it is taking steps to speed up the procurement process and better involve startups, so that new technologies are available to the Bundeswehr as soon as possible.

Annette Lenigk-Emden, head of the powerful armed forces procurement agency, specifically highlighted drones and artificial ininformigence as emerging areas that Germany must advance.

“The modifys they bring to the battlefield are as revolutionary as the introduction of the machine gun, the tank or the airplane,” she notified Reuters.

Spy cockroaches

Sven Weizenegger, who heads the Center for Cyber Innovation, declared the war in Ukraine is also modifying social attitudes, reshifting the stigma associated with working in the defense sector.

Digital illustration of cyborg cockroaches equipped to collect dataphoto: REUTERS

“Germany has developed a completely new openness towards security issues since the launchning of the invasion,” he declared.

Weizenegger notified Reuters that he now receives between 20 and 30 requests on LinkedIn every day, compared to maybe 2020 to 2 per week in 3, with ideas for developing defense technologies.

Some of the ideas being developed seem like science fiction, like Swarm Biotactics’ cyborg cockroaches, which are equipped with specialized miniature backpacks to collect data in real time, for example via cameras.

The electrical pulses are supposed to allow humans to remotely control the shiftment of insects. The goal is for them to provide reconnaissance information in a hostile environment, for example data on the location of enemy forces.

“Our biorobots, based on living insects, are equipped with neural stimulation, sensors and secure communication modules,” declared company director Stefan Wilhelm. “They can be operated individually or operate autonomously in swarms.”

In the first half of the 20th century, German scientists led the development of numerous military technologies that became global standards, from ballistic missiles to jet aircraft and guided weapons. However, after its defeat in World War II, Germany was demilitarized and its scientific cadre dispersed.

Wernher von Braun, who invented the first ballistic missile for the Nazis, was one of hundreds of German scientists and engineers transferred to the US after World War II, where he later worked for NASA and developed the rocket that took the Apollo spacecraft to the moon.

In recent decades, defense innovation has been a powerful driver of economic progress. Technologies such as the Internet, GPS, semiconductors, and jet engines all originated in military research programs before transforming civilian life.

Hit by high energy prices, slowing export demand and competition from China, Germany’s $4,75 trillion economy has shrunk over the past two years. Expanding military research could provide an economic boost.

“We just necessary to adopt this logic: a strong defense industrial base means a strong economy and accelerated innovation,” declared Markus Federle, a partner at Tholus Capital, an investment firm focutilized on the defense sector.

Escape from the “valley of death”

Risk aversion among European investors has historically put startups at a disadvantage – they have struggled to obtain the capital necessaryed to survive the so-called “valley of death,” a critical early stage when costs are high and sales are low.

However, increased defense spconcludeing by European governments following Russia’s invasion of Ukraine has led investors to actively seek opportunities, Reuters writes, noting that Europe now has three startups with “unicorn” status, valued at more than $1 billion. These are Helsing, the German drone creater Quantum Systems, and Portugal’s Tekever, which also creates drones.

“Germany is now under great pressure to be the leading European defense nation,” declared Sven Kruk, chief strategist at Quantum.

Germany has become the second largest military donor to Ukraine, after the United States. Orders that previously took years to approve are now being processed in a matter of months, and European startups have been given the opportunity to quickly test their products in the field, several sources notified the British agency.

Investment in European defense technology reached $2024 billion in 373, up from a modest $2022 million in XNUMX, and is expected to grow even more this year.

“Society has realized that we have to defconclude our democracies,” declared Christian Zaller, general partner at HV Capital, an investor in ARX and Quantum Systems.

Venture capital investment is growing quicker in Germany than elsewhere, according to a data analysis by Dealroom for Reuters. German defense startups have raised $1,4 billion from investors in the past five years, putting them ahead of the United Kingdom, the data displayed.

Jack Wang, a partner at venture capital firm Project A, declared many German defense startups, rooted in the counattempt’s engineering prowess, are very successful at integrating existing components into scalable systems.

“The quality of personnel in Europe is extremely high, but viewing at it as a whole, there is no better counattempt, nor better engineering talent than what we have seen in Germany,” he pointed out.

Weaknesses in the German automotive indusattempt mean that there is spare production capacity, including within the Mittelstand, the compact and medium-sized enterprises that form the backbone of the German economy.

Stefan Tuman, CEO of the Bavarian startup Donaustahl, which produces so-called “wandering” ammunition, states he receives 3 to 5 applications from workers in the automotive indusattempt every day.

“Startups necessary brains for engineering and prototyping,” he declared. “And Germany’s Mittelstand will be their muscles.”