Once considered off-limits back in the earlier days of ESG investing, defence-related companies are now seen as the hottest area by those in the European venture capital and private equity sector.

In a sign of how large a “vibe shift” has taken place in investment attitudes since the Russian invasion of Ukraine in 2022, a study of Europe’s private equity and venture capital sector finds that defence is the leading sector for growth expectations.

Some 74 per cent of general partners see it as the stronger driver of growth (74 per cent), overtaking deep tech and AI. (Data from UK-headquartered investing and trading platform IG came to a similar conclusion on the defence side, as reported here.)

The findings, which come from Invest Europe, the pan-European industry group, and Arthur B Little, management consultants, appear in a report entitled The Insight: State of the European Private Equity Industry.

Almost half of GPs are open to investing in dual-use technologies, and nearly a third of LPs are now comfortable with purely military applications, up from just 7 per cent in 2022, the study said. 

A number of investments managers and banks, such as ABN AMRO and Deutsche Bank, have ramped up their defence investment efforts recently. ABN AMRO is committing €10 million ($11.43 million) to the Keen Venture Partners’ European Defence and Security Tech Fund. BNP Paribas Asset Management has also announced a new fund to capitalise on the new investment landscape. See here and here.

Private equity and venture capital fundraising reached €54 billion ($62.4 billion) in the first half of 2025 – down 19 per cent from a year ago. While total investment came in at €49 billion, down 12 per cent compared with the same period in 2024, venture capital investment grew to €10 billion, an 8 per cent year-on-year increase, its strongest performance since early 2022, fuelled by activity in the ICT sector.

General partners are more bullish about fundraising, with 45 per cent expecting higher levels of activity, particularly as widening access to such investments from ordinary investors – “democratisation” – is happening. More than half of GPs are interested in marketing funds to mass-affluent investors with wealth up to $500,000, while almost a quarter are interested in accessing the broader retail market.