Finland’s defense sector is booming, fueled by a surge in tech startups eager to capitalize on the country’s recent NATO membership from April 2023. This so-called “NATO dividend” is driving rapid growth as businesses look to innovate, increase sales, and explore new markets.
Startups in Finland’s defense industry, which focus on both civilian and military services, are outpacing traditional defense companies in terms of growth and appeal to investors. Keith Bonnici, an investment director at Suomen Teollisuussijoitus (Tesi), highlights that the demand for funding among these startups is linked to a significant upswing in sales and a rise in export licenses. Finnish firms are increasingly competitive in this space, serving some of the world’s largest defense contractors and NATO’s defense forces.
According to a recent Tesi survey, about 144 out of 368 defense companies in Finland are classified as rapidly growing startups. Bonnici estimates that tech firms offering dual-use (civilian and military) products are enjoying annual revenue growth rates between 30% and 40%, far surpassing their traditional counterparts. Private equity and venture capital investors are increasingly drawn to these dual-use companies; over a third of them are backed by such investors.
Venture capital has emerged as a key source of funding for dual-use firms, especially during the first three quarters of 2024. Additionally, the Finnish government has invested in more than 40 defense enterprises since 2014, underscoring the state’s crucial role in bolstering this sector.
Looking ahead, Finland’s defense exports hit €2.6 billion in 2023, and projections suggest they could soar to €10 billion annually by 2030, thanks to increased NATO-related activities and tech startup confidence. For instance, Varjo Technologies, based in Helsinki, is ramping up its development of virtual reality (VR) flight training products. Chief Executive Timo Toikkanen notes that NATO membership has opened new avenues for expanding their sales in both civilian and defense aerospace sectors. The approval of their VR headsets by the U.S. Federal Aviation Administration (FAA) for helicopter pilot training further boosts their prospects.
In a shift from past challenges, being a dual-use tech firm now attracts positive attention from investors, according to Toikkanen. Despite reporting a €34 million operating loss in 2023 due to hefty investments in new VR technology, Varjo plans to secure additional funding in the coming years.
Saab, the largest defense tech group in the Nordic region, is also feeling the effects of NATO’s influence. After Sweden’s accession, CEO Micael Johansson shared that the company is eyeing production partnerships in Ukraine, aimed at developing advanced military technologies. Ukraine is keen to collaborate with Saab to produce high-grade military equipment, including AI-based systems.
Saab’s advanced AI and machine learning offerings have already garnered interest among NATO members. For example, in September, they secured a contract with ECS Federal to deploy AI technology for the U.S. Department of Defense.
The cooperative efforts among Nordic countries intensified in September 2024 with the launch of a Regional Joint Defense Concept. This initiative aims to streamline military collaboration across the region, enhancing capabilities and technological development.
Additionally, Finland and Sweden’s status as Limited Partners in the NATO Innovation Fund (NIF) positions them well for future opportunities. This €1 billion fund focuses on investing in deep tech defense innovations within NATO countries, particularly those developing AI, machine learning, and space technologies. According to Sweden’s defense minister, leveraging the NIF is a significant advantage of being part of NATO.