Venture capital investment in defense startups worldwide hit its highest level in a decade for a half-year period in the first six months of this year. Money is flowing into the sector as artificial intelligence and drones change the nature of warfare.
Defense startups raised $40.8 billion from venture capital firms between January and June 2026, up 56% from a year earlier, according to data compiled by PitchBook and reported by the Nikkei on the 5th. The total already equals 74% of last year's full-year figure, raising the likelihood that 2026 will set an annual record.
At the center of the trend is Anduril Industries, a U.S. defense startup that develops drones and weapons-control software. Anduril raised $5 billion in May at a valuation of $61 billion. Andreessen Horowitz, a major U.S. venture firm that has pushed into security investments and hired a former senior U.S. military official as a special adviser, was among its backers. Anduril is expanding into Japan, Britain and Australia.
Europe is seeing similar moves. Stark, a German drone developer, raised 500 million euros in June to expand production capacity. In Germany, the government as well as private investors is actively backing startups.
Startups with defense technology are also attracting capital in Japan. Sakana AI, an AI developer, raised 31 billion yen in the first half of this year as it expands into defense. In July, it signed a contract with Japan's Defense Ministry for a pilot project using AI for intelligence analysis.
The surge in investment reflects a rapidly shifting global security environment. The war between Russia and Ukraine that began in 2022 has dragged on, and a war between the United States and Iran has added to security concerns in many countries. At the same time, advanced technologies such as AI and drones have emerged as decisive variables in warfare, prompting governments to secure capabilities for a new kind of conflict.
AI-based data analysis software developed by Palantir of the United States was used in the U.S. military's strikes on Iran, while drones have become a central weapon in the Russia-Ukraine war. As AI and unmanned aircraft prove their effectiveness in actual combat, the value of related startups is being reassessed.
Startups also develop technology faster than the large contractors that have long dominated the defense industry. Traditional defense companies often need years to develop and procure weapons systems, while startups are seen as able to build new technology and deploy it in the field relatively quickly.
With geopolitical tensions persisting, investment in defense startups is expected to keep rising for some time. The Nikkei said funds will continue flowing into the defense sector because geopolitical risks, including tensions in the Middle East, are increasing.
