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# Can CEE Defense Tech Deliver?
- URL: https://www.therecursive.com/can-cee-defense-tech-deliver/
- Published: 2026-11-04T13:35:15.000Z
- Updated: 2026-11-04T13:35:15.000Z
- Description: Three new reports examining venture capital, hybrid security threats and dual-use innovation reveal a growing defense technology across Europe's eastern flank. Yet behind record investment figures, questions remain about where capital is flowing.
- Author: Teodora Atanasova
- Tags: Defense Tech, Analysis, report, dual-use tech

In 2026, Europe's defense technology sector is attracting **unprecedented investor attention**. Venture capital investment in European defense tech startups surged [approximately twelvefold between 2021 and September 2026](https://resiliencemedia.co/state-of-defence-tech-2026-european-defence-startup-funding-to-quadruple-to-10-5b/?ref=therecursive.com). For comparison, VC investment in European AI startups grew roughly [1.7-fold between 2021 and 2025](https://www.ft.com/content/523ee7a9-489a-4f68-8aae-3f98c336b479?syn-25a6b1a6=1&ref=therecursive.com), although the figures cover different periods and datasets. 

However, while venture capital is flowing into [technologies associated with security and resilience](https://www.therecursive.com/europes-defense-tech-boom-has-a-funding-problem-and-its-not-a-lack-of-capital/), the region's exposure to hybrid threats and persistent barriers to military procurement reveal a **more complicated picture**.

**Three reports published in October 2026** approach this transformation from different angles. 

- [*Tough Tech by the Tough Ten 2026*](https://www.investingfordefense.com/?ref=therecursive.com) examines investment patterns across ten countries stretching from Finland to Bulgaria.
- [*Europe's Hybrid Threat Outlook*](https://www.osavul.cloud/blog/hybrid-threat-outlook?ref=therecursive.com), published by [Ukrainian-founded security intelligence company Osavul](https://www.therecursive.com/osavul-ceo-government-realizes-it-cannot-protect-everyone/), assesses the changing nature of security threats across the continent.
- Meanwhile, the third volume of [Balnord's *Dual-Use Founders Handbook*](https://resources.balnord.vc/dual-use-handbook?ref=therecursive.com), titled *Building European Champions: Architecture of Resilience*, examines what it takes to transform emerging technologies into commercially viable and operationally relevant capabilities.

Taken together, the findings suggest that Europe's defense technology challenge is shifting from attracting investment to **ensuring that funding reaches critical technologies**, startups can secure military contracts, and promising innovations move from prototypes to large-scale production.

## Europe's eastern flank is attracting a growing share of venture capital

Investment in defense, security and resilience technologies has accelerated significantly across CEE and the Baltic region.

According to *Tough Tech by the Tough Ten 2026*, venture investment in Tough Tech companies across Finland, [Estonia](https://www.therecursive.com/tag/estonia/), [Latvia](https://www.therecursive.com/tag/latvia/), [Lithuania](https://www.therecursive.com/tag/lithuania/), [Poland](https://www.therecursive.com/tag/poland/), [Czechia](https://www.therecursive.com/tag/czech-republic/), [Slovakia](https://www.therecursive.com/tag/slovakia/), [Romania](https://www.therecursive.com/tag/romania/), [Hungary](https://www.therecursive.com/tag/hungary/) and [Bulgaria](https://www.therecursive.com/tag/bulgaria/) reached approximately **$1.7 billion by October 2, 2026**, compared with $994.5 million throughout 2025\. The countries were strategically selected for their role in securing NATO's eastern flank.

The report projects that investment could reach $2.3 billion by the end of 2026, although that figure remains a forecast rather than recorded investment.

The sector is also capturing a growing proportion of the region's overall venture capital market. In 2026 to date, **Tough Tech accounted for 56% of venture investment across the ten countries**, compared with approximately 10% in 2024\. It also represented 87% of the region's deep-tech investment.

> Looking at the broader period from 2024 to 2026, the report finds that Tough Tech attracted 32% of venture capital in the ten countries, compared with 16% across the rest of Europe and 8% in the United States.

