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Security and prosperity are inextricably linked, and those who harness technological prowess to keep their countries safe will very likely reap the economic rewards as well.
The war in Ukraine has upended Europe’s once overly complacent view of its Eastern Flank. For countries in Central and Eastern Europe, the Russian invasion has not only rekindled memories of Soviet-era subjugation, but also hardened strategic priorities.
Governments across the region are now engaged in a brisk rearmament drive. Defence budgets are rising, and new funds are being channeled into cutting-edge technologies—ranging from drone systems to cyber defence—aimed at preserving both regional stability and NATO’s collective strength.
Estonia, with its well-earned reputation as a digital trailblazer, has been quick to seize on the moment.
The country’s newly unveiled fund for defence-tech investment exemplifies a broader regional shift away from traditional security doctrines to nimble, innovation-led approaches.
As the appetite for advanced military capabilities grows, so does the clout of emerging CEE defence-tech firms. These ventures, often known for outpacing their larger Western peers in digital savvy, are rapidly becoming indispensable allies in securing Europe’s borders and fortifying its place in an increasingly unsettled world.
Fostering innovation
Estonia’s defence fund, worth 100 million euros, has been established to support the development of innovative defence and security capabilities to meet the growing global demand for new solutions.
Managed by national fund manager SmartCap, the fund will provide direct investments to defence companies and funds investing in military and dual-use technologies.
The primary objective of the defence fund is to strenghthen Estonia’s defence industry, foster innovation and drive economic growth by investing in companies developing military or dual-use products and technologies.
“Estonia’s domestic defence industry is crucial for national security and economic competitiveness,” says the country’s Minister of Economic Affairs and Industry Erkki Keldo.
“This fund represents one of the most ambitious industrial growth strategies in Estonia’s history. Moreover, a defence fund of this size can serve as an example in Europe, as we increasingly see the need to attract capital for the development of military and dual-use technologies.”
Military and dual-use technology
The defence fund will make direct investments in seed, early-stage, and growth-stage defence companies that develop or produce military and dual-use products and technologies.
Additionally, the fund will invest in venture capital and private equity funds, helping to bring new defence-focused investment funds to the market and increasing the diversification of capital supply in the defence sector.
“The defence fund will provide new momentum for the economy, creating high-value jobs and maximising domestic defence industry production, while also supporting Ukraine,” adds Keldo.
“The launch of this defence fund is a bold and necessary step in strengthening Estonia’s security and advancing our defence capabilities,” says Hanno Pevkur, Minister of Defence.
“By establishing the fund, Estonia is leading by example in Europe, demonstrating how nations can strategically align their defence priorities with economic growth and technological advancement. This initiative also reflects our unwavering solidarity with Ukraine, as we channel resources into solutions to help Ukraine on their path to victory.”
Kalev Koidumäe, head of the Estonian Defence and Space Industry Association, said that attracting additional capital provides new opportunities for the development of new innovative products in the field of defence and security, which creates additional jobs and stimulates the economy.
“The establishment of the defence fund is a key component of the defence industry ecosystem, enhancing Estonia’s business environment and making it more attractive to foreign companies and investors. It also serves as a recognition of the defence industry sector and its growing importance.”
According to Sille Pettai, head of SmartCap, the primary goal of the fund is to lay the foundation for the development of Estonia’s defence industry by providing equity investments to companies that offer innovative technological solutions to meet the growing defence and security needs across Europe.
To achieve this, the fund will invest in companies and funds alongside private investors, making the defence sector more attractive to private capital through risk-sharing mechanisms and a clear signal to entrepreneurs that local defence technology development, industry growth, and export capacity are strategically important for the country.
The defence fund will primarily invest in Estonian companies, but it may also invest in companies from NATO member states if there is a clear strategic interest for Estonia.
Estonian companies and private sector funds with a strong Estonian presence will be prioritised in the transaction flow. Investment sizes are anticipated to be up to 10 million euros per company and 20 million euros per fund.
A watershed moment
In a region where statehood was once a precarious business, Estonia’s new fund also marks a watershed: defence tech, after years of staying in the wings, is now taking a seat at the top tables of policy and investment.
The old perception of government-run, hardware-centric arms industries is quietly being overtaken by a more collaborative model, reliant on emerging ventures that can pivot rapidly to meet tomorrow’s threats.
As this shift unfolds, any country that embraces high-tech security solutions stands to benefit on two fronts—strengthening its military readiness, while spurring an innovation-driven economy whose influence will be felt well beyond national borders.
Countries in Central and Eastern Europe, long acquainted with the vicissitudes of great-power rivalries, are thus positioned not just to bolster NATO’s eastern flank but to carve out a leadership role in future defence industries.
Estonia’s initiative underscores the coming of age for defence tech, combining venture capital disciplines with hard-nosed strategic imperatives. It is a move that reflects a broader European awakening: security and prosperity are inextricably linked, and those who harness technological prowess to keep their countries safe will very likely reap the economic rewards as well.
Top photo by AXP Photography on Unsplash. Yaghnob Valley, Tajikistan by Joel Heard on Unsplash.
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