Opinion
When security becomes an investment thesis
Why public spending and private capital are converging around defense technology - and what that may mean for the wider innovation economy.
Capital rarely waits for political certainty. It moves toward markets where demand is becoming more durable, public policy more supportive and the cost of being late more visible. Defense technology now meets all three conditions.
A more fragmented geopolitical environment has pushed national security higher on government agendas. Wars, cyberattacks, pressure on critical infrastructure and growing competition between major powers have turned defence readiness from a specialist concern into a long-term budget priority.
The numbers reflect that shift. According to the Stockholm International Peace Research Institute, global military expenditure reached $2.9 trillion in 2025, marking an eleventh consecutive year of growth. European spending increased by 14% in one year. NATO members have committed to investing 5% of GDP in defence and broader security-related capabilities by 2035, while the European Union has outlined measures that could support up to EUR 800 billion of additional defence spending by 2030.
For investors, this is more than a political story. It is a change in the structure of demand.
When the government shapes the market
Governments play several roles in the defense economy. They fund research, provide grants and strategic capital, set regulation and, most importantly, become customers.
A government contract can do more than generate revenue. It can validate a technology, improve access to additional customers and signal that a particular capability is likely to remain relevant. This can reduce perceived demand risk and make a company more attractive to private capital.
In my experience, this is where the shift becomes tangible from a finance perspective. A government contract does not simply add revenue. It can unlock capital and influence how a company is valued. But it can also shape the company around one customer before a broader market has been built.
The distinction matters. Public demand may reduce market risk, but it does not remove technology, execution or regulatory risk. It may also create customer concentration and limit the markets in which a company can operate.
Defense technology is no longer viewed only as a slow and closed industry dominated by a small number of large contractors. It increasingly includes software, artificial intelligence, autonomous systems, sensors, space technologies, advanced manufacturing and cybersecurity.
Private capital has responded. S&P Global Market Intelligence estimates that venture funding for defense-focused companies reached $29 billion in 2025, nearly three times the amount recorded in 2020.
This is not necessarily a moral or political statement by investors. Venture capital is built around identifying markets capable of producing significant returns. When governments provide clearer demand, longer procurement horizons and strategic urgency, investors have a rational reason to pay attention.
The wider allocation question
The more interesting question is not whether investors are right to pursue the opportunity. It is what happens when governments, entrepreneurs and investors begin moving in the same direction at the same time.
Capital is not the only limited resource. Defense companies also compete for engineers, researchers, manufacturing capacity and experienced managers. As security-related demand becomes more visible, civilian companies may find themselves competing against businesses supported by government contracts, public funding and strategic programs.
This does not mean that every dollar invested in defense is taken directly from healthcare, climate technology, agriculture or industrial automation. Markets are not that mechanical. Higher defense spending may create manufacturing capacity, strengthen supply chains and produce technologies that later find valuable civilian applications.
Navigation, communications, sensing, computing and aerospace all demonstrate how knowledge can move between military and civilian markets. But that movement should not be assumed.
A company built around one government buyer, classified programs and restricted supply chains may have little incentive to develop a commercial product. An engineering team working against an urgent defense requirement is not simultaneously working on an energy, health or industrial problem.
The issue is therefore not whether defense investment is good or bad. It is how the incentives created by that investment influence the wider innovation economy.
Cybersecurity shows why the boundary is changing
Cybersecurity makes the distinction between civilian and defense technology particularly difficult.
The same underlying capabilities may protect a military network, a bank, a hospital or a power grid. Technologies developed to identify threats, combine information or secure communications can serve both national security and commercial customers. Other capabilities may support intelligence gathering, disruption or offensive operations.
The customer and use case may determine whether a technology is viewed as civilian, defensive or offensive. The code itself does not always provide a clear answer.
This ambiguity is now visible in government spending. NATO's new investment commitment includes not only core military expenditure but also critical infrastructure, network defense, civil preparedness, innovation and industrial resilience.
For investors, that creates a wider opportunity set. It also makes the classification of companies more difficult. A cybersecurity platform may be a civilian software company, a supplier to critical infrastructure or part of a national security architecture. In practice, it may be all three.
Security is therefore becoming a broader economic category that includes data, infrastructure, logistics, communications and industrial capacity.
Keeping the security economy open
There is a further paradox. Governments want greater technological sovereignty, local production and control over critical capabilities. Yet building globally competitive technology companies still requires international capital, access to large markets, trusted supply chains and cross-border partnerships.
Defense technology may become more important globally while becoming less globalized operationally. Export controls, national procurement preferences and competing technology blocs can restrict where companies raise capital, hire people, source components and sell their products.
Too much openness can create strategic dependence. Too little can prevent companies from achieving the scale needed to finance research, build resilient supply chains and compete globally.
An open security economy would protect genuinely critical capabilities while preserving room for trusted international partnerships, diversified customers and civilian applications. The objective is not unrestricted openness, but enough openness to allow companies and technologies to scale beyond a single budget, customer or national market.
The purpose is not to slow defense innovation. Current security needs are real, and many of the technologies being developed are necessary. The point is to understand what the new incentives are building - inside the sector and beyond it.
Defense technology is already an important investment thesis. Public spending has reduced parts of the demand risk, private capital has accelerated company formation, and geopolitical uncertainty is likely to sustain the market.
The harder question is what kind of economy will grow around it.
If the current cycle produces stronger security, globally competitive companies and technologies that strengthen civilian industries, its benefits may extend well beyond defense. If it creates closed markets, dependence on public budgets and a persistent movement of talent away from other challenges, its costs will also extend beyond the sector.
The question is no longer whether economies will finance resilience. They already are. It is whether they can do so without allowing permanent insecurity to define their innovation agenda.
Dov Fettman is Partner & Group CFO of RAKIA Group, a global technology group developing an AI-powered platform for real-time data fusion and analysis for government and national security organizations.
