Over the course of 2024, the Ukrainian defense tech industry experienced significant growth and challenges. The number of active private investors grew, the Brave1 defense cluster organized numerous events — both domestically and abroad — and Ukraine purchased homing UAVs for the first time.
AIN takes a look at the key trends and future prospects for Ukraine’s defense market.
Developments in defense tech abroad
First, let’s examine how defense tech has evolved beyond Ukraine’s borders.
In the summer of 2024, Finnish investor Jonas Dromberg described defense technology as an “underdeveloped industry” in Europe. His observation aligns with Sifted data: European defense tech startups raised an average of €4.8 million during seed rounds — less than hydrogen and nuclear energy startups (€6 million) and electric vehicle startups (€7.6 million).
Clearly, many European investors still struggle to grasp that the confrontation between democratic and non-democratic forces in Ukraine has broader implications for Europe. A telling example came in July 2024, when Helsing — one of Europe’s most prominent defense tech startups — raised €450 million in a Series C round. Notably, only the Estonian-British venture capital company Plural and Swedish defense giant Saab participated from Europe; the remaining investors were American.
However, in 2024, Central and Eastern European startups attracted increasing attention from private European investors. Take, for instance, the Latvian startup Origin Robotics, which is developing compact UAVs capable of delivering laser-guided strikes. This year, the company secured €2.4 million in pre-seed funding from Change Ventures and Silicon Roundabout Ventures.
The Estonian company SensusQ also had a successful year. Specializing in a SaaS platform for command, control, communications, and intelligence, it received €3.8 million from the US-based company New North Ventures. Meanwhile, the Lithuanian startup Unmanned Defense Systems, which develops UAVs and their management software, raised €3.2 million, led by Lithuania’s Coinvest Capital.
Eastern European startups didn’t rely solely on private investments. In 2024, the Directorate General for Defense Industry and Space announced the winning projects of the third round of the European Defense Fund. According to the French Foundation for Strategic Studies, CEE SMEs were among at least 50 of these winning projects.
Notable initiatives include the BadB GNSS-free navigation tool and the LINGUARISE-DC platform, which employs Human Language Technologies to improve communication during joint EU military missions. Additionally, the Lithuanian and Polish startups Astrolight and REVOBEAM were selected for the second phase of the NATO DIANA accelerator, receiving grants of $300,000 each.
The state of the Ukrainian defense tech market
Potential and talent
Yaroslav Azhniuk, founder of UAV startups — The Fourth Law and Odd Systems — has a long list of challenges and opportunities within Ukrainian defense tech. These range from the need for computational fluid dynamics to develop more advanced cruise missiles to new semantic segmentation methods that could enable autonomous navigation over the sea despite the ever-changing water surface.
According to Azhniuk, tackling such complex issues requires people with highly specialized expertise — far beyond just technical engineering skills.
“I am looking for motivated individuals who can work intensively,” he explains.
His companies have a hiring advantage, thanks to his established reputation from his previous entrepreneurial activity, which increases the visibility of job openings. However, many other industry players lack this advantage. Instead, they must operate discreetly to avoid unwanted attention from Russian forces.
Furthermore, Ukraine’s labor market is expected to remain tight in 2025. According to the Center for Economic Strategy, job seeker activity in 2024 was lower than in 2022 and 2023. Even if hostilities subside, the labor market may not necessarily improve. Volodymyr Landa, senior economist at the Center for Economic Strategy, suggests that Ukraine could face a more severe shortage of human capital than financial capital for the first time in modern history.
As for employee retention, mobilization remains a major challenge. “We believe that defense industry representatives should be granted 100% exemption from mobilization,” says Yevhen Tretyak, co-founder of Frontline Robotics. The company has developed the Linza and ZOOM drones, as well as a turret for the Burya grenade launcher.
Currently, only 50% of all employees eligible for military service in the company are exempt. Tretyak explains his opinion:
“Defense tech companies have assembled highly specialized experts in their fields, and the loss of even one employee can halt the development of promising defense technologies that could significantly enhance the capabilities of the Ukrainian Defense Forces.” At the same time, Tretyak acknowledges that 2024 was a breakthrough year for streamlining this process, thanks to the reservation mechanism introduced through the Diia platform.
