News & Articles
February 26, 2026
Europe’s Security Gold Rush for Dual-Use Startups
For decades, defence innovation in Europe felt distant from everyday business. Military projects were slow, closed ecosystems dominated by government contractors. Startups stayed away. SMEs assumed defence funding was inaccessible. Many innovation teams never realised their technologies could have strategic relevance.
That reality has changed - and is changing rapidly.
As Russia’s full-scale war continues, Europe has placed security at the centre of its economic and political agenda. Rather than competing with aggression through escalation alone, the EU is doubling down on what has always been its structural advantage: technological innovation and intellectual capacity. In practical terms, that means investing in new technologies, smarter systems, and sustainable innovation models that strengthen both security and long-term economic competitiveness. For example, the European Defence Fund alone allocates around €7.3 billion for collaborative defence innovation between 2021–2027 (European Commission – European Defence Fund).
Across Europe - particularly in frontline regions like the Baltics - security has shifted from a niche policy discussion to a structural economic driver. Defence spending is rising significantly following Russia’s invasion of Ukraine, with NATO and EU data showing sustained increases across member states (NATO Defence Expenditure Report). Procurement rules are evolving. Entirely new EU instruments are opening the door to startups, universities, and even traditional industrial companies that never considered themselves “defence players.”
The result is an unusually open opportunity window.
Dual-use innovation - technologies that serve both civilian and defence applications - is becoming one of the most accessible funding and growth pathways available today. And for Latvia and the Baltics, the timing could not be more significant.
The distinction between “defence technology” and “dual-use technology” often causes unnecessary hesitation - but legally the difference is relatively clear.
Military (defence) technology generally refers to items specifically designed or modified for military use and included in the EU Common Military List, which serves as the reference framework for export controls under EU arms export rules (Council Common Position 2008/944/CFSP).
Dual-use technology, by contrast, is legally defined under EU law as goods, software, or technology that can be used for both civilian and military purposes. Regulation (EU) 2021/821 establishes the EU dual-use export control framework governing such technologies (EU Dual-Use Regulation).
Typical dual-use categories include:
Strategically, dual-use is attractive because it allows companies to build commercial revenue while accessing defence funding and procurement. For smaller ecosystems like the Baltics, this model reduces risk: companies can scale globally without relying solely on military contracts. Increasingly, EU policymakers view dual-use innovation as a key mechanism for strengthening both security capabilities and economic competitiveness. (EU Institute for Security Studies)
As European Commission Executive Vice-President Margrethe Vestager emphasised, “We need a joint approach on research and development of technologies with dual-use potential in order to strengthen our competitiveness and resilience.” (European Commission Press Release)
Several structural changes are converging at once - creating what many analysts describe as a once-in-a-generation funding environment.
First, geopolitical reality has shifted priorities. Following Russia’s invasion of Ukraine, defence spending across Europe accelerated sharply. Baltic states are actively discussing significant increases in defence budgets, with ambitions in some cases approaching the 5% of GDP range in the coming years (Latvian Ministry of Defence / policy discussions).
Second, EU financial instruments have evolved. The European Defence Fund (EDF) now allocates nearly €7.3 billion for collaborative defence research and capability development between 2021 and 2027 - a scale previously unseen in EU programmes (European Commission). Current priority investment areas include:
Third, funding institutions that traditionally avoided defence are changing course. The European Investment Bank has expanded eligibility criteria for dual-use and security-related financing, signalling that defence-adjacent innovation is becoming increasingly mainstream within European financial policy (European Investment Bank). Priority areas increasingly include:
Finally, new policy initiatives explicitly aim to include startups and SMEs. Instruments such as the EU Defence Innovation Scheme (EUDIS) are designed to reduce barriers for non-traditional players entering the defence ecosystem (EU Defence Innovation Scheme), with focus areas such as:
In short: funding is not only larger - it is structurally easier to access for companies that were previously excluded.
For many founders, EU defence funding sounds abstract. In practice, it usually follows a staged pathway from research support toward procurement opportunities.
