How SMEs and start-ups can succeed in defence tech

Increased defence spending, a higher level of technological sophistication and a new attitude among investors and financiers are attracting a growing number of SMEs and start-ups to defence tech. Developing products that can also be used in civilian applications increases the chances of success – but regulatory compliance processes need to be accelerated and investors must adopt a long-term perspective.

New security landscape drives innovation

The growing interest in defence tech was evident at Techarena 2026, Scandinavia’s largest annual business and tech event. To shed light on challenges and opportunities going forward, EKN arranged a panel discussion with participants from the defence sector, banks and start-ups. Åsa Larsson, senior underwriter at EKN, headed the discussion and offered some background.

“The global geopolitical situation has triggered a sharp increase in defence spending. Last year alone, the EU spent € 380 billion on defence equipment, and the defence sector has grown in importance at EKN to become the single biggest sector in terms of outstanding guarantee volume.”

Dual-use tech unlocks new markets

One consequence of this development is a growing focus on dual-use technology with both military and civilian applications. This is an area where Swedish tech start-ups and SMEs excel, using advanced technology in fields such as drones, drone defence and on-demand 3D printing of spare parts for field use.

“Innovations from Swedish tech startups are important in strengthening our defence capabilities. Dual-use products for military as well as civilian use increase business potential,” says Larsson.

Madelene Rydén, Director Defence at the Swedish Security and Defence Industry Association (SOFF), believes that SMEs have an important role to play in the defence sector.

“The defence sector needs technological innovation, and start-ups have a big role to play here. Products with dual-use applications benefit from being present on the commercial market as well, and drone technology is a perfect example.”

Stefan Granlund, Head of Growth & Impact at Danske Bank, agrees:

“Dual-use tech is the key to the defence sector for start-ups. Given the high barriers to entry that prevail in defence, you have to address the civilian market as well.”

Drawn-out compliance hampers innovation

The barriers to entry are largely due to the fact that defence equipment is subject to rigorous permitting and approval processes covering all stages, from initial product testing to manufacturing and prospective export orders. The panel agreed that lengthy processes make it difficult for smaller operations with limited time and funding to succeed. Without the necessary permits in place, it is hard to scale up, start selling and generate revenue.

Rydén views regulatory aspects and permitting as the single biggest stumbling blocks.

“The situation has improved, but permitting still takes too long. Together with financing difficulties, this remains the largest obstacle for SMEs and start-ups seeking to succeed in defence.”

Changing attitudes but capital remains scarce

When it comes to financing, however, the geopolitical situation has led to a shift in attitude.

“Previously viewed in the same context as porn and tobacco, defence equipment is now seen as a tool for sustainability that helps preserve a democratic society.”

Collaboration between established companies and start-ups is also seen as improving, according to Rydén.

“We are champions of the triple helix model for interaction between academia, industry and government to foster innovation. The presence of a strong aviation cluster in Linköping, including Saab and Linköping University, is a good example.”

Granlund also views access to capital as a major hurdle.

“Start-ups need capital to scale up, and many defence subcontractors are not benefiting from the increased defence spending highlighted in the media. On a positive note, risk capital appears to be returning to the defence sector: new funds are being set up, and the general acceptance of defence as a sustainable business opportunity is growing among pension funds.”

Waamlabz: Cooperation fosters success

One successful example of cross-sector collaboration is the solution for local, on-demand 3D printing of metal spare parts developed by Waamlabz in Trollhättan, which can be used for civilian as well as military applications.

The company is a spin-off from Högskolan Väst University, and CEO Eivind Vogel-Rödin emphasises the importance of collaboration.

“We would not have succeeded without key partners and an ecosystem including representatives of established companies, the local community and academia. More large corporates would benefit from cooperating with startups to to enhance their innovation capacity.”

The confidentiality surrounding defence innovation is another hurdle, as it may be difficult to attract investors to something that cannot be fully explained for reasons of national security.

“Not being able to disclose much beyond ‘it’s something inside a submarine’ may be a problem. We recommend seeking investors who are in for the long haul and really know your business,” says Rydén.

Early dialogue facilitates export

Larsson encourages emerging companies in defence and other sectors to approach EKN at an early stage.

“We are seeing great opportunities for increased export, not just to EU and Nato member states, but also to Latin America and Southeast Asia. An EKN guarantee can help early-stage companies and SMEs secure debt financing for expansion with a view to export contracts.”