The muddied waters of VC and geopolitics

Hello friends, and welcome to The Unsophisticated Investor! Brought to you by Scott & Rob, the founders of Shuttle!

If you want to invest alongside the VC funds who've backed breakout companies like Revolut, Asana, JustEat, Bolt, Lets Get Checked, Loom, Runna, Charlotte Tilbury, Deel, Aircall, AngelList, Carta, TransferWise and many more, regardless of your knowledge, network or net worth, join our limited waitlist now.

Now, let’s get into it 👇 

Venture capital likes to tell a story about itself: the lone founder, the brilliant idea, the garage. But pull back the curtain, and geopolitics has always been in the room.

Last week, we explored what a SpaceX IPO at a $1.5 trillion valuation might mean for European private markets, how it could reprice the space and defence sector, accelerate capital flows into sovereign technology, and validate a category that European founders are actively building. This week we dig a little deeper into the history of why billions of dollars of venture capital is now flowing towards defence tech, and why it is perhaps less surprising than it first appears.

The success of venture capital over the past 30 years has largely been built on globalisation, free markets, and consumer and digital services. It can feel very far removed from political theatre. But what we are seeing today is not a departure from the industry's identity. In many ways, it is a return to its origins.

Was Sputnik the spark for Silicon Valley?

To understand how we got here, it helps to go back to the 4^th of October 1957, the day the Soviet Union launched Sputnik-1 into orbit. The response from Washington was swift. Congress created NASA, poured money into university research programmes, and set up DARPA, the Defense Advanced Research Projects Agency, specifically to fund the kind of high-risk, long-term research that private investors would never back on their own.

The ripple effects of that decision are still felt today. GPS, the internet, voice recognition, touchscreens, and much of the foundational research behind modern artificial intelligence all trace a line back to defence funding flowing into American laboratories during the late 1950s and 1960s.

Here is the part that often gets left out. In 1958, Congress passed the Small Business Investment Company Act. For every dollar a private institution put into a new company, the government would guarantee three dollars of co-investment. In effect, the basic financial infrastructure of what we now call venture capital was built overnight by an act of Congress. By 1968, over 600 SBIC funds were operating across the US, accounting for roughly three quarters of all venture funding in the country.

Fairchild Semiconductor, the firm that eventually spawned Intel and helped establish equity compensation as the standard template for startups, was incorporated in 1957. Three days later, Sputnik launched. The flood of defence spending that followed transformed a cluster of engineers in Northern California into the most important technology ecosystem in history. Silicon Valley was not simply the product of competition and good ideas. It was, in a very real sense, a geopolitical project. (If this is new to you, Chris Miller's book Chip War is well worth your time.)

The story venture told itself

For a few decades after that, the industry was fairly happy to forget its origins. Through the 1990s and 2000s, the technology sector styled itself as apolitical, based on a world of code, capital and meritocracy that operated above the messy business of government interests. Consumer internet was taking off. Social media was reshaping how people communicated, and VCs were seeing outsized returns as the world embraced the globalisation of technology and services that flowed across borders.

But did geopolitics ever really leave? In-Q-Tel, the CIA's venture arm founded in 1999, quietly invested alongside commercial funds in companies that would go on to become household names. The research behind Google's search algorithm, the work that made Larry Page and Sergey Brin famous, was partly funded by a US intelligence programme called Massive Digital Data Systems. GPS, mobile internet, voice recognition: the technologies that made the iPhone possible each trace a direct line back to DARPA.

It is worth remembering why venture capital looked apolitical for so long. It was not really a principle, but out of circumstance. American technological dominance was so complete that the state could afford to step back and let the market get on with things. But geopolitical realities, and increasing competition from China (among others) has gradually pulled the state back into the room.

When geopolitics became impossible to ignore

Russia's full-scale invasion of Ukraine in February 2022 did something that years of geopolitical commentary had not quite managed, it put the realities of war firmly on the agenda for European politicians, investors and founders alike.

