Dual Use Technologies –
Going Beyond the Divide
2024 Report

Defense technology has historically made up only a small fraction of the VC-backed innovation economy.

This was largely due to Limited Partner (LP) agreements that restricted VC investments in solutions with potential military applications. These restrictions were further compounded by the perceived risks of long procurement cycles in the defense sector, which made it less attractive to investors looking for faster-moving, scalable technologies.

However, we are now witnessing a transformative shift.

Emerging threats and rising geopolitical tensions are bringing Defense-Tech to the forefront of strategic importance, gradually re-establishing it as a priority for VCs. Additionally, a significant portion of the VC-backed economy has been developing technologies with potential defense applications. Our analysis, focused on NATO and allied countries, shows that fewer than 200 Pure Defense-Tech scaleups exist, accounting for just 0.3% of the 60,000 total tech scaleups. In contrast, approximately 15,000 scaleups – around 25% of the overall VC-backed ecosystem – are working on Dual-Use technologies that serve both civilian and defense purposes. This suggests that Defense-Tech could play a much larger role in the innovation ecosystem than previously recognized.

Currently, our analysis estimates that about 5-6% (700+) of these Dual-Use companies have extended their solutions into defense, marking a growing shift in the innovation landscape. Interestingly, in Israel, the conversion rate from civilian to military applications is already over 60%, suggesting a potential 10x growth opportunity for other regions. This highlights a significant, untapped potential for the defense sector to absorb a much larger portion of the existing tech innovations, particularly as geopolitical tensions continue to rise and Defense-Tech becomes a more prominent strategic focus for investors.

The World of Innovation is No Longer Flat: A New Era of National Interest

Globalization as we once knew it is fading. Emerging technologies are becoming increasingly tied to national strategic priorities, making startups less “global,” particularly in mergers and acquisitions (M&A). In this shifting geopolitical landscape, governments are placing greater scrutiny on industrial defense assets and strengthening national policies to protect key industries. Our latest Tech Startup M&A Report examines how the prioritization of national interests over open markets is reshaping the startup exit landscape.

This shift is also reflected in Mario Draghi’s recent report, “The Future of European Competitiveness”, which highlights the growing influence of governments in controlling not only M&A but also the flow of capital and fundraising activities within their innovation ecosystems. National security concerns are playing a larger role in investment decisions, particularly in Defense and Dual-Use technologies, driving innovation toward regionalization.

We believe that the scope of “contendibility” over strategic technologies will continue to narrow, as national and regional interests increasingly seek to secure and regulate these innovations. This new era marks a significant departure from the open globalization of recent decades, with national interests now taking precedence over international collaboration in critical sectors.