Balnord urges Europe to scale deep-tech for defence

Balnord has published the third edition of its Dual-Use Founders Handbook, arguing that Europe's defence readiness depends on turning deep-tech innovation into operational capability.

The report says Europe's main challenge is no longer creating new technologies, but building the procurement systems, funding routes and industrial base needed to deploy them at scale.

Balnord, a venture capital firm focused on early-stage frontier technology in the Baltic Sea region and Northern Europe, produced the publication with contributions from organisations including the EIB Group, Invest Europe and the NATO Innovation Fund.

The document focuses on dual-use technology, which it defines as a model in which companies serve civilian markets while also developing products or services for strategic or military use. It highlights fields such as artificial intelligence, autonomous systems, commercial space, telecommunications, robotics and cybersecurity, where innovation is increasingly emerging in civilian markets before moving into defence applications.

Scaling challenge

A central argument in the handbook is that successful prototypes and pilot programmes do not amount to operational defence capability. Europe, it says, must be able to certify, manufacture, integrate, maintain and sustain technologies in volumes of hundreds or thousands of systems, rather than small test batches.

Procurement practices are presented as one of the biggest barriers. Citing research based on the Kiel Military Procurement Tracker, the handbook says the ten largest contractors received 84 per cent of Poland's military procurement between 2020 and 2025, compared with 77 per cent in the UK, 66 per cent in Germany and 36 per cent in the United States.

France is highlighted as an example of change. The report says the share of defence spending going to small and medium-sized enterprises rose from 14 per cent to 25 per cent in two years.

Cybersecurity presents a different problem. Drawing on analysis by the European Cyber Security Organisation, the handbook estimates Europe's annual cybersecurity investment gap at more than €2 billion. It also says specialist cybersecurity funds invest an average of around €6 million in Europe, compared with USD $22 million in the United States.

The funding question extends beyond early-stage venture capital. The handbook notes that European defence, security and resilience startups raised USD $8.7 billion in 2025, up 55 per cent year on year, but says more capital must reach companies with the potential to become large international businesses.

"Europe's bottleneck is no longer innovation. It is our ability to turn innovation into capability," said Marcin P. Kowalik, Managing Partner at Balnord.

"The next generation of European champions will emerge when we connect deeptech with dual-use markets, align public procurement with the pace of innovation, and mobilise the long-term capital and industrial capacity needed to scale," Kowalik said.

Capital flows

The handbook says founders face a fragmented landscape of national funding schemes and application processes, draining time and resources from product development and commercial growth.

In one chapter, Dr Ari Jónsson, President of the NATO Innovation Fund, argues that the issue is less the total amount of money available than how the system is organised.

"The gap is not volume - it is coordination. Founders navigating twenty different application processes across as many national schemes spend time and resources that should go into building," Jónsson said.

He also points to state purchasing as a key commercial signal for emerging companies. "A signed Ministry of Defence contract is proof of product-market fit that no pitch deck can replicate," he said.

Another contributor, Eric de Montgolfier, Chief Executive Officer of Invest Europe, says Europe has pools of institutional capital that are not yet being directed into strategic technologies at the required scale.

"The capital exists. But it is not yet being channelled into European strategic technologies at the scale required. European pension funds and insurers committed €200 billion to European PE between 2020 and 2024. That is meaningful, but nowhere near enough when set against their overall assets, Europe's strategic investment needs and the far greater role that private markets play in many large US institutional portfolios," de Montgolfier said.

The report also points to signs of a functioning exit market, identifying 85 announced acquisitions of dual-use companies across Europe in the 12 months to September 2026.

Regional focus

The handbook places particular emphasis on Europe's north-eastern corridor, linking Poland and the wider Nordic-Baltic region with Germany. It says the area combines industrial capacity, engineering expertise, ports, logistics networks and technology development in a zone central to European security.

According to the report, the region could become a hub where dual-use technologies are developed, tested, manufactured and scaled, rather than remaining mainly a buyer of defence equipment or a transit route for allied forces. That would require stronger cross-border links between startups, investors, procurement systems and industrial operators.

The publication says dual-use investment must also cover physical and digital infrastructure, including factories, electronics manufacturing, shipyards, ports, telecommunications networks and logistics assets.

Kowalik argues that defence spending should not be seen only through the lens of military budgets. "Europe cannot respond to today's security challenges by funding armies alone. Defence investment must strengthen the wider economy, making critical infrastructure more resilient to attack and sabotage while building companies that serve both civilian and strategic markets," he said.

He added: "Dual-use is how Europe can turn defence demand into a driver of productivity, industrial capacity and long-term resilience - in peacetime and in crisis."

The handbook concludes that Europe must connect its technology strengths with faster procurement, long-term private capital, regulatory routes, talent and production capacity if it wants new technologies to move from the laboratory or pilot phase into sustained defence use.

"Europe's task is not only to develop new technologies, but to create the conditions in which they can be produced, deployed and scaled," Kowalik said. "Dual-use offers a way to turn growing defence demand into lasting technological and industrial capability."