The "Tough Tech" category extends beyond conventional [defense technology](https://www.therecursive.com/tag/defense-tech/) to include space, [quantum computing](https://www.therecursive.com/tag/quantumtech/), advanced sensing, security and other science- and engineering-led technologies relevant to resilience.

The shift is taking place alongside rising military expenditure. According to the same report, the Tough Ten countries allocate **an average of 3.3% of GDP to defense, exceeding both the NATO average of 2.9% and the US figure of 3.2%.**

## A funding surge concentrated in a few technologies

Despite the rapid growth of Tough Tech investment, capital remains heavily concentrated in a limited number of technological segments.

According to *Tough Tech by the Tough Ten 2026*, **space and quantum technologies attracted 84% of the region's Tough Tech venture funding in 2026**, and 72% of the total recorded since 2020.

The report identifies companies such as [Polish-Finnish satellite operator ICEYE](https://www.therecursive.com/polish-finnish-iceye-reaches-decacorn-status/) and quantum computing company IQM as examples of the region's established technological strengths.

By contrast, command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR), advanced materials, drones and ground robotics collectively attracted **just 2% of Tough Tech investment in 2026**.

Six additional segments, ranging from advanced sensing to maritime robotics, recorded no disclosed funding value during the same period.

The distribution does not necessarily mean these technologies are receiving insufficient resources overall. Venture capital represents only one part of defense innovation financing, alongside **public research funding, military procurement, industrial investment and other sources**.

Nevertheless, the figures raise questions about how closely private investment priorities align with the capabilities required by European armed forces and security institutions. The same report identifies growing investment in counter-drone technologies, with companies in the segment raising **93% of their cumulative funding since 2020 during 2026 alone**.

The result is an uneven landscape; some advanced technologies are attracting large rounds and international investors, while **other strategically relevant areas remain comparatively small venture capital markets**.

> This imbalance raises questions about how closely investment priorities reflect Europe's evolving security needs, particularly as threats increasingly **extend beyond conventional military operations.**

## Hybrid threats are expanding

The scale of these challenges is particularly evident along Europe's eastern flank. According to Osavul's *Europe's Hybrid Threat Outlook 2026*, the countries bordering Russia, Belarus and Ukraine face **disproportionate exposure** to Russian-linked hybrid operations.

The report finds that eight EU member states along this frontier — Poland, Lithuania, Latvia, Estonia, Finland, Romania, Slovakia and Hungary — represent approximately **18% of the EU's population but account for 60% of Russian-linked incidents** recorded in the report's Janus knowledge base.

Poland and Estonia alone account for approximately two-fifths of those incidents.

These figures describe the incidents included in **Janus's selective, open-source database**, rather than a comprehensive count of all hybrid attacks in Europe. The report acknowledges that coverage is stronger in Germany, Poland and the Baltic states than in parts of Southern Europe. The findings nevertheless highlight the particular security exposure of countries that are also developing increasingly active defense technology ecosystems.

Osavul's analysis identifies a changing pattern in the targets of suspected and attributed sabotage operations. While earlier incidents frequently involved commercial premises and warehouses, **more recent cases have concerned railways, airports, defense manufacturers and logistics infrastructure** connected to support for Ukraine.

Aviation has become an especially important area of concern. According to the report, **aviation-related incidents accounted for 50% of Russian-linked cases** recorded in its EU dataset for 2025–2026, compared with 19% in 2024 and none in 2022–2023.

**Energy infrastructure and industrial control systems** are also part of the emerging threat landscape. Osavul highlights a destructive cyberattack against Polish wind and solar facilities and [a combined heat-and-power plant on December 29, 2025](https://www.reuters.com/technology/polish-officials-blame-russian-domestic-spy-agency-dec-29-cyberattacks-2026-01-30/?ref=therecursive.com), which Polish authorities subsequently attributed to Russia's FSB.

> At the same time, **the report cautions against automatically attributing every suspicious incident to Moscow**. Several incidents involving European defense companies remain unresolved, and some widely reported infrastructure disruptions have been attributed to accidents or other causes.

