Estonia's Tech Investors Take Defense Initiatives Amid Rising Russian Threat

Growing Defense Investments Reflect Heightened Security Concerns in the Baltic Region

Estonia, a Baltic nation with a population of 1.4 million, is emerging as a leader in central and eastern Europe's defense investment landscape, spurred by the security challenges posed by Russia's invasion of Ukraine in 2022. This strategic shift is particularly significant as Estonia and its neighboring countries, which share a border with Russia and have historical ties to Soviet governance, grapple with intensified defense needs.

Tech entrepreneur Sten Tamkivi, an early executive at Skype, emphasizes that the Estonian mindset revolves around national defense, underscoring the pervasive concern for security. He, along with his London-based partners, has tapped into their 800 million euro investment platform, Plural, to fund defense projects that align with the broader goal of enhancing European sovereignty. Tamkivi points out the increasing frequency of defense-related investment pitches and the influx of foreign investors seeking opportunities in the sector. “We need to prioritize addressing urgent defense challenges,” he asserts.

In a notable move, Plural participated in a significant 450 million euro Series C funding round for German AI company Helsing, which leverages data to enhance defense, intelligence, and national security capabilities. As reported by Dealroom.co, the proportion of European venture capital funding allocated to defense technology surged from 0.4% in 2022 to 1.7% in 2024, approaching the $1 billion mark. Although western Europe dominates the flow of investment, central and eastern Europe has seen a threefold increase in funding rounds since the onset of the conflict in Ukraine.

Estonia’s position on NATO's eastern flank enables it to play a crucial role in the region. The country is home to several tech unicorns, including Skype, Bolt, and TransferWise, which have produced a number of affluent tech executives capable of supporting emerging defense enterprises. Its geographical proximity to Ukraine facilitates collaboration with frontline units, enabling rapid testing and adaptation of new technologies. Unlike Poland, which relies heavily on public funding that restricts direct military investments, Estonia’s privately funded groups can freely invest in military technology.

Other regional initiatives are also gaining momentum. Vojta Rocek, a partner at Presto Ventures in Prague, reports that his firm has established a 150 million euro fund in collaboration with Czech arms manufacturer CSG to invest in defense-focused startups. Since last spring, the firm has assessed over 1,500 pitches, engaged with more than 600 teams, and shortlisted around 60 startups, resulting in several completed deals. Key focus areas for investment include cybersecurity, quantum computing, and artificial intelligence.

Ragnar Sass, the founder of Darkstar in Tallinn—a consortium comprising tech entrepreneurs and former military personnel—highlights that technologies with rapid deployment potential, such as drone thermal cameras and sophisticated software systems, are particularly appealing. Sass notes that the number of defense startups has surged from approximately 10 to around 100 in recent years, reflecting a significant shift in investor sentiment. “I have not witnessed such rapid development in any sector,” he remarks.

This growing interest in venture capital across eastern Europe is poised to address funding gaps that defense technology startups typically encounter due to banks' hesitance to lend, driven by concerns over environmental, social, and governance (ESG) compliance. Presto Ventures' Rocek notes, “We initially doubted the volume of pitches in the defense space, but the numbers are increasing each month.” The protracted nature of the conflict has altered perceptions, dispelling the belief that the war would conclude swiftly.

Regional governments are also stepping up their efforts. The Czech Republic has initiated a program to co-finance small businesses in the defense sector, aiming to stimulate development, according to Radka Konderlova, a defense ministry official responsible for industry cooperation. In Estonia, the government has introduced a 100 million euro fund dedicated to the burgeoning defense technology sector. Sille Pettai, CEO and fund manager at SmartCap, which oversees the fund, states that the long-term objective is to attract global investors to a tech ecosystem supported by local wealthy entrepreneurs driven by a sense of national pride. The Estonian defense industry aims to achieve a revenue target of 2 billion euros by 2030, up from the current 500 million euros, with a focus on developing disruptive offensive defense technologies. “Defending a small nation is costly. We must be strategic and leverage our strengths, which lie in technology,” Pettai asserts.