Global defense giants pour record funds into startups, up to $4.1b this year

As drones and autonomous systems upend the nature of modern warfare, the world's major defense contractors are pouring record sums into startups, the Financial Times reported Sunday.

According to data firm Dealroom, large defense contractors with longstanding ties to Western governments have participated in venture capital investments totaling $4.1 billion ($5.999 trillion won) this year alone.

Gwen Billon, a partner covering aerospace and defense at investment bank PJT, said recent conflicts have exposed the need for modern warfare to combine new technology with established platforms. "The large defense companies are trying to secure access to these technologies," she said.

The trend was on display at the recent Farnborough International Airshow in the United Kingdom. While civilian aerospace companies once dominated the event, this year defense firms made up half of the 1,636 participating companies — the highest share in the show's history.

Recent conflicts, including the war in Ukraine, have pushed governments to increase spending on weapons that can be produced quickly and cheaply — from interceptor missiles to autonomous drones.

According to data firm Dealogic, global defense-related deals this year — including mergers and acquisitions and fundraising — have reached $40 billion, putting the sector on track to surpass the annual record of $59 billion set in 2019.

As rapidly shifting battlefield conditions intensify competition, large contractors that once focused on core markets such as fighter jets, warships and small arms now find themselves having to think and adapt "like venture capital investors," the FT noted.

French defense technology group Thales has agreed to acquire Exail Technologies, a Paris-listed company, for 3.9 billion euros ($4.44 billion).

US defense giant Lockheed Martin outbid rivals with an offer of $3.45 billion for maritime technology group Ultra Maritime, and also announced it would invest at least $100 million in startups in Britain and elsewhere in Europe. Frank St. John, the company's chief operating officer, said the firm is "looking for undiscovered capabilities in Europe."

German drone maker Quantum Systems recently raised $1.2 billion in fresh funding at a valuation of $8 billion, backed by investors including Airbus, while British firm Kraken Technology announced a $175 million fundraising round with support from Rheinmetall, among others.