Tech investor Klaus Hommels targets defence start-ups in Europe

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Veteran European tech investor Klaus Hommels said he would invest more than €100mn of his own money in defence start-ups, warning that it was clear even before Donald Trumpâ€s re-election as US president that Europe needed to boost its resilience. 

The German founder of venture capital firm Lakestar, who was an early backer of companies including Spotify, Facebook and Revolut, said he was willing to invest a “nine-digit sum privately in defence . . . alongside [others]†to help bolster the regionâ€s ability to defend itself.

Describing himself as an “emotional, mission-driven†entrepreneur, Hommels told the Financial Times: “We need to be more resilient, we need to build up capacity.â€

Trumpâ€s victory in the US presidential election has raised fears that the US will be much less willing to pay for Europeâ€s security. Although most countries have now met Natoâ€s designated target to spend 2 per cent of GDP on defence, experts expect the US to push for more.

It was “already clear from before that there is no way that you can keep on having that social romantic view that somebody else is bailing you out,†said Hommels, who also chairs the Nato-backed €1bn innovation venture capital fund. 

“We should as Europe have this self-esteem and the self-appreciation that we should be an independent self-governed continent with everything that belongs to it,†he added. “So the direction is pretty clear where it needs to go.â€

Alongside investing via Lakestar, Hommels said he would “also invest considerably . . . my own money on it. I think itâ€s a fantastic risk-return profile but it also has a mission . . . You need to lead with conviction.â€

European Nato partners are not doing enough to build a credible deterrence position and have scaled back defence spending 30 per cent since the 1990s, according to a new report by Lakestar on Europeâ€s capabilities. 

European leaders took an “overdose of tranquillisers†during peace time, Hommels said. 

According to Hommels, Europe has not been investing enough on fostering innovation at a time when military capabilities are changing rapidly due to the advance of technologies from drones to artificial intelligence. The research found that between 2011 and 2022, European governments allocated only about 4 per cent of their defence spending to research and development, compared with 14 per cent in the US. 

Europe also needed to ensure that it retained key capabilities, he said, with evidence that 40 per cent of growth capital for European ventures focused on “deep tech†— advanced technologies based on some form of substantial scientific or engineering innovation — coming from non-European investors.

“At some point if one motivation is sovereignty, then having the majority of the board not being European means at the end this company has no role to play in your own sovereignty,†he said.

Hommels said it was too early to say what type of companies he would invest in or what form an investment might take, and that Lakestar could also take part in any investments.

Venture investors, particularly in Europe, have long been wary of backing defence tech companies over ethical concerns but that has begun to change since Russiaâ€s full-scale invasion of Ukraine in February 2022.

While some investors remain wary of backing purely defence-focused companies, there has been a shift in sentiment towards technologies deemed to be “dual useâ€, with both civil and military applications. 

“Everybody gets it. Everybody understands that this is something we should be engaging in,†said Hommels, while acknowledging that investors†appetite would depend on the target. 

Among Lakestarâ€s existing investments is Auterion, a US-based company developing software for civil and military applications, including to power swarms of autonomous Ukrainian-made drones that can communicate with each other. Another one is Isar Aerospace, a satellite launch service provider. 

“This dual-use stuff will be the topic for the next 10 years because it is a sheer necessity, not a fashion,†said Hommels.