For SMEs and midcaps, entry often begins with collaborative R&D programmes such as the European Defence Fund, which supports cross-border innovation projects and can cover up to 100% of eligible research costs (European Commission EDF programme). Horizon Europe’s security themes provide additional routes focused on civil security, cyber resilience, and dual-use technologies.
Startup-focused initiatives like the EU Defence Innovation Scheme (EUDIS) help smaller companies access consortia through matchmaking and acceleration mechanisms, while NATO programmes such as DIANA combine venture investment with testing environments.
In practice, companies typically move through:
Increasingly, grants are designed not as isolated funding, but as stepping stones toward real market access.
Grants may open the door - but procurement is where real scale begins.
For decades, defence procurement remained largely inaccessible to startups, dominated by established contractors and complex institutional processes. Today, that dynamic is shifting. Governments across Europe are increasingly using innovation procurement models, pilot programmes, and pre-commercial contracts to test emerging technologies before committing to full-scale acquisition.
This trend is already visible in the Baltic region: Estonia hosts a NATO DIANA regional hub supporting dual-use startups (NATO DIANA), Latvia operates the NATO DIANA UniLab Defence accelerator and Ministry of Defence innovation programmes enabling companies to test technologies such as counter-drone systems in cooperation with defence stakeholders (NATO DIANA Latvia news), while Lithuania’s Miltech Sandbox connects startups directly with armed forces for experimentation and capability development (Lithuania Miltech Sandbox).
For startups and SMEs, this creates a tangible pathway from innovation to revenue:
However, procurement readiness requires preparation. Companies entering the defence ecosystem must understand compliance requirements, security standards, export considerations, and the reality of longer decision cycles compared to commercial markets. The opportunity is real - but execution discipline becomes critical.
One of the biggest misconceptions is that companies must pivot entirely into military markets. In practice, many civilian technologies already qualify as dual-use without significant product redesign.
Examples are everywhere:
A clear European example can be seen in the drone industry, where companies originally focused on civilian applications such as surveying, mapping, and infrastructure inspection are increasingly expanding into defence use cases. German company Quantum-Systems, for example, has developed dual-use UAV platforms that support both commercial missions and defence applications such as reconnaissance and situational awareness, while continuing to serve both civilian and military markets.
Entering defence markets does introduce additional obligations, but they are manageable when addressed early and strategically. Before engaging with defence stakeholders, companies should critically assess their own readiness - or seek support from advisors with deep experience in defence funding and procurement environments, such as ProposalPeak.
Key considerations include:
For example, a software company joining an EU-funded defence consortium may discover that its existing cloud infrastructure does not meet required security classifications, or that certain source code components fall under export control restrictions when shared across borders. Similarly, unclear IP clauses in consortium agreements can unintentionally limit future commercialisation rights if not structured properly from the outset.
Security urgency drives political support, while strong digital ecosystems enable rapid innovation and practical implementation. At the same time, the current wave of EU defence investment is unlikely to remain this open indefinitely. Policy momentum, budget expansion, and institutional reform have created a rare alignment - one that rewards early movers.
Europe’s defence ecosystem is undergoing a structural transformation. What was once a closed industry dominated by major contractors is evolving into an innovation-driven environment where startups, SMEs, and academic teams play an increasingly central role. For Latvia and the broader Baltic region, this moment carries particular weight. High defence spending, proximity to geopolitical realities, and strong technology talent create conditions where dual-use innovation can become a major growth engine.
The movement is clear - but participation requires disciplined preparation. Companies should critically assess their own readiness or seek experienced support to navigate regulatory, strategic, and operational complexity. For organisations exploring this space, ProposalPeak helps structure that preparation and clarify positioning.
The opportunity is not limited to traditional defence companies. It extends to any business capable of rethinking how its technology contributes to resilience, security, and strategic autonomy.
Authors: Edgars Poga, CEO and Founder of ProposalPeak, and Tomass Vilks, Analyst at Venture Faculty
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