However, this is not the only reform the Cabinet of Ministers introduced regarding mobilization exemptions. On December 1, 2024, an updated resolution came into effect. Previously, the Minister of Defense could authorize the exemption of more than 50% of employees eligible for military service only for the National Police and the State Emergency Service. Now, this provision extends to critical enterprises.
However, there is a catch: companies categorized under the Ministry of Strategic Industries are excluded from this exemption process. This poses a significant challenge for many Defense Tech firms, explains Olesia Dyachyshyn, co-founder of LifesaverSIM, a game-based simulator for first aid and tactical medicine training.
At the same time, part of the industry can qualify for exemption through the Ministry of Defense. To do so, a company must have a contract with the Ministry for the supply of defense goods or services. However, this requirement creates a vicious cycle: a company cannot secure full exemption without a Ministry contract but cannot obtain such a contract while its products are still in development. Without exemption, assembling and retaining a stable team of highly specialized engineers becomes nearly impossible.
Thanks to recent policy changes, it is at least theoretically possible to implement what Natalia Kushnerska, head of the Brave1 Defense Tech cluster, proposed back in 2023: to grant full exemptions to “specialists involved in priority projects for the Security and Defense Forces.”
However, even meeting existing requirements does not always guarantee the granting of critical status. For instance, a Cabinet of Ministers resolution allows the Ministry of Defense to categorize companies as critical if they “provide training, retraining, and advanced training of military personnel in first aid under programs approved by the General Staff of the Armed Forces or the Ministry of Defense.”
LifesaverSIM boasts over 90,000 registered users, nearly half of whom are active military personnel. The project successfully passed a closed evaluation by military higher education institutions and training centers and received a recommendation for implementation. Additionally, Anatolii Kazmirchuk, a commander in the Armed Forces of Ukraine, expressed his support for the simulator. LifesaverSIM even won first place in the Ministry of Defense’s competition for training simulators. Yet, despite these achievements, the Ministry of Defense has not responded to the company’s requests for the status of a critical enterprise.
Image source: LifesaverSIM screenshot
The startup also appealed to the Ministry of Strategic Industries—first in August and then again in October. In December, the ministry replied that LifesaverSIM does not meet the criteria for “the development, manufacture, repair, modernization, or disposal of weapons, military and special equipment, and ammunition.”
“We thoroughly examined the regulatory framework and discovered that no reservation procedures exist for developers of exclusively software-based defense solutions, such as ours,” says Dyachyshyn.
She warns that without public attention and systematic action, critical specialists will be mobilized, teams will disband, and promising innovations will be lost.
“The relevant ministries must urgently amend their regulations to ensure critical status and exemptions for specialists from innovative defense startups. Furthermore, defense tech development should be overseen by a dedicated state institution with sufficient authority and civilian oversight,” she concludes.
The state and weapons
Regarding state funding, the 2025 budget allocates approximately UAH 740 billion for arms procurement. This represents about a 2% increase compared to 2024, but if inflation accelerates as forecasted, the real purchasing power may see little to no growth.
- Efforts to attract foreign state funds for Ukrainian arms production under the ZBROYARI: Manufacturing Freedom initiative have exceeded expectations. Instead of the ambitious $10 billion target, publicly known commitments stand at just $1 billion. Additionally, there are no signs that local communities will increase defense spending — despite the parliament’s support in mid-2024 for a bill allowing such expenditures from regional budgets, it has yet to be signed by the President.
- Finally, it remains uncertain whether Ukrainians will contribute more to charities and volunteer organizations next year. In 2024, the Come Back Alive Foundation raised UAH 4.2 billion, marking a ~6% decrease compared to 2023. Despite seasonal fluctuations, the number of donors has remained relatively stable, with no significant upward trend.
- In short, a substantial increase in defense procurement spending is unlikely. As a result, Ukrainian production facilities will continue to be underutilized, mirroring the situation in 2024. The Ministry of Strategic Industries estimates that in 2025, Ukrainian industry could produce $20 billion more than the state can afford to purchase.
