European defence start-ups and small and medium-sized enterprises (SMEs) are being held back by two distinct “valleys of death” that prevent promising technologies from reaching the battlefield, according to a report overwhelmingly approved by the European Parliament on Thursday.
The report, drafted by Latvian Green MEP Mārtiņš Staķis, warns that while Europe’s smaller firms are generating innovative ideas, they often fail to secure the funding and support needed to move from prototype to production. “Our small companies invent excellent new defence technologies, but too often they never make it into production, or they end up growing in the United States or elsewhere,” Staķis said. “Our defence systems are still built for yesterday’s wars and are afraid of failure.”
The term “valley of death” refers to the precarious period when a business risks running out of cash before its products become commercially viable. The report identifies two such gaps for defence start-ups: the first occurs between developing a new technology and proving its military effectiveness, and the second between validating that technology and securing actual customers.
Funding and testing gaps
To bridge these gaps, MEPs are calling on EU funding instruments to be adapted so that successful projects receive support not only for initial development but also for securing first contracts and subsequent orders from member states’ armed forces. The report stresses that smaller companies need better access to testing facilities, military end-users, and the infrastructure required to demonstrate, validate, and certify their technologies.
Beyond funding, the report criticises the EU’s heavy bureaucracy and lengthy approval procedures, which place smaller players at a disadvantage compared with established defence contractors. It urges the European Commission to cut red tape and streamline processes to allow innovative firms to compete more fairly.
The report comes as the EU pushes ahead with its “Readiness 2030” plan, presented last year, which backs production of strategic equipment such as air and missile defence, artillery systems, missiles, ammunition, and anti-drone systems. The plan includes a €150 billion loan package and is the centrepiece of the EU’s drive to rearm by the end of the decade—a year identified by Western intelligence agencies as a potential window for a Russian attack on NATO, of which 23 of the 27 EU member states are members.
However, the ambitious rearmament agenda has faced its own challenges, with the European Commission itself acknowledging difficulties in meeting its goals. The report’s findings add to concerns that Europe’s defence innovation ecosystem is not moving fast enough to keep pace with geopolitical threats.
Industry observers note that the problem is not a lack of ideas but a failure to scale them. Many European start-ups end up seeking growth capital in the United States, where the defence market is more consolidated and procurement cycles are shorter. This brain drain weakens Europe’s strategic autonomy and undermines the EU’s goal of building a robust defence industrial base.
The report also highlights the importance of involving smaller firms in the supply chains of larger primes, such as Leonardo, whose order book recently surpassed €60 billion as defence, drones, and space activities expand. Greater integration could help SMEs gain the credibility and experience needed to win contracts.
MEPs are now urging the European Commission to act on the report’s recommendations, including the creation of a dedicated support mechanism for defence start-ups and the simplification of certification procedures. They argue that without these changes, Europe risks falling further behind in the global race for military innovation.
The debate over defence funding is also linked to broader EU budget discussions, as highlighted by German Chancellor-in-waiting Friedrich Merz’s recent proposal to tie EU budget contributions to unanimous Ukraine funding. Such political manoeuvring could affect the speed and scale of defence investments.
For now, the report serves as a stark warning: Europe’s rearmament ambitions will remain hollow if the continent cannot nurture its own innovators. As Staķis put it, “We need to move from a culture of risk aversion to one that rewards experimentation and agility.”
