- The Ukraine-Russia war has been a catalyst for the development of a defence start-up sector
- Investors say consolidation is likely required in order to compete in European markets
- Claims by Western companies that equipment is “battle tested” is “b*$%”*^t”, says official
Ukraine’s defence start-up sector could be set for a period of consolidation, according to defence investment figures, with mergers and acquisition (M&A) needed in order to prepare for European and international markets.
Until recently, Ukrainian defence companies were not permitted to export any of their systems or products to European neighbours or into more distant market, in a bid to ensure supply of Ukraine’s military. However, product in certain areas is outstripping national demand, in some areas by a factor of three or more.
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On 25 September 2025, Ukraine President Volodymyr Zelenskyy, announced his intention to allow the export of certain platforms and systems into international markets.
Ukraine has a significant advantage in being able to test capabilities in real time, with close connections formed between individual brigades and defence start ups through the DOT-Chain procurement system.
Ukraine has changed nature of war
What is clear is that the nature of the Ukraine-Russia war, which has evolved from a traditional Western-centric concept of combined operations into a focussed near total dominance of uncrewed systems on the battlefield.
On the ground in Lviv in western Ukraine in late-September, Army Technology has been able to obtain first-hand accounts from both the manufacturer and western investor perspectives.
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By GlobalData“Many in the West don’t appreciate that what we are seeing here is an evolutionary jump in warfare, rather than iterative,” said Justin Zeefe, founding partner, Green Flag Ventures. “Western powers are wildly unprepared for this adjustment because their business models are not prepared.”
However, given the fragmented nature of Ukraine’s start up defence sector, with duplication in areas such as combat and FPV drones, experts considered that consolidation was needed.
“You need to do M&A”, said Cristobal Alonso, MD at Wolver Ventures. “You don’t need to wait for the Spanish MoD to change procurement rules, we can create unicorns in Ukraine because… it dominates certain markets in Europe.”
Brooks Newmark, co-founder and chairman of UK-Ukrainian investment company Trypillian, said that the consolidation in Ukraine’s defence start up sector would see “two or three thousand” gradually being whittled down to “half a dozen winners” in two or three years.
Continuing, Newmark cautioned against what he termed “a race to the bottom”, where multiple companies were each producing comparative platforms.
“The important thing that Ukrainian needs is to build the tech that can strike [into Russia],” Newmark added.
Daria Yaniieva, investment director at Sigma Software Labs, said that joint ventures (JV) could be an option for Ukrainian companies seeking engagement with the West.
“JV is a very common practice. We can sell… through the primes,” Yaniieva said.
Western “battle-tested” claims are “b*$%”*^t”
Another difference between Ukraine’s start-ups and those in Europe is the speed at which systems are developed and then iterated upon. Typical European defence procurement cycles take years, sometimes decades, to produce a platform or updates, a timeframe that is utterly irrelevant in Ukraine.
An example can be seen in UK-based strike drone developer MGI Engineering, which has to travel to Spain to conduct flight testing to avoid the UK’s restrictive environment, as reported by Army Technology in July.
Speaking in Lviv, one official said Western companies were producing “toys” compared to “what Ukraine is developing here”.
Another official was damning over any claims by Western defence companies that their equipment was “battle tested”, pointing out that only Ukraine has the advantage in being able test capabilities in contested environments.
“Most of that is b*$%”*^t,” the official said. “Take BAE Systems, loads of great systems, but none of it is battle tested.”