One potential solution is to manufacture defense products — including high-tech solutions —for Ukraine’s allied armed forces. However, an export ban remains in place. Throughout 2024, the Technological Forces of Ukraine (TSU), an association of defense companies, lobbied for its removal.
TSU Executive Director Kateryna Mykhalko notes that public attention to the export issue has led to some progress: the Verkhovna Rada Committee on Economic Development held a special meeting, and Defense Minister Rustem Umerov invited TSU representatives for discussions.
In October 2024, Umerov stated that he “does not reject” lifting the ban and would submit a proposal to the country’s leadership. However, no concrete decision has been made yet, and according to a survey by the Ukrainian Business Association, most private producers expect only 30% of their production capacity to be utilized in 2025.
Still, optimism persists. “We hope for a decision on exports in the coming months,” says Mykhalko, adding, “There’s a sense behind closed doors that it’s possible.”
Market structure
As of December 2023, the Brave1 initiative had approximately 800 registered startups — an impressive 75% growth within a year. But has the market reached its limit in terms of new startups?
“For every tech problem, there can be 100 companies trying to solve it,” says Azhniuk, emphasizing the diversity of solutions in the sector. Kateryna Bezsudna, co-founder of the Defense Builder accelerator, predicts that fewer than 100 new startups will emerge over the next year.
Deborah Fairlamb, co-founder of Green Flag Ventures, believes the sector is approaching a consolidation phase, explaining that professional investors focus on teams, not just products.
“As the market consolidates, we’re likely to see more companies capable of attracting and absorbing investments,” Fairlamb suggests. She praises the efforts of teams currently producing FPV drones and other systems for the front lines but cautions that “in the long run, many of these teams may not evolve into full-fledged companies.”
Marc Wietfeld, founder of a German robotics startup, previously expressed similar sentiments, emphasizing the need for Ukraine’s Defense Tech sector to unite for better access to European markets.
Kateryna Bezsudna echoes this outlook, stating, “2025 will be a year of integrations — startups collaborating and combining existing developments.” She anticipates potential market exits within the year but stresses the need for a foreign partner to offer favorable terms to Ukrainian developers.
Azhniuk and Fairlamb agree that in 2024, Ukraine’s Defense Tech sector remained underfunded. According to a study by the Kyiv School of Economics, the industry secured just $25 million in the first three quarters of the year.
As an example, Azhniuk points out that his previous PetTech startup, Petcube, which entertained cats by making them chase a laser pointer, has raised about the same amount of investment since its founding. When asked if the situation improved in the fourth quarter of 2024, the founder of TFL and Odd Systems shakes his head negatively.
This lack of attention might suggest that Ukraine’s partners still don’t see Ukrainian solutions as competitive enough despite three years of invaluable experience in a high-intensity war. However, Fairlamb disagrees:
“The issue isn’t how Ukrainians are perceived. It’s simpler than that: North Americans just don’t know enough about the innovations Ukraine has developed since Russia’s full-scale invasion. I find myself explaining it from scratch almost daily.”
Despite this, some companies have backed Ukrainian defense startups. In 2024, public records highlighted such companies’ activity with significant foreign private capital:
However, even basic calculations reveal a gap between publicly known investments and the $25 million estimate. Both investors and developers often avoid excessive publicity for two key reasons:
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Physical safety risks: Disclosing such information can directly threaten investors. For instance, Russian special services reportedly considered assassinating Armin Papperger, CEO of the German defense company Rheinmetall, which is building facilities in Ukraine. As Russian sabotage efforts abroad escalate, targeting investors in Ukrainian Defense Tech could be seen as a means to intimidate future partners.
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Public perception of military investments: The most significant foreign private investment publicly disclosed in 2024 was made in Esper Bionics, a startup developing intuitive bionic prostheses. Though tied to Defense Tech, such projects are less battlefield-oriented and more palatable for investors hesitant about direct military applications.
