NATO’s innovation scheme is worth €1 billion of venture capital allocated for defense startups.

NATO, with the backing of a €1 billion venture capital fund, is set to bolster the technological prowess of defense startups, aiming to enhance the military capabilities of the US-led alliance and counter competition from China. Launched last year, this innovation initiative addresses the funding gap faced by tech companies involved in military-related technologies. It comes at a time when concerns loom about Western startups lacking the financial support enjoyed by their Chinese counterparts.

The Netherlands-based fund will primarily focus on sectors such as artificial intelligence, space, and biotechnology, with a notable restriction on investments in weapons. Surprisingly, recruiting for this venture has been more successful than anticipated, attracting considerable interest and support. (FT)

Twenty-three member countries have joined the fund, establishing it as the first “multi-sovereign” VC group. Notably, Sweden, currently in the process of joining NATO, intends to participate. However, the United States, despite having the largest defense budget globally, has not committed to investing in the fund at this time. The Pentagon is closely monitoring the venture and may consider future investments.

Growing concerns in the West about Chinese advancements in sensitive technologies have spurred initiatives like this. Recent actions by the US, such as President Joe Biden’s ban on US investments in certain critical Chinese tech industries, reflect this growing apprehension.

The NATO fund has assembled a team of investors, including managing partner Andrea Traversone, to oversee its operations. This venture comes at a time when venture capitalists are increasingly drawn to the defense technology sector, thanks in part to the changing perceptions brought about by events like the conflict in Ukraine.

The fund emphasizes its commitment to translating technology into practical use and building relationships with defense ministries. By providing early-stage funding, it aims to facilitate the deployment of cutting-edge technologies within the alliance.

However, it is essential to note that the fund will avoid investments in startups involved in offensive weapons or venture firms that own such companies. This ethical stance has slowly evolved in the US, with major venture funds starting to allocate capital to startups engaged in weapons and defense systems since the Russian invasion of Ukraine.

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