Within months, the language in boardrooms and the media shifted. Terms like 'resilience', 'sovereignty' and 'dual-use' moved from the fringes into everyday conversation across the venture capital industry. Funds that had spent a decade backing fintech, crypto and e-commerce started quietly rethinking their theses. Before 2020, defence accounted for roughly 1% of all European venture funding. By 2024, that figure had reached 4% across Europe, and 6% within the EU.

The numbers have kept moving. European defence, security and resilience startups raised a record $8.7 billion in venture capital in 2025, a 55% increase on the year before and nearly four times the level of five years ago. Late-stage investment alone tripled to $4.7 billion. As we noted last week, Helsing, the German AI defence company, raised $600m in a single round, the largest ever for a European defence startup. Drone companies, autonomous systems developers, satellite operators and battlefield AI firms are attracting valuations that would have been almost impossible to justify to an investment committee as recently as 2019.

It is not just a European story either. In the US, venture investment in defence technology startups grew more than tenfold between 2019 and 2024. Y Combinator, the accelerator behind Airbnb, DoorDash and Reddit, backed its first weapons company in 2024, Ares Industries, which builds low-cost cruise missiles. The consumer internet thesis that defined the previous decade is being rewritten around the realities of what governments actually need and are willing to pay for.

Where the capital is going now

What is taking shape is not simply a defence technology boom, but a broader shift in where venture capital flows and why, one driven by structural forces that are unlikely to reverse quickly.

The rivalry between the US and China is reshaping how companies think about supply chains. Semiconductor manufacturing, once built purely around cost efficiency, is being redesigned with security and resilience in mind. In Europe, the picture is particularly striking. The assumption that US security guarantees would always be there has quietly given way to a more cautious view. Governments and investors across the continent are now building the industrial and technological base that, arguably, should have been built decades ago.

The numbers reflect that shift. There are now 21 specialist defence funds active in Europe, up from 8 before 2022. Deutsche Telekom and Porsche SE are anchoring a €500m fund focused on European defence technology. The NATO Innovation Fund, backed by 24 member states with €1bn, now participates in over a third of all European defence funding rounds. American investors are contributing 40 to 50% of late-stage European defence rounds, a sign that the continent's rearmament is being read as a long-term structural cycle, not a temporary spike.

On the policy side, the EU's ReArm Europe plan is targeting up to €800bn in defence spending through 2029, a truly staggering number. The NATO Summit in The Hague set a new defence spending target of 3.5 per cent of GDP by 2035. Seventeen EU member states have already unlocked additional budget headroom to expand defence spending. As ever, capital tends to follow where policy points.

A few things to bear in mind

None of this means the current trajectory is straightforward. The same forces driving capital into European defence and space technology also raise some genuine questions for anyone thinking about allocating to the sector.

Is European defence tech genuinely building lasting value, or is it a government-supported boom that fades when the political climate shifts? Are the valuations on drone companies today, many of which depend heavily on demand from the conflict in Ukraine, sustainable if and when that demand changes? And as AI becomes the central technology across the defence sector, who actually captures the returns, the startups, or the large established contractors like Lockheed and BAE, who are watching quietly from the sidelines and preparing their acquisition shortlists?

These are not abstract questions, but the realities of the current geopolitical and market environment. The deeper history offers some reassurance, however. The technologies born from Cold War competition, the internet, GPS, voice recognition, eventually became tools that billions of people use every day with little thought for their origins. The current moment is uncomfortable, but technological progress funded by necessity has a way of outgrowing the circumstances that created it. With any luck, the venture capital of the 2030s will look back at this period the way we look back at Sputnik: as the unlikely spark for something far more useful than anyone originally intended. 

What we’ve been working on at Shuttle

• Agreed a partnership with Innovis VC, Europe’s largest student-led VC organisation 🤝

• Shipped our founder co-pilot to help founders easily manage their cap tables and funding rounds 🛠️

• The big shift has been prepping for our funding round 🔥

The Unsophisticated Investor is brought to you by Scott & Rob, the founders of Shuttle. We’re both sick of private markets being a playground exclusive to the ultra-wealthy so we started a company to challenge the status-quo. Shuttle’s singular focus is to unlock private markets for Millennial and Gen Z tech professionals and help them build wealth through the highest performing private market opportunities.

Scott & Rob
Shuttle Co-Founders