leographics - adobeNewsNato membership boosts Finnish civil and military tech startupsTech companies in Finland and Sweden that offer civil and military products are benefitting from Nato military allianceByGerard O'DwyerPublished: 08 Jan 2025 10:45 Finlands fast-expanding defence sector is witnessing a surge in tech startups chasing new business opportunities on the back of the countrys accession to the North Atlantic Treaty Organisation (Nato) in April 2023. The so-called Nato dividend is causing the countrys defence sector to experience accelerated growth as more companies capitalise on membership to innovate, grow sales and pursue new avenues of opportunity. Buttressed by Nato membership, Finnish tech startups that offer civil and military services are generating comparatively higher growth rates and stronger investor appeal than more traditional defence companies, said Keith Bonnici, investment director at Suomen Teollisuussijoitus (Tesi), a state-owned agency that takes equity-linked financial positions in tech startups and growth companies.The rise in demand for growth capital among startups is tied to the boom in sales in this sector, as well as the sharp increase in export licences, he said. As a result, production needs to keep pace with higher demand. Finland remains competitive in the defence industry domain. Our indigenous players have some of the worlds largest defence contractors as customers, as well as Nato members defence forces. A Tesi survey released in September 2024 described 144 of the 368 companies currently operating in Finlands defence sector as rapidly growing startups and growth companies.We estimate that the annual revenue growth rate of technology companies that offer civilian and military products is as high as 30% to 40%, said Bonnici. This clearly exceeds growth rates being achieved by traditional defence companies. The level of growth we are seeing explains why private equity and venture capital investors favour these dual-use companies. Over one-third of the dual-use firms surveyed are owned by private equity and venture capital investors.The Tesi survey found that venture capital financing was the largest individual source of capital investment for companies offering dual-use defence products during the first three quarters of 2024. Moreover, the survey identified the Finnish state as a significant player in the sector, with state-affiliated companies having invested in over 40 defence industry firms since 2014.Record sales forecastBuoyed by the Nato dividend and bolstered confidence among dual-product tech startups, Finlands defence sector is on course to deliver a record surge in export sales by 2030, said Bonnici. Finlands total defence related exports amounted to 2.6b in 2023, he added. Based on the latest data and trends, there is every confidence to believe that total annual exports may well reach the 10bn milestone by 2030.Helsinki-based Varjo Technologies has expanded development of dual products to reflect a heightened demand for its virtual reality (VR) pilot flight training wares.Finlands new status in Nato has substantially improved its ability to achieve stronger international growth, said chief executive Timo Toikkanen. Nato membership has created new opportunities to grow sales of our VR flight training products, he said. It makes it easier to build a presence in the civilian and defence aerospace sectors.The Nato factor came into play for Varjo in August 2024, when the US Federal Aviation Administration (FAA) approved the use of its VR headsets to support helicopter pilot training. VR technology is being more broadly tested by Nato-aligned air forces that view it as a cost-efficient option to supplement or replace traditional pilot training in aircraft and large simulator room environments. In advance of certification by the FAA, Varjos VR-headset hardware had been previously authorised for dual defence and civilian use by the European Aviation Safety Authority, in connection with Swiss group Loft Dynamics helicopter pilot flight simulation training device.Historically, dual-product startups faced serial hurdles trying to generate significant levels of investor interest from defence-shy private equity funds and venture capital firms, said Toikkanen. Being a dual-product tech company and supplier to the defence industry is nowadays seen not only as acceptable, but even a good thing from the perspective of investors, he added.VR investmentsToikkanen attributed the 34m operating loss reported by Varjo in 2023 to the companys need to make large upfront investments to develop its fourth-generation VR headset. Varjo is hoping to raise next-stage funding of 8m in 20242025. The dual-product business opportunities flowing from Nato membership are also boosting sales confidence at Saab, the Nordic regions largest defence technology group.Saab reorganised a number of core units under new leadership after Swedens membership of Nato was ratified in March 2024. Swedens accession to Nato has enhanced the companys belief in sustainable growth through technology-led projects and capital investments, said Micael Johansson, Saabs CEO. We are moving towards establishing a production presence in Ukraine in collaboration with defence and technology companies there. It may be a year or more before this plan takes shape, he said. Saab is hoping to find technology partners in Ukraine to develop and produce a wide range of defence and security wares, including next-generation sensors to leverage Ukraines existing drone capabilities.Ukraine is exploring the possibility of partnering Saab to produce a range of high-grade military equipment, including Command, Control, Communications, Computers and Intelligence (C4I) and AI/GPS battle management systems in addition to advanced data fusion technologies.Saabs new generation of AI and machine learning (ML) product offerings have attracted interest across the Nato member countries. In September last year, it secured a contract to deliver Near Real Time (NRT) AI/ML models to US cyber security and cloud group ECS Federal.ECS is deploying Saabs NRT AI/ML technology as part of its input to the US Department of Defenses (DoD) Maven Program, which is designed to process imagery and full-motion video from drones and automatically detect potential targets.Joint defenceThe growth path to Nato contracts for dual-product firms in Finland and Sweden was greatly enhanced in September 2024, when Nordic governments launched a Regional Joint Defence Concept. The agreement, which is managed by the Nordic Defence Cooperation (Nordefco), will synchronise key areas of military cooperation including capacity building, linked military operations, defence technology development and joint products procurement schemes, on a regional level.Established in 2009, Nordefco serves as a coordinating agency for cross-border defence cooperation between the five Nordic states.Regionally, the future growth potential of dual-product and defence tech startups across the Nordics is further boosted by Finland and Swedens Limited Partner status in the Nato Innovation Fund (NIF). The NIF is financed by 24 of Natos 32 member states. Capitalised at 1bn, the NIF primarily invests in deep tech defence and security companies across alliance states, while taking a special investment interest in firms developing AI, ML and space technologies. The Nato Innovation Fund is a hugely influential tool to drive technological innovation and development throughout Swedens defence and security industries, said Pl Jonson, Swedens defence minister. For Sweden, its an additional benefit of being part of Nato.In The Current Issue:What do the home secretarys policing reforms mean for the future of the Police Digital Service?What are the security risks of bring your own AI?Download Current IssueData engineering - Camunda: Defining data orchestration's role in data engineering CW Developer NetworkSAP customer unrest: How did we get here? Write side up - by Freeform DynamicsView All Blogs