May 27, 2024

NATO announces $1B fund to back startups supporting ‘safety, freedom and human empowerment’

After announcing plans nearly two years ago, defense alliance NATO has officially closed its first fund to back startups that are building technology strategic to NATO’s own goals in defense and security.

Member nations are collectively committing capital totalling €1 billion (around $1 billion at current rates) to the NATO Innovation Fund, which plans to make both direct investments in startups, as well as indirect investments in other funds that in turn back startups focused on emerging and disruptive technologies that are “responsible and led by fundamental principles: safety, freedom, and human empowerment.” Areas of focus will include AI and autonomy, biotechnology, quantum computing, space technology and hypersonic systems, energy, new manufacturing and materials, and next-generation communications.

Modelled somewhat on In-Q-Tel in the U.S., the idea will be to keep the investments strategic, with some (but maybe not all) investments leading to services that its member states, or NATO itself, might use. The NIF will look mainly at early stage investments — that is from pre-seed through to Series B — and it might also make follow-on investments. Initial checks will be up to €15 million. The first investments will be announced in September, the organization said; none have been made so far.

The aim is to operate NIF like a “classic VC.” That is to say, there will be future funds, and it’s been designed to exist in perpetuity, a spokesperson said.

Many countries have notably set up sovereign funds that back technology startups and investors, both in their own countries and in other geographies and categories viewed as strategic; NATO says that its Innovation Fund will be the “first multi-sovereign venture capital fund,” covering contributions from NATO members.

The 23 countries involved in the first NATO Innovation Fund sub-fund 1 are Belgium; Bulgaria; Czechia; Denmark; Estonia; Finland; Germany; Greece; Hungary; Iceland; Italy; Latvia; Lithuania; Luxembourg; Netherlands; Norway; Poland; Portugal; Romania; Slovakia; Spain; Turkey; United Kingdom. Sweden will also be joining the group following its full accession to NATO, and that will add an additional €40 million into the pot, a spokesperson confirmed.

NATO has long been a player in procurement, but this shifts its focus to working with businesses that might also have an indirect impact on the security postures of its member countries.

That could include cybersecurity, but also deep tech, as well as technologies that can help countries develop better energy or other resource independence.

Priorities like these have become especially stark in recent years. Russia’s invasion and subsequent war in Ukraine has highlighted just how interconnected countries are economically in Europe, and how interrupting production and supply chains in one can have huge, detrimental impacts in others. Similarly, over-dependence on single technology companies for certain services is also especially risky, and so spreading bets and diversifying the markets and putting money into that effort also helps build NATO’s security posture.

At the same time, the adoption of newer technologies and innovations has clearly shaped up as a critical component of how nations — or a consortium of nations — defend themselves in the twenty-first century (and of course nations and states use innovation also for offence, not just defense). Given the role that startups and newer businesses are playing in that innovation economy, NATO taking bigger steps to captalize on that is equally critical right now.

The fund is being set up with a founding team that will take on an executive role, leading on sourcing and making investments. That will be complemented by a board of directors that will have more of a non-executive role, providing advice and helping to steer those decisions.  The founding team will include managing partner Andrea Traversone supported by Kelly Chen, Thorsten Claus, Patrick Schneider-Sikorsky and Chris O’Connor. The board will be led by Dr. Klaus Hommels (who founded Lakestar), Dame Fiona Murray and Dr. Roberto Cingolani.

Given the layers of drawn-out bureaucracy — or, in a more charitable light, checks and balances — that NATO has had in place since its inception after World War II, it will be interesting to see how the Innovation Fund operates — and specifically, whether it figures out how to move in a more nimble way to be more responsive to the startup ecosystem.

The “In venture capital, the senior management team are the brains behind investment decisions,” David van Weel, NATO Assistant Secretary General for Emerging Security Challenges, said in a statement provided over email. “I am confident that the NATO Innovation Fund’s Founding Team has the experience, drive and capability necessary to deliver the NIF’s mission.”

Other questions that have yet to be addressed publicly are whether NATO will have any red lines in terms of what kinds of companies it would not back, and whether it will have restrictions on who it would co-invest with, and if so what those might be. Nor is it clear if NATO will be transparent on every investment that it makes, or whether there will be some that remain undisclosed.

Answers to questions we put forward on these subjects might be addressed in the update in September. (Or, they might not.)

The innovation fund is one part of a one-two punch that NATO is making to broker more engagement with startups and innovation-focused businesses in its footprint. It’s also building out the DIANA accelerator to back and work more closely with startups that are building “dual-tech” solutions — those that might have a very direct and obvious application in NATO’s core activities, but also longer term applications that might not.

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