This hesitation often stems from the perception that investing in weapons is unethical or fuels conflict. However, this stance may shift in 2025. Throughout 2024, a growing coalition in the West — academic institutions, journals, banks, consulting firms, and the European Commission — emphasized the critical role of private investment in the defense sector.
This shift wasn’t just rhetoric. According to S&P, while global venture capital investments declined in 2024 compared to 2023, investments in defense startups increased.
Building stronger international networks
How can Ukrainian defense tech startups strengthen ties with foreign partners? Yaroslav Azhniuk proposes creating a “defense valley” — a cornerstone of a new national strategy. The idea is to position Ukraine as indispensable to NATO in Defense Tech, much like Taiwan is in microchip production.
This strategy would leverage Ukraine’s existing talent and experience while implementing measures like strategic communication, lifting the defense export ban, creating a free economic zone, and enhancing the investment climate.
Deborah Fairlamb agrees but emphasizes that transformation must also occur beyond Ukraine. For example, securing a procurement contract with the US Department of Defense significantly boosts credibility with American investors. However, the process is notoriously slow, often taking more than six months — a timeline that can challenge Ukrainian startups.
Read more: Millions of dollars for military development. 15 active investors in Ukrainian Defence Tech
“American officials won’t change their procedures for people they just learned about yesterday,” Fairlamb notes. “But the need for faster action is obvious — not just to Ukrainians.”
In March 2024, the US Senate’s Commission on Defense Planning, Programming, Budgeting, and Execution Reform presented its recommendations. These primarily focused on improving the Pentagon’s internal processes, including data collection, internal communication, decision-making, and reallocating congressionally approved funds between budget lines. The reforms were deemed essential because the existing systems “did not provide the flexibility needed to innovate at an adequate pace.”
By December 2024, the US House of Representatives had passed the National Defense Authorization Act for Fiscal Year 2025, mandating the Secretary of Defense to establish a dedicated working group to implement these recommendations. But will this benefit the Ukrainian defense tech industry? It’s uncertain. As Charles Brown, Chairman of the Joint Chiefs of Staff, pointed out, contracts often go to companies with strong lobbying efforts rather than those offering the best solutions.
Nevertheless, Ukrainian defense tech startups are improving their ability to present themselves effectively. In recent years, understanding what makes a strong pitch, what information investors require, and how to communicate it has advanced significantly. Deborah Fairlamb notes that this progress is primarily thanks to initiatives like Brave1 and Defence Builder, which have provided startups with business administration training and pitching support.
Representatives of Brave1, Dignitas Fund, Defence Builder and the NGO Aerorozvidka at the START conference. Photo by Natella Bakhayev
Another recent development has been the involvement of the EU in strengthening collaboration between Ukraine and its member states. In March 2024, the EU High Representative for Foreign Affairs and Security Policy announced plans to establish a unit within the EU Delegation to Ukraine to bridge startups, EU innovators, Ukraine’s industry, and its armed forces. By fall, this vision materialized with the opening of the EU Defense Innovation Office in Kyiv. This office aims to simplify and systematize the process of finding business partners across EU member states for Ukrainian startups.
The development of these networks involves not just private capital but also EU funding. Opportunities for such collaboration already exist, and they may expand in 2025. In spring 2024, the European Commission proposed creating the European Defense Industry Program to foster cooperation between the EU and Ukrainian defense sectors. Initially, €1.5 billion was earmarked for the program, but in October, the European Court of Auditors raised concerns that this amount might fall short of achieving its goals.
After lengthy negotiations, EU member states finally agreed on criteria for companies to participate in the program by late November. However, in a worst-case scenario, the program might not become fully operational until September 2025, according to a European official who spoke to AIN on condition of anonymity.
A future against all odds
While predicting the EU’s decision-making timelines is challenging due to the complexity of its institutions, forecasting Ukraine’s progress is even more uncertain given the ongoing war. Yet both Yaroslav Azhniuk and Deborah Fairlamb stress the same point: Defense tech must become a strategic industry for Ukraine. Not only will it strengthen the country’s defense capabilities, but it will also boost its resources and economic growth. This industry must thrive even if the intensity of hostilities decreases.
