Invest1 publisher2 min readPublished
J.P. Morgan's bankers say Europe's defence scaleups are weighing loans to build factories
European defence startups can raise equity on policy intent. J.P. Morgan's bankers say the borrowing that funds production needs signed multi-year contracts from ministries that still buy one country at a time.
The Investor · Invest desk
What happened
- Sifted counts 84 European defence deals in the first half of the year, against 28 in the first half of 2024.
- The continent now has nine defence unicorns, compared with four at the beginning of 2026.
- European defence techs sell into a buyer landscape split across multiple national militaries, where American rivals sell to the US Department of Defense.
- J.P. Morgan's Naveed Nasar said companies still struggle on the journey to multi-year contracts across multiple ministries of defence.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- contradiction Sifted describes a private market that is easier to tap and, in the same piece, a growth-capital shortage in Europe relative to the US, so the surplus sits at the early stage and the money that buys a production line is the part the evidence says is short.
- constraint Without the cross-NATO sales route Nasar asks for, every capacity commitment a hardware maker signs is underwritten against national buying timetables it does not set.
- decision A founder who funds factory expansion with a term loan takes on a repayment schedule fixed before any ministry has signed a multi-year order, and keeps the equity.
- exposure The return case Tickler describes rests on rising defence budgets, so a ministry that funds a programme without awarding contracts to these suppliers moves the returns out with it.
Deal count has tripled in two years and the unicorn list has grown by five since January [1][2]. Neither number counts a delivered system.
The money now arriving is increasingly borrowed. Max Hauer, an executive director in J.P. Morgan's German Innovation Economy team, said the bank is seeing "many companies, either instead of equity or in addition to equity, considering non-dilutive funding" [10]. Borrowed money for a plant is repaid out of orders, and orders are what Naveed Nasar, executive director of EMEA venture capital coverage at the same bank, keeps coming back to. "Capital follows contracts," Nasar told Sifted [3].
His example was British. "It's great to have signal intent. In the UK there's the Defence Investment Plan. There's lots of numbers in there: over £5bn allocated specifically for autonomous systems such as drones, which is great. But how is that then channelled through to companies that are innovating and delivering that technology? That's where we need more than just signalling," he said [4].
On the equity side he was more relaxed. "You see a number of new defence-related funds being raised right now. But even the generalists, a lot of them that we've spoken to have got defence tech on their radar," Nasar said [7]. I read the turn to debt as the tighter test of this boom: a fund can be raised on policy intent, and a facility drawn to build a factory is priced against invoices that Nasar says are not yet reaching suppliers.
The bank's own headline figure is a ten-year one. $1.5tn works out at $150bn a year on average [3], spread across industries critical to economic security and resiliency, and defence is "certainly an important sub-sector of our SRI initiative," Hauer said [13].
Every named voice in the Sifted piece works for J.P. Morgan: Tickler, Nasar and Hauer [14]. That does not make the diagnosis wrong, and it does mean the claim that procurement is the binding constraint comes from people who sell the financing. The test is order books. If the nine unicorns show signed multi-year contracts across more than one ministry over the next year, and debt drawn against them, then fragmentation was friction and the capital was well placed. If the deal count triples again with nothing behind it but allocations, the money went into prices. Sifted's account gives deal counts and unicorn counts, and no aggregate deal value, revenue or order-book figures for any of the nine [15].
What to watch
- Whether any of the nine defence unicorns discloses a multi-year contract covering more than one ministry of defence, and whether a lender's facility is drawn against it.
- Whether the UK Defence Investment Plan's £5bn-plus for autonomous systems shows up as named awards to venture-backed suppliers.
- Any NATO-level procurement mechanism that lets a startup sell once and be bought by several allied militaries.