Yesterday, Estonia 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 vehicle, the project has now doubled in size and widened its scope to support the growing local ecosystem.
“This initiative will boost our defence industry and economy, while also enabling us to better support Ukraine,” KristenMichal, Prime Minister of Estonia. He has also announced that the country will be accelerating its overall Defence commitments up to 5% of GDP, up from a 3.7% target for 2026.
The new fund, managed by state-owned investment company SmartCap, will make both direct investments in defence companies and invest in specialised venture capital funds.
The initiative comes as European countries work to expand their defence industrial base. “Estonia’s domestic defence industry is crucial for national security and economic competitiveness,” said Economic Affairs Minister Erkki Keldo at the launch event.
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 can have ties to Russia, Belarus, or countries on international sanctions lists. 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: “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 it has uncommitted capital available. SmartCap maintains discretion to modify investment terms or discontinue the program.
Defence industry leaders welcomed the initiative. “The establishment of the Defence Fund is a key component of the defence industry ecosystem, enhancing Estonia’s business environment and making it more attractive to foreign companies and investors. It also serves as a recognition of the defence industry sector and its growing importance,” said Kalev Koidumäe, who heads Estonia’s Defense and Space Industry Association.
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