Small Europe’s defence companies are increasingly seen as a source of innovation. But getting from a working prototype to a military contract remains a major hurdle.
The European Parliament’s Security and Defence Committee (SEDE) is now warning that smaller defence companies, including startups, face two critical stages, so-called valleys of death. The first is the gap between developing a technology and proving that it works; the second between validation and actually completing the sale.
On Monday, SEDE members adopted a report calling for the EU to make entering and scaling within Europe’s defence market easier for start-ups, small and medium-sized enterprises (SMEs), as well as for small mid-caps. The report passed by 23 votes to five, with a single abstention.
A recent European Parliament study by defence researcher Daniel Fiott found that SMEs continue to face significant financial, regulatory, and political barriers. These firms account for the vast majority of European businesses and provide roughly 70 per cent of the total value of European defence systems. Around 40 per cent of those surveyed reported difficulties accessing finance. For a company developing a new drone or autonomous system, having a prototype may therefore be only the beginning.
Development to validation to sales
In this sense, the first ‘valley of death’ comes when a technology moves from development to validation. Companies struggle to find access to military testing facilities, demonstrations, certification infrastructure or actual military users who can assess whether a product works in operational conditions.
The second comes after validation: even if the technology has successfully gone through tests, some small companies still struggle to secure the first contract and enter national procurement chains. That is particularly problematic in a European defence market that remains fragmented along national lines. Companies face different certification requirements, security-clearance procedures, procurement rules, and export controls, depending on where they want to operate. The European Parliament has separately identified this fragmentation as a major obstacle to building a genuine single market for defence.
“Europe is great at producing brilliant ideas and prototypes, but too often they never reach full-scale production, or if they do, it happens outside Europe,” said the rapporteur, MEP Mārtiņš Staķis (Greens-EFA/LAT). For smaller companies without the financial resources and administrative capacity of major defence contractors, those barriers can determine whether an innovation survives. “Our innovators don’t need yet another grant; they need a first contract, a place to test their products alongside soldiers, and one certification valid across the EU instead of a separate one for every country,” he added.
The speed problem
The issue is particularly visible in the rapidly changing market for drones and counter-drone systems. MEPs are calling for more dedicated EU support for autonomous systems, counter-unmanned aircraft systems (C-UAS), and next-generation drone technologies.
The push reflects a broader shift in European defence thinking. Technologies developed for civilian markets or by small technology companies can evolve much faster than traditional military procurement systems. The EU’s new Programme for Agile and Rapid Defence Innovation (AGILE) exists to address precisely this problem. Parliament and the Council in July said they intended the €115m programme to give SMEs, start-ups and scale-ups faster access to funding, testing and experimentation facilities and connections with established defence companies. It is to become operational in early 2027.
But as the report suggests, speeding up funding is only part of the solution. What matters is what happens at the end of the innovation process.
From EU grant to national procurement
The EU has expanded its financial support for defence innovation significantly in recent years, but a tech developed with European funding can still face a difficult path towards national procurement. SMEs can enter the defence ecosystem but then struggle to scale because of limited access to capital, complex regulation, and difficulties connecting with established defence supply chains.
The Commission itself recognises the problem. It is aware that SMEs face barriers ranging from administrative and legal requirements to certification, security-of-supply rules and national export controls when trying to access defence contracts across borders.
Our innovators don’t need yet another grant; they need a first contract, a place to test their products alongside soldiers, and one certification valid across the EU instead of a separate one for every country. — MEP Mārtiņš Staķis (Greens-EFA/LAT)
MEPs therefore want EU instruments to do more than finance research and they are calling for better access to testing and demonstration facilities, military end-users and certification infrastructure, alongside measures to help successful EU-funded projects secure their first contracts.
Ukraine as a testing ground
The SEDE’s report comes as the EU attempts to build a more integrated defence industrial base after years of fragmented procurement and underinvestment. European defence spending has risen sharply since Russia’s full-scale invasion of Ukraine, while the EU has introduced new instruments aimed at strengthening production and innovation.
In this sense, Ukraine has become an important reference point in this debate. The war has shown how quickly defence technologies can be modified and deployed in response to battlefield needs, particularly in areas such as drones and autonomous systems.
MEPs want the EU and national governments to draw more directly on the Ukrainian experience, including the way innovation, procurement, certification, and capability development can be compressed. They also welcome existing forms of cooperation between European and Ukrainian defence companies, including joint ventures and contracts designed to transfer technology and incorporate Ukrainian know-how into European capabilities.
The challenge now is turning that spending into a functioning route from idea to prototype, prototype to tested capability, and tested capability to production.
