The Compelling Case for VC Investment in Government-Backed R&D and Innovation in Defence


Published 24th January 24

By Gordon Scott, Commercial Director at Ploughshare

Venture capitalists (VCs) play a pivotal role in fuelling innovation across a spectrum of industries – whether healthcare, B2B SaaS, or even retail. While their focus has traditionally been on startups and emerging technologies, there is a myriad of reasons for VCs to consider government-backed research and development (R&D) and innovation in the defence sector. The US is far ahead of us when it comes to investment in national security, and technologies that come out of the defence industry – whether government-researched or not; the UK is missing a trick.

We put together 8 reasons why we think this is the case, and hopefully after reading them you will too.

1 | Unlocking Innovation and High Returns

The defence industry is ripe for disruptive innovation. VC investment in government-backed defence R&D can unlock tremendous opportunities for groundbreaking technologies. These innovations not only have the potential to revolutionise the defence sector but also create high-value spin-outs that can be commercialised for significant returns on investment.

2 | Collaboration and Resource Amplification

VCs can amplify their impact by collaborating with government initiatives in defence R&D. Governments often allocate substantial budgets to advance defence technologies within healthcare, sustainability, and even transport. Partnering with these programs can allow VCs to leverage their own investments, leading to resource optimisation and shared risk. This ensures a broader scope and scale for R&D projects.

3 | Accelerated Technology Development

The defence sector demands cutting-edge technologies that can be developed and deployed swiftly. VC-backed startups are well-known for their agility and speed in bringing innovations to market. By investing in defence R&D, VCs can help expedite the development of advanced technologies that address critical national security needs, while also having the potential to transition into civilian applications.

4 | Diversification and Risk Mitigation

VCs often seek diversification to manage risk. Investing in defence R&D introduces diversification to a portfolio – economic cycles and market fluctuations tend not to interfere with this type of investment. As governments typically have a long-term commitment to R&D, this creates a more stable investment landscape for VCs.

5 | Market Access and Scaling Opportunities

Venture-backed companies that succeed in defence R&D can gain access to large government contracts and procurement opportunities. This can serve as a platform for scaling the business, opening doors to broader markets, and securing long-term revenue streams.

6 | National Security Impact

Investing in defence R&D goes beyond financial gain; it also plays a critical role in strengthening national security and addressing emerging threats. VC investment can support the development of technologies that enhance defence and its people, safeguard the nation, and contribute to global stability.

7 | Mitigating Security Risks

Participating in defence R&D can address wider security concerns. VCs can work closely with government agencies to ensure the protection of sensitive information. By adhering to strict security protocols and compliance standards, VCs can engage in high-impact R&D while minimising their own security risks.

8 | Ethical Considerations and Responsible Innovation

VCs have a unique opportunity to drive ethical innovation in the defence sector. While pursuing profit, VCs can actively engage in ethical discussions and influence the development of technologies that adhere to international norms and values. Responsible innovation in defence R&D is not only achievable but crucial for addressing the complex challenges of the modern world.

VCs are at the forefront of driving funding for innovation and technological advancement in various industries. The defence sector represents an underexplored opportunity for venture capital investment. Collaborating with government-backed R&D initiatives in defence opens the door to innovation, resource amplification, and long-term returns, all while contributing to national security.

As VCs consider the diverse range of investment opportunities, venturing into defence R&D can enhance their portfolios, create groundbreaking innovations, and address critical security challenges. It’s not just a financial investment; it’s an opportunity to shape the future of technology and contribute to global stability while reaping the rewards of innovation.