Estonia has recently officially launched a €100M defence fund to boost its domestic military technology sector and strengthen European capabilities. 

Initially announced in May 2024 as a €50M initiative, the project has now doubled in size and broadened its scope to support the growing local ecosystem. The new fund, managed by the state-owned investment company SmartCap, will make direct investments in defence companies and allocate capital to specialised venture capital funds.

The initiative comes as European countries seek to expand their defence industrial base. 

Key investment parameters:

• Direct investments of €500,000 to €10M in defence companies
• Fund investments of €5 to €20M in defence-focused VC funds
• Focus on military-use and dual-use technologies
• Maximum 49% ownership stake in any single company

The fund has strict eligibility requirements. Companies and fund managers must be established in NATO countries, and neither they nor their shareholders may have ties to Russia, Belarus, or countries on international sanctions lists. 

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All investments require co-investment from private investors, with at least 30% of capital coming from independent sources.

SmartCap head Sille Pettai emphasised that the fund aims to attract private capital to Estonia’s defence sector through risk-sharing mechanisms. While Estonian companies are prioritised, the fund can invest across NATO countries if there’s strategic value for Estonia’s defence ecosystem.

Defence Minister Hanno Pevkur noted the fund’s potential impact beyond Estonia, stating that by establishing the fund, Estonia is leading by example in Europe, demonstrating how nations can strategically align their defence priorities with economic growth.

For direct investments, the fund targets:

• Seed to growth-stage companies
• Equity and quasi-equity instruments (including convertible notes)
• Companies developing military-specific or dual-use technologies
• Non-controlling stakes, typically through capital increases

The fund will remain open as long as uncommitted capital is available. SmartCap maintains discretion to modify investment terms or discontinue the programme.

Defence industry leaders have welcomed the initiative. 

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