EUR: The EU’s DARPA-esque miltech investment plan

The ’Defense Transformation Roadmap,’ which the European Commission is due to publish on Wednesday, will support defense innovation using two interlinked pots of money in the EU’s 2028-2034 budget:

In particular, the commission is expected to clarify how the Horizon-funded European Innovation Council (EIC), until now restricted to civilian technologies, will make scale-up equity investments in defense-tech startups, as well as offering grants and equity for dual-use tech. 

The EIC’s advisory board is due to give its official opinion to the commission in December, and insiders say it’s likely to highlight a need for coordinated investments, as well as procedures for handling sensitive information. 

A source close to the matter also warned that even when the plan is up and running, EIC-funded technologies will be years away from being battlefield-ready – a stark contrast to the constant running innovation that is happening on the Ukrainian frontlines.

DEFENSE INDUSTRY TAKEAWAY: Loosening the EIC’s rules will allow small defense-tech firms in the EU, Ukraine, Norway and Iceland to apply for EIC equity investments worth up to €30 million, and potentially more in future. Dual-use tech firms will also be able to access a variety of grants and equity support. Meanwhile, larger defense firms and venture capitalists will get a signal to co-invest in new defense technologies alongside the EIC.

Launched in 2018, the EIC took inspiration from America’s Defense Advanced Research Projects Agency (DARPA). But unlike DARPA, the EIC has so far only been able to support technology with exclusively civilian applications. 

Even technologies the EIC has already funded that later turned out to have dual-use potential have been a legal headache, an insider told The Arsenal.

A 5 November agreement between negotiators for the European Parliament and EU member states, expected to be made law in the coming months, would amend the rules in Horizon Europe’s 2021-2027 budget to allow EIC grants and equity for dual-use firms, and equity alone for defense tech. 

Support for defense applications will be limited to firms in the EU, Ukraine, Norway and Iceland—excluding those in the 19 other countries that participate in Horizon Europe, such as Britain, Canada, Switzerland, Israel and Turkey. 

The commission will decide on an annual basis what geographical restrictions should apply for dual-use tech.

The EIC has a budget of €10.1 billion for 2021-2027, which gets carved up in annual work plans. The 2028-2034 budget and the rules that will govern it aren’t yet agreed, but the commission’s plan would give the EIC the lion’s share of a proposed €38.8 billion innovation fund and broader permission to fund defense tech.

The budget covers grants for early-stage development via the EIC Pathfinder and EIC Transition, plus a mix of grants and equity for commercial tech development and scaling-up through the EIC Accelerator. 

The EIC also manages part of the Strategic Technologies for Europe Platform (STEP), a separate budget created in 2024, and uses it to fund larger equity investments in critical technologies. EIC-STEP is effectively an extension of the Accelerator. 

Under the 5 November agreement, the EIC would be allowed to provide Accelerator support dual-use tech, and EIC-STEP support for defense tech, as well as dual use.

But even with the commission publishing its new ‘roadmap’ on Wednesday, the EIC’s independent advisory board – made up of academics, investors and entrepreneurs – isn’t due to give its official advice on the plan until early December.

The commission, not the board, is ultimately in charge of the EIC, but the board’s opinion carries considerable weight.  

The board’s forthcoming advice is likely to call for a strategic approach to avoid uncoordinated investments, an official close to the matter told The Arsenal. 

“You need some kind of strategy that determines the technological needs and not a hodgepodge of products,” the official said.

The official added that the EIC’s scale-up facility is built for new, breakthrough technologies: it won’t deliver military equipment that’s ready to use in just two years time.

The same official said the EIC has already funded some technologies that later turned out to have dual-use potential, forcing staff to scramble to keep the projects alive under the current rules, which only allow civil applications. The Arsenal is aware of two such instances: one involving photonics components, the other a medical product. 

The EIC board’s advice is likely to prioritize ensuring that already-funded “coincidental” dual use isn’t a problem, before addressing tech that new applicants identify as dual use—followed by dedicated defense technologies.

Commission spokesman Thomas Regnier told The Arsenal that the forthcoming legal changes will ensure that already-funded dual-use technologies “can continue to be fully supported.”

The board will likely also highlight the need for in-house expertise to deal with defense projects, the official said. It will also underscore the competing priorities the EIC already has to deal with: more defense projects could mean fewer medical projects, for example.

