Recent NATO agreements to boost defence spending have sparked a renewed interest in the defence industry, marking the highest levels of expenditure since World War II.

Geopolitical tensions are prompting Western nations to enhance their domestic defence capabilities, creating a favorable environment for private investment.

Governments around the globe are expected to adopt policies that encourage private sector partnerships in defence, further stimulating private equity and venture capital investments.

Investment in the defence sector is expanding beyond traditional heavy manufacturing to encompass areas such as artificial intelligence, cybersecurity, space, communications, and dual-use technologies.

The rising prominence of defence technology is attracting private capital investors, who are increasingly focusing on software, cybersecurity, and machine learning, which offer shorter investment timelines compared to conventional defence manufacturing.

Between January and mid-March 2025, private equity and venture capital-backed investments in aerospace and defence reached approximately $4.27 billion, nearly matching the total for all of 2024.

Reports indicate that the value of venture capital deals in the defence sector has surged eighteenfold over the past decade, with notable growth since 2019.

A report from the Carlyle Group highlights that increased defence spending presents a significant opportunity for private capital, positioning private equity firms to assist governments in developing the defence industry.

Significant investments in research and development, such as the €1 billion NATO Innovation Fund, are catalyzing private investment in deep tech solutions to address defence challenges, including advancements in AI and quantum technology.

The evolution of Environmental, Social, and Governance (ESG) policies is encouraging investors to reassess their stance on defence industry investments that may have been previously overlooked.