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Defence Industry and Space
News article11 January 20243 min read

Study results: Access to equity financing for European defence SMEs

Access to financing


The resurgence of war in Europe and rising tensions have created a new urgency for the European Union (EU) to better address existing and foreseeable security and defence challenges. The European defence industry is called upon to develop the next generation of operational capabilities and the required technologies to provide additional production capacity and to build up stocks while mitigating critical dependencies along the defence value chains.

Accessing finance is key for the European defence industry - in particular for SMEs, which form the backbone of supply chains and are key innovation actors - in order to grow in the EU, maintain its competitiveness and meet the European demand in critical technologies and capabilities. Ultimately, ensuring sufficient access to finance for the defence sector is vital to the competitiveness, resilience and security of the Union.

In that context, DG DEFIS conducted a study on the Access to equity financing for European defence SMEs. This study assesses companies’ funding needs and challenges faced in access finance, with the aim to quantify and analyse the funding gap affecting SMEs companies in the European defence industrial sectors. It explores the factors driving and inhibiting private capital flow, including both equity and loans, and provides a comparative overview (between the EU, the US and the UK) of the ecosystem of private equity (PE) and venture capital (VC) funds investing in the defence sector. It also analyses how public policies and financing can incentivize the financial market and bridge equity funding gaps.

This study builds on the findings of the  Commission’s Expert Group on the European Defence Fund’s Financial Toolbox report, which offered an initial assessment of how financial instruments could enhance the resilience and innovative potential of the European Defence Technological and Industrial Base (EDTIB).  It notably takes into account the results of a survey in which more than 160 written contributions from the industry and the financial sector were received.


Key takeaways of the study:

  • The need to modernize european military capabilities and address emerging threats has raised the interest of private investors in the defence and dual-use technology sector, which identify its strategic importance and increasing market potential. Dual-use technologies are driving growth and diversification within this sector.
  • Despite this trend, SMEs operating within the defence sector still face higher barriers to accessing finance than in other sectors. According to the survey, approximately 40% of the SMEs found access to finance to be either difficult or very difficult. During 2021-2022, 2/3rd of the companies refrained from seeking equity financing and close to 50% refrained from seeking debt financing, a stark contrast to the 6.6% average among SMEs in the EU during the same period.
  • While France, Germany or Spain demonstrate a notable presence of VC and PE investors actively engaged in the defence sector, the size of this financial market remains very limited in the EU, compared to the US and UK. In particular, the EU lacks an ecosystem of specialised funds.
  • According to investors, financing obstacles are multiple: complexity and length of procurement procedure in the defence sector limiting visibility of market potential, sector-specific regulations introducing complexities and higher costs, screening of Foreign direct investment combined with a limited market of late-stage investors in the EU constraining exit opportunities.
  • Barriers to financing also arise from an overly stringent and cautious interpretation of the Environmental, Social and Governance criteria resulting in exclusion policies by banks and investment funds in the EU.
  • These barriers impede investments in critical technologies, affecting the EU's competitive edge, reducing the market value of its defence companies and holding back production capacity.
  • The study quantifies an equity financing gap in average of EUR 2 billion and a debt financing gap between EUR 1 to 2 billion for SMEs in the defence sector. These estimates are conservative since they only partially account for companies engaged in developing dual-use technologies.
  • Public sector involvement through dedicated financing appears crucial to bridge the financing gap. The US and the UK have extensive programs supporting access to finance for innovative defence companies. French defence SMEs also benefit from public programs that offer tailored loans and equity support, a feature lacking in many other EU countries.
  • Setting-up targeted equity facilities, such as the Defence Equity Facility proposed by the European Commission, can send a strong signal to the market and stimulate the development of an ecosystem of private funds in the EU investing in the defence sector.


Full study available here: Access to equity financing for European defence SMEs - Publications Office of the EU (


Publication date
11 January 2024