The funding is now in place. From January 2025 to June 2026, the FTSE 350 Aerospace & Defence Index climbed by more than 85%, while investment in European defense startups reached €7.4 billion ($8.4 billion) during 2025. At the same time, the European Union’s €150 billion SAFE financing initiative has linked major procurement opportunities to the ability to rapidly scale production using supply chains largely based within Europe.
Europe’s issue is not a shortage of innovation. The real challenge lies in converting promising ideas into large-scale operational capabilities. Joint ventures (JVs), often viewed as a key mechanism for achieving this, frequently struggle to move from concept to meaningful delivery.
The rationale behind a JV remains compelling. By combining the agility and innovation of a startup with the manufacturing capacity, customer relationships, and institutional credibility of an established defense contractor, both parties can bring capabilities to market faster than they could independently. In many cases, a JV is preferable to a full acquisition, particularly when national security concerns, foreign ownership restrictions, or uncertainty about long-term compatibility make outright ownership impractical. Rather than being a halfway measure, a JV is often the most effective structure for tackling challenges that alternative arrangements cannot easily address.
Several recent partnerships illustrate this model at its best. In 2025, Rheinmetall and ICEYE established a venture focused on satellite production. More recently, Helsing and OHB joined forces through the KIRK initiative, integrating artificial intelligence for battlefield applications with satellite manufacturing expertise. These collaborations stand out because each participant contributes capabilities that are difficult for the other to replicate. Notably, KIRK emerged from an earlier collaboration, highlighting how successful partnerships often evolve gradually rather than appearing fully developed from the outset.
Why, then, do so many ventures lose momentum? Two obstacles are widely recognized, while two others are frequently underestimated.
Common Challenges
The first challenge is speed. For startups and innovators, time is often their most critical resource. Processes that seem routine within large organizations can consume valuable funding and delay the rapid development cycles that modern software-driven defense technologies require. When a JV adopts the pace of the larger partner, much of its strategic advantage can disappear.
The second issue is control. Software development depends on continuous refinement and quick decision-making. If even routine technical choices require approval through lengthy corporate procedures, progress inevitably slows. Although governance structures may appear balanced on paper, excessive oversight can stall development and prevent capabilities from reaching operational use.
Less Obvious Challenges
A third issue stems from differing views of value. Established defense companies typically assess worth through tangible assets such as manufacturing facilities, order backlogs, and long-term infrastructure investments. By contrast, much of a technology innovator’s value resides in software, proprietary algorithms, and the ability to adapt products rapidly.
Companies such as Helsing, valued at more than €12 billion, and ICEYE, valued above €10 billion, derive most of their worth from intangible assets rather than physical infrastructure. Applying traditional hardware-based valuation methods to software-focused businesses can significantly underestimate their contribution and create incentive misalignment. A more effective approach recognizes market traction, customer demand, and technological capability as meaningful indicators of value, even before major defense contracts are secured.
The fourth challenge often emerges only after a venture has been operating for several years: ownership of intellectual property and the data generated by the partnership. Without clearly defined boundaries around core technology from the beginning, innovators may become dependent on a single industrial partner, limiting their ability to pursue other opportunities and potentially weakening their long-term value. What may seem like a minor valuation disagreement during negotiations can grow into a significant source of tension over time. Questions surrounding ownership rights, licensing arrangements, and exit mechanisms are far easier to resolve before commercial pressures intensify than after they arise.
Addressing these issues does not require complex financial structures. Instead, it demands transparency regarding the value each party contributes and receives. Innovators should quantify the advantages gained through access to certified production facilities and accelerated procurement pathways. Established contractors should assess the cost and time required to develop similar capabilities internally. Both sides should also agree in advance on how economic benefits will be shared if the technology becomes central to winning major programs. One emerging trend deserves particular attention. Partnership activity is increasingly concentrating around a small number of major industrial players rather than spreading evenly across the sector. Companies such as Rheinmetall are becoming repeat JV partners across multiple capability domains. As these collaborations evolve from informal market-access agreements into equity-backed ventures with substantial strategic importance, rigorous valuation practices become essential. Europe’s defense ambitions will ultimately depend on partnerships designed for long-term success—ventures where questions of ownership, governance, value, and exit are resolved at the outset rather than after conflicts emerge.
