Private equity firms are pouring capital into the defense technology sector at an accelerating pace, as rising military budgets and geopolitical tensions fuel an investment boom, according to PitchBook data.
Traditional buyout-style investors are increasingly betting on younger, high-growth companies in this space, with private equity growth investments in defense reaching $4 billion in the first nine months of 2026, compared to just $500 million for all of 2024.
Analysts note that as defense technology companies mature, private equity, debt, and other forms of financing are expected to play an increasingly important role in bridging the gap between innovation and industrial-scale production, as venture capital alone may no longer be sufficient to support corporate expansion.
The backdrop to this boom is that geopolitical tensions, wars, and efforts by nations to strengthen military capabilities are creating opportunities for companies across areas ranging from autonomous drones to missile defense systems and satellite technology.
A survey of 250 senior decision-makers at UK defense companies by law firm White & Case found that 97% of respondents expect their businesses to seek substantial external financing within the next 12 months.
Daniel Turgel, a partner at White & Case, said: "Private capital is now playing a key role in the financing of defense technology companies."
Turgel said private equity and venture capital firms, sovereign wealth funds, and family offices all want to increase their investments in this sector, a significant shift from just a few years ago.
He added that previously many investors were either unwilling or restricted from entering the space.
A wave of new investors
The growth in private equity allocations to defense technology comes amid a surge in venture capital investment in the sector.
According to an October report by Dealroom and Resilience Media, startups within NATO and allied nations had raised $27.1 billion as of September, nearly double the total for all of 2025.
Traditionally, venture capital backs young, high-growth startups, while private equity focuses on more mature businesses. But as some private equity institutions shift toward growth-stage investments, the lines between the two are increasingly blurring.
Jim Corridore, chief industrials analyst at PitchBook, said: "Private equity firms are putting more money into defense, and they are changing the way they invest."
According to PitchBook data, the number of private equity growth deals in defense rose from 15 in 2024 to 31 in 2025, and reached 48 as of September 2026.
In 2026, these investments accounted for 41% of defense private equity deal value, compared to just 3% in 2024.
"It seems clear to me that private equity is moving into areas that were previously occupied by venture capital," Corridore said.
Private equity firm Advent International announced in March that it would invest up to $1 billion in next-generation defense technology, including investments in autonomous systems developers Shield AI and Saronic.
Shonnell Mullaney, managing partner and global head of aerospace and defense at Advent International, said the firm has deployed approximately three-quarters of its committed capital.
Mullaney said Advent's expansion into younger defense technology companies is a natural extension of its existing investments in more mature defense businesses.
Mullaney said Advent backs companies it understands deeply and prioritizes proven technologies that address specific military needs and have been validated by customers, rather than focusing primarily on financial metrics.
Bubble concerns
While the influx of private capital helps accelerate defense technology innovation, it also intensifies concerns about inflated valuations and speculative investing.
Mullaney said defense technology company valuations are increasingly based on their technological prospects rather than revenue, profits, or order volumes, leaving considerable room for interpretation about what these companies are actually worth.
He added that a correction may be inevitable as some companies struggle to translate technological promise into commercial success.
When asked whether an investment bubble might be forming, he added: "I think there is a very significant risk."
Mullaney said there is "a lot of froth" in the market and noted that Advent International has walked away from several potential investments because valuations became "ridiculous."
PitchBook's Corridore countered claims that the industry is overheating but expects investment interest to continue growing.
"Budgets are growing, militaries are consuming large amounts of ammunition, and new drone and counter-drone technologies are emerging," he said. "All of this provides investors with the stable revenue needed for private equity to make long-term bets."
Other private equity investors are sticking more firmly to traditional buyout strategies.
Lionel Mestre, a partner at French private equity firm Weinberg Capital Partners, noted that his firm remains focused on profitable defense companies with mature products, customers, and positive cash flow, rather than early-stage startups.
He said that despite growing investor interest in the sector, valuations for the small, mature defense suppliers that Weinberg Capital Partners targets have not risen significantly.
Mestre sees opportunities to finance capacity expansion and consolidate Europe's fragmented defense supply chain, while believing the rapidly evolving drone market remains too immature for Weinberg's traditional buyout strategy.
The small defense companies that Weinberg targets need to invest in capacity, staffing, working capital, and commercial operations to meet growing demand.
Mestre said, "This industry ultimately needs consolidation," and believes smaller suppliers need to scale up and become more competitive.
He also said European institutional investors' attitudes toward defense have shifted significantly, especially after Trump's return to the White House and as European nations face pressure to increase military spending.
Will this boom deliver returns?
Both Mullaney and Mestre see opportunities for private equity institutions to help defense companies scale production, not only by providing capital but also by bringing industry connections and access to government customers.
Mullaney said some startups are rushing toward initial public offerings (IPOs) before they have the operational maturity needed to become sustainable public companies.
Moreover, despite increased investment activity, exits remain a potential challenge.
According to PitchBook data, there have been 504 private equity deals in defense since 2021, but only 101 exits, though this comparison includes add-on acquisitions and therefore does not directly measure the proportion of investments awaiting exit.
As of September 2026, IPOs accounted for 70% of defense private equity exit value, leaving investors exposed to the risks of a shifting market environment.
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