Another unaddressed concern is national interests. EIC financing—along with the ‘Seal of Excellence’ it awards when there’s no budget left to finance qualifying projects—are intended to attract private co-investment. 

But defense startups’ business prospects depend on their ability to sell to national governments. When governments prefer to buy from suppliers on their own territory, that puts startups in smaller member states at a disadvantage. 

Similarly, the EIC’s independence will need to be safeguarded from member states who want to push national champions, the official told The Arsenal.

Also unclear is what extra restrictions there may be on exports by EIC-financed defense companies. National governments issue arms export licenses, but the political implications of those exports become significantly more complicated if the EU owns a share in the technology. 

Our publication will be putting up a paywall in the new year. Interested in our B2B subscription packages? [Register here] to learn more

Confusion surrounding the European Commission’s planned shakeup of defense R&D funding for 2028-2034 has different commission departments making competing claims about the plan, multiple sources told The Arsenal.

A particular point of the confusion is whether a €6.4 billion budget line for “resilience and security, defense industry and space” in the commission’s proposal for next version of Horizon Europe, the EU’s flagship research program, will actually be spent on defense research.   

Besides the name, this budget line is earmarked for activities under the European Competitiveness Fund (ECF), a massive industrial development scheme, which will establish the new research program for defense.

But the ECF has its own €125 billion budget line for “resilience and security, defense industry and space.” The new defense program, meanwhile, has no clear budget.

That raises several questions: 

To make matters even more confusing: for legal reasons stemming from the EU’s governing treaties, the defense program created by the ECF is officially treated as a vehicle for implementing Horizon Europe. But a huge swathe of Horizon Europe, in turn, is subordinated to ECF activities.

Diplomats, research leaders and defense industry representatives whom The Arsenal spoke to all expressed bafflement as to what that means for research spending, both defense and civilian. 

They also report wildly conflicting information coming from briefings with the commission’s three policy departments for defense, research and industry about which budget lines will support defense, and about whether Horizon Europe or the ECF has primacy.

When asked by The Arsenal for clarification, the commission refused to comment, citing on-going budget negotiations.

The European Commission will propose a package of reforms to clear bureaucratic and infrastructural barriers to military mobility in the EU. 

Moving troops and materiel from one part of the content to the other—say from Spain or France to Finland or Poland—can take months. Even though EU countries share a customs union and most have abolished intra-union passport controls, movements of military personnel and equipment—especially if it’s dangerous—are still mired in red tape, to say nothing of infrastructural weaknesses.

Every EU country requires prior notice and permission before active-duty soldiers from another member state can cross their borders, for instance. Troop movements typically require police escorts too, which aren’t always available during off-hours and weekends. There are even hyper-local restrictions, such as the time of day one can drive a vehicle through a small town. 

The commission is also expected to highlight the need to safeguard critical infrastructure: renewed efforts there could create opportunities for companies producing relevant technologies, such as surveillance and counter-drone equipment. 

The Croatian Ministry of Defense has launched a call for bids to supply robots that can enter minefields to survey and dispose of explosives. The tender is worth up to €1.4 million, split across two lots, and the deadline for bids is 15 December.

The first lot, worth €640,000, is for small reconnaissance robots designed to provide situational awareness with optical and acoustic sensors. The second, worth €760,000, is for medium-sized robots that can disarm or destroy ordinance. Both products need to function in all weather and terrain conditions.

Croatia still has unexploded landmines left over from its 1991-1995 war of independence to separate from Yugoslavia. The country aims to be mine-free by early 2026.

Bids must be submitted in Croatian. Further details are available on Tenders Electronic Daily.

The European Defense Agency is inviting defense experts, nominated by national ministries of defense, to contribute to expert groups on technical standards six different technical domains:

The latter two expert groups on autonomous systems are new. The kick of talks will be held at the CEN-CELEC Management Center in Brussels on 27-29 January.

Interested participants seeking further information should contact the European Defense Agency before December 1 at [email protected].

Are you a European defense tech startup that’s trying to raise capital? 

We’d like to hear from you. Send us your 30 second elevator pitch explaining what you do, how much you’re trying to raise and what for—along with a few remarks from a senior member of your team—and we’ll consider it for this slot in our next newsletter.

Send your pitch to [email protected].