[Edaily Marketin Reporter Soyoung Park ] Global defense technology has grown rapidly since the start of the Russia-Ukraine war. In Europe, in particular, startups specializing in drones, artificial intelligence (AI), and autonomous weapons have quickly filled gaps in the existing defense industry ecosystem. These companies rapidly commercialized technologies that had been battle-tested, thereby addressing the issues of slow development and procurement speeds that plagued the traditional defense industry.

However, it has become apparent that Ukrainian startups—which are at the very center of the battlefield—have received relatively little attention from capital markets until now. Recently, though, the influx of strategic investors and global capital has gained momentum, drawing the industry’s attention.

According to global market research firm PitchBook on the 7th, Ukrainian defense startups received 28 investment deals totaling $57.2 million (approximately 87.3 billion won) from global venture capital (VC) firms last year.

Funding secured by Ukrainian defense startups has steadily increased from six deals totaling $200,000 (approximately 300 million won) in 2023 to 20 deals totaling $37.9 million (approximately 57.9 billion won) in 2024. However, analysts noted that these figures are underestimated, considering that the annual production capacity of Ukraine’s defense industry is estimated at $35 billion (approximately 53.445 trillion won).

A source in the venture capital industry explained, “The priority for Ukrainian startups has long been on the actual battlefield, not on fundraising.” This means they had to produce weapons and solutions for immediate deployment in the war without the bandwidth to go on investment rounds in the U.S. or Europe.

However, the tide is turning. This is because a Ukrainian defense company recently listed on the Nasdaq, demonstrating a successful exit (return on investment). Swarmer, an AI-based drone software company, went public on the Nasdaq last March. On its first day of trading on the New York Stock Exchange, the company’s stock closed at $31 (approximately 47,334 won), a 520% increase from its initial public offering price of $5 (approximately 7,635 won).

Recently, strategic investors (SIs) have also been actively jumping into investments in Ukrainian startups. For example, Funtar Aerospace, a Ukrainian company specializing in unmanned reconnaissance drones and mission management software, raised $10.4 million (approximately 15.9 billion won) in a new investment round led by U.S. defense contractor Axon Enterprises.

Fasite Vision, a Ukraine- and Estonia-based AI battlefield situational awareness specialist, also raised 7.2 million euros (approximately 12.6 billion won) in a seed round. This round was led by U.S.-based Axon Enterprises and the defense fund of SmartCap, an investment agency supported by the Estonian government.

Japanese defense industry and government officials are also expanding their engagement with the Ukrainian market. The Japanese government is focusing on technology development and manufacturing through startups to reduce its reliance on foreign drones. The goal is to establish a mass production system within Japan. According to Japan’s Kyodo News, Japan is also exploring ways to strengthen cooperation with Ukrainian drone manufacturers that have extensive combat experience.

In South Korea, publicly confirmed cases of direct investment and joint development remain limited. However, several domestic defense startups are conducting field tests and demonstrations on the Ukrainian battlefield. This suggests that the potential for identifying opportunities there has increased. An official in the investment banking industry described the current atmosphere, stating, “Recently, domestic venture capital firms have been visiting Ukraine one after another,” and added, “While it’s unclear whether these deals will be made public, it’s only a matter of time before investments are made in local companies.”