US VC Investment in European Defense Tech - A Growing Trend

A Contrarian Investor's Focus on European Defense Tech

Venture capitalists are often observed to follow prevailing trends, yet Eric Slesinger distinguishes himself through a unique investment strategy. While many American investors prioritize artificial intelligence or U.S.-centered defense technology ventures, Slesinger concentrates on identifying promising defense tech opportunities within Europe. He recently finalized a $22 million fund, 201 Ventures, specifically targeting seed-stage European defense tech startups.

From Intelligence Officer to Venture Capitalist

Slesinger’s transition from a role with the CIA to becoming a specialized venture capitalist appears remarkably forward-thinking. He explained in a TechCrunch interview that his decision stemmed from recognizing a significant change often overlooked by others. “I departed because I perceived the increasing involvement of the private sector in a competitive landscape previously understood as solely government-to-government,” Slesinger stated. “The substantial role of the private sector became increasingly apparent.”

His academic background, encompassing mechanical engineering from Stanford and a Harvard Business School degree, equipped him to effectively navigate the intersection of defense technology and commercial applications. However, it is his willingness to challenge established norms that has garnered attention from investors, founders, and industry analysts.

Identifying Untapped Potential in Europe

“I consistently seek opportunities that others avoid,” Slesinger remarked. “This inclination was a key factor in my enjoyment of my work at the CIA, where the mantra was ‘go where others don’t go and do what they can’t do.’”

Slesinger identified three key factors U.S. VCs were overlooking. Firstly, he believes “Europe possesses entrepreneurs who are equally driven, convinced, and intelligent as those found anywhere globally.” Secondly, “European governments were slow to reassess their security arrangements, resulting in a lack of critical evaluation.” Finally, he anticipates “Europe will increasingly become a focal point for gray zone competition,” encompassing activities that exist between conventional peace and open warfare.

Overcoming Cultural Barriers to Investment

A surprising challenge Slesinger encountered was cultural resistance to defense-related investments in Europe. After relocating to Madrid in 2022, he established the European Defense Investor Network, now comprising entrepreneurs, investors, and policymakers. In a 2023 Medium post, he detailed how his European counterparts were hesitant to openly discuss their investments in the defense sector.

Unlike the U.S., investing in defense tech in Europe “was considered improper, something to be undertaken but not publicly acknowledged, and certainly not discussed casually at social gatherings,” Slesinger explained to TechCrunch, adding a note of qualification. This cultural reluctance, he noted, led to “many founders reconsidering building companies within the defense space.”

A Shifting Landscape and Growing Support

This situation is now evolving, aided by the NATO Innovation Fund – the world’s first multi-sovereign venture capital fund, supported by 24 NATO allies and launched following the outbreak of the Russia-Ukraine war. The fund is a significant investor in 201 Ventures.

The emergence of promising defense tech startups, such as Munich-based Helsing, valued at over $5 billion, has also contributed to this shift. Another portfolio company, Delian Alliance Industries, based in Athens, is developing surveillance towers to counter autonomous threats and is attracting substantial investor interest.

Focus on Gray Zone Competition and Long-Term Value

With eight investments completed, 201 Ventures prioritizes technologies addressing gray zone competition, as Slesinger believes it “is occurring on a large scale in Europe and will continue for the next two decades.” He views these market anomalies as “a valuable source of alpha,” capitalizing on price inefficiencies or increased government involvement driven by the need for sovereign capabilities.

Other investments include Polar Mist, a Swedish startup producing maritime drones with advanced navigation, and ventures focused on hypersonics and subsurface mapping.

Addressing the Challenges of Defense Tech Funding

Slesinger acknowledges the extended development timelines inherent in defense tech investments. He noted in his TechCrunch conversation, “Given a typical 10-year venture fund lifecycle, we must actively seek ways to accelerate or streamline processes.”

He also suggests that “European companies should engage in more proactive lobbying efforts at earlier stages.”

A Vision Validated by Rising Investment

These observations raise questions about the potential returns for investors. However, Slesinger’s initial vision of a more independent European defense ecosystem is gaining traction as geopolitical tensions escalate and Europe re-evaluates its security posture.

Recent data from the NATO Innovation Fund and Dealroom indicates that European startups in defense and related technologies secured 24% more funding in 2024 compared to 2023, reaching $5.2 billion – even exceeding funding for AI ventures.

The potential return of President Donald Trump to office and his expressed doubts about U.S. commitment to European defense are likely to further accelerate this trend.