In 2022, NATO launched its Defence Innovation Accelerator for the North Atlantic (Diana). It is a recent example of international funding pools that can offer financial support, pooled expertise, and resources with the aim of fostering innovation. Non-defense companies, and entities from smaller states that may not have national funding initiatives, can benefit from the opportunities offered by organizations such as NATO and the EU. This briefing will outline some of the initiatives on offer and explore the impact they can have on defense innovation.

NATO offers it’s members a range of funding opportunities, aimed at fostering a transatlantic innovation community. Often, resources are directed at those developing either dual-use technologies, or technologies in a pre-defined area with recent areas of research including quantum computing, biotechnology, and propulsion and space. DIANA will offer challenges based on problems in defense. Competitors will have access to various testing and innovation hubs, and will receive non-dilutive funding. The Innovation Fund is a multi-sovereign venture capital fund. It will provide €1 billion for early-stage start-ups and will also fund existing venture capital funds that are investing in the development of emerging and dual-use technologies. NATO also offers various other co-sponsorship programs and grants.

NATO’s DIANA is admirable in its look to foster innovation in dual-use technologies and with companies that may usually not engage with the defense industry. As the importance of software grows the industry is increasingly having to look to commercial sources in order to access cutting edge technologies. By funding innovation in deep-technology areas such as AI and quantum-computing, NATO is sowing the seeds for easier access to groundbreaking technology. Member states are increasingly seeking dual-use technology from untraditional sources, requiring regulatory overhauls (for the procurement of software licenses for example) and forging new acquisition pathways. DIANA should help by fostering the innovative technologies and processes, and by forging a closer relationship between these actors and the defense industry.

The European Defense Fund (EDF) is the primary EU-led funding initiative for the defense market. The program was formally launched in 2021, replacing two predecessor programs the Preparatory Action on Defence Research (PADR) and the European Industrial Development Programme (EDIDP). The EDF aims to promote cross border innovation, foster R&D and enhance the overall competitiveness of the EU defense industrial base. This is achieved in part by the requirement for proposals to include at least three member states. In 2022, 61 defense research and development projects were awarded $1.2 billion of funding. 43% of the awards went to SMEs; however, this only reflected 18% of the total financial value.

This final figure points to an issue regarding SME engagement or access to international funding initiatives. There are different reasons for this. It may be due to a general lack of engagement with the wider SME community, or the often-challenging requirements relating to cross-border cooperation. These may predispose SME’s to being less well equipped to compete for funding at this level. Other less defense specific European programs such as the European Structural Funds are much more tailored to SMEs. However, as they are not defense specific, highly innovative SMEs with products that could potentially revolutionize industrial processes and platforms are being missed.

For small states, those with a weaker economy, or with an underdeveloped defense industry, international funding initiatives can be a hugely valuable lifeline for these nations innovators. Countries such as the UK and Germany have the money and industrial base to offer national programs (the UK’s Defense and Security Accelerator for example), but those such as Slovenia or Montenegro do not have such programs. Thus, international programs are a way of ensuring innovation taking place in such states is not lost due to lack of funding, and can be used by the parent and allied states.

To conclude, international funding initiatives are of great importance in creating an international arena that can breed cross-border, and cross-domain, collaboration. Entities operating in smaller states may not have access to lucrative national schemes and thus may rely on the opportunities provided by groups such as NATO and the EU. In order to fully reap the potential rewards of their own programs, the organizations must seek to help SMEs access and take part in the initiatives on offer.