Germany is emerging as Europe's defense innovation engine, with startups developing everything from AI-controlled tanks and battlefield drones to cybernetic cockroaches that could soon crawl through warzones. The shift, driven by Russia's invasion of Ukraine and fears over U.S. reliability as a security partner, marks a radical departure from Germany's historically cautious defense posture.

At the heart of this transformation is Helsing, Germany's most valuable defense startup. Once struggling for capital, the Munich-based company recently doubled its valuation to $12 billion, riding a surge in European military spending that, for the first time in decades, has outpaced the U.S.

"Europe is coming to terms with defense," said Helsing co-founder Gundbert Scherf, a former McKinsey partner. He likens the shift to a Manhattan Project moment for Europe, where battlefield tech could redefine not just security-but industrial policy.

Berlin's New Military Mindset

With Chancellor Friedrich Merz's government pledging to nearly triple the defense budget to $175 billion by 2029, Germany is now moving aggressively to embed AI and autonomous systems into its military planning. A new procurement law, approved this week, will reduce barriers for startups, allow advance payments, and limit contracts to EU-based firms.

"Money is no longer an excuse-it's there now," said ARX Robotics CEO Marc Wietfeld, after meeting with Defense Minister Boris Pistorius.

Germany is also fostering collaboration between startups and traditional giants like Rheinmetall and Hensoldt, which have long backlogs for legacy systems but less focus on disruptive innovation.

Tech Meets Tactics: From Spy Bugs to Swarm Robots

Among the most striking innovations is a project by Swarm Biotactics, which is developing cyborg cockroaches outfitted with neural stimulation devices and cameras. These bio-robots are designed for surveillance in hostile terrain, controlled individually or deployed in swarms.

"They can operate autonomously or as a team in complex environments," said CEO Stefan Wilhelm.

Other startups are building mini-submarines, loitering munitions, and tank-like AI ground units. ARX Robotics, Quantum Systems, and Donaustahl are leading the charge with scalable systems and battlefield-ready prototypes, many of which have already been tested in Ukraine.

A Shift in Public Sentiment-and Global Influence

What once would have been taboo in pacifist Germany is now gaining public support. "We've seen a cultural shift since the Ukraine war," said Sven Weizenegger, head of the Bundeswehr's Cyber Innovation Hub. He says interest in defense innovation has exploded, with dozens of pitches arriving weekly.

Meanwhile, Germany is the second-largest military backer of Ukraine after the U.S., and is pushing to hit NATO's 3.5% GDP defense target by 2029-faster than most allies.

"Germany has to be the lead nation in European defense," said Sven Kruck, strategy chief at Quantum Systems, one of Europe's three defense "unicorns."

From Economic Drag to Engine of Innovation

Facing stagnant growth, competition from China, and a weakened automotive sector, Germany sees defense tech as a new growth engine. With production capacity available in its powerful Mittelstand (SMEs), and engineering talent flowing from other sectors, startups now have the resources to scale fast.

"The Mittelstand will be the muscles. Startups bring the brains," said Donaustahl CEO Stefan Thumann, who receives job applications daily from displaced auto workers.

Venture capital is responding: $1 billion poured into European defense tech in 2024, up from $373 million in 2022. Germany led the continent, attracting $1.4 billion over five years, with major VC firms like HV Capital, Tholus Capital, and Project A backing firms like Helsing and ARX.

"Defense drives innovation-and innovation drives the economy," said Markus Federle of Tholus Capital. "Germany is finally acting like it."