For Europe's defense technology ecosystem, securing critical infrastructure, protecting communications, detecting hostile activity and maintaining operational continuity are increasingly important components of national resilience. These are also areas where commercial technologies, including cybersecurity, AI-enabled monitoring, autonomous systems and advanced sensing, **can have both civilian and defense applications**.

## More capital does not mean more defense capability

Europe's ability to convert technological innovation into operational capabilities remains a significant challenge. This is the central argument of Balnord's *Dual-Use Founders Handbook Vol. 3*.

The handbook reports that European defense, security and resilience startups raised **$8.7 billion in 2025, representing a 55% year-on-year increase**.

However, its contributors argue that **the availability of venture capital is only one component** of building a competitive defense technology industry.

The report points to Poland as an example of the structural barriers that remain. According to its executive summary, **84% of Polish military procurement goes to just ten contractors**. Such concentration can make it difficult for emerging companies to establish direct relationships with military customers, even when they have developed technically promising products.

For startups, successfully demonstrating a technology does not automatically lead to procurement contracts, recurring revenue or industrial-scale production. **Military customers require** testing, certification, integration, maintenance and long-term reliability. Procurement processes can also involve lengthy decision-making cycles and regulatory requirements that differ substantially from commercial technology markets.

The handbook therefore **argues for closer coordination** between public institutions, military customers, venture capital firms and industrial partners.

## The next challenge: Scaling Europe's dual-use companies

In the *Dual-Use Founders Handbook*, Invest Europe CEO Eric de Montgolfier points that developing **European technology champions requires a broader financing ecosystem**, including growth equity, private equity, infrastructure funds, banks and institutional investors. These sources of capital serve different purposes; supporting research, product development, financing manufacturing capacity, acquisitions and international expansion.

The *Tough Tech by the Tough Ten* report points to another development in the investment landscape: the number of participating investors in recorded regional Tough Tech rounds stood at 57 in 2026 to date, compared with 113 across the full year of 2022.

Although the reporting periods differ, the figures suggest that **growing investment volumes are not necessarily accompanied by a broader investor base**. Larger financing rounds may be helping more mature companies expand, but the availability of capital across earlier stages and less established technological segments remains an important topic.

### Growth through acquisitions?

The handbook also examines the emerging market for dual-use acquisitions. Its analysis identifies **85 announced European dual-use exits between September 2025 and September 2026**, drawn from approximately 1,160 recorded technology transactions.

Among acquisitions involving hardware, space, sensing and autonomy companies, traditional defense contractors and mid-tier suppliers accounted for 27% of buyers. **Industrial groups entering defense represented another 19%**, while private equity investors accounted for 14%. Space companies and scale-ups represented 14%, and emerging defense companies and so-called neo-primes another 12%.

The findings suggest that the potential buyers of dual-use technology companies are becoming more diverse. **Industrial companies are entering defense-related markets through acquisitions**, while established defense technology scaleups are purchasing capabilities developed by smaller businesses.

For founders, this creates additional opportunities to commercialize technologies and potentially achieve exits. However, it also raises questions about **whether European countries can retain control over strategically important technologies** and production capacity as the sector consolidates.

The handbook identifies export controls, security reviews and restrictions on transferring sensitive capabilities as additional factors that can complicate acquisitions and exits. 

## Can CEE turn security pressure into industrial advantage?

Europe’s eastern flank is becoming more involved in the continents’s defense industry and technology sector. It combines scientific and engineering capabilities, growing defense expenditure, proximity to Ukraine's wartime innovation ecosystem and expanding networks of venture capital investors. According to *Tough Tech by the Tough Ten 2026*, **domestic investors now account for 50% of Tough Tech funding** across the ten countries, compared with 34% in 2020.

The report also documents emerging cross-border industrial cooperation, including Ukrainian technology designs entering production in Finland and Romania.

However, the three reports also reveal why this transition cannot be taken for granted. The concentration of investment in a few technologies and companies, **the complexity of defense procurement and the changing nature of hybrid threats all point to the need for a more coordinated approach**.

For CEE startups, the priority is turning investment into commercially viable defense technologies. Governments need to accelerate procurement and deployment, while investors must look beyond established sectors to identify overlooked opportunities.