Why private capital is moving in
Rising military budgets and geopolitical tension are pulling private equity deeper into defense technology. PitchBook reports PE growth investments totaling $4 billion for January-September 2026, compared with $500 million in 2024, as traditional buyout firms move into younger, faster growing companies.
The tempo is accelerating. According to PitchBook, there were 15 defense PE growth deals in 2024; the figure rose to 31 in 2025 and reached 48 by September 2026. In value terms, these transactions represented 41% of defense PE activity in 2026, versus only 3% in 2024.
"Private capital is now playing a critical role in the financing of defence technology companies," said Daniel Turgel, a partner at White & Case. PitchBook's lead industrials analyst Jim Corridore added, "Private equity firms are putting more money into defense, and they are changing how they do it," and, "It is clear to me that PE is moving into territory VC used to own."
As defense tech firms mature, analysts expect private equity, debt and other financing to help fund the leap from lab to production line because venture money alone may not cover it. A White & Case poll of 250 senior leaders at U.K. defense companies reported that 97% planned to pursue significant external funding during the next 12 months.
Where the money is going and why
Governments upgrading military capabilities are creating openings for builders of autonomous drones, missile defense and satellite systems. In October, Dealroom and Resilience Media reported that by September, startups in NATO and allied nations had secured $27.1 billion, almost double the full-year 2025 sum. Investor participation is broadening: private equity and venture firms, along with sovereign wealth funds and family offices, are all seeking to increase activity - a notable shift from a few years ago when many were reluctant or constrained from investing in defense.
Advent International offers a clear example. In March, the firm set aside up to $1 billion for next-generation defense technology, committing funds to Shield AI as well as Saronic. Shonnel Malani, Advent's managing partner who oversees its global aerospace and defense business, said to CNBC that the firm had already put to work roughly three quarters of that commitment.
Malani said Advent's move into younger defense tech companies is a natural extension of its work in established defense businesses. He said the firm supports technologies with defined military applications that customers have already validated, prioritizing that over financial yardsticks.
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Not every investor is changing lanes. Lionel Mestre, a partner at Weinberg Capital Partners, said the firm still targets profitable defense suppliers that already have established products, a customer base, and positive cash flow, avoiding early-stage startups. He noted that the valuations of the smaller, established suppliers Weinberg pursues have not climbed markedly despite heightened investor attention.
Mestre believes there is scope to fund additional production capacity, staffing, working capital, and commercial functions, while judging the rapidly evolving drone market as premature for the firm's buyout approach. "This sector will have to consolidate anyway," he said.
He also noted a marked shift in how European institutional investors view defense, a shift that has coincided with President Donald Trump's return to the White House and fresh demands that European countries boost military spending.
Risks, exits and market structure
A surge of private capital can speed innovation while pushing up prices. Malani said more companies are being valued on technological potential instead of revenue, profit or order books, creating ample room for differing views on their worth. He added that a pullback could be unavoidable if some firms fail to convert potential into commercial results. Asked about a possible bubble, he said, "I think there is a very big risk of that," noting there is "a lot of froth in the system" and that Advent walked away from several deals where valuations had become "silly."
Corridore pushed back on the overheating narrative but expects interest to keep growing. "Budgets are growing, the military has used up a lot of ammunition, and new drone and counter-drone technology is arriving," he said. "All of that gives investors the steady revenue PE needs to make long-term bets."
Exits remain a question. PitchBook counts 504 defense PE deals but only 101 exits since 2021, while noting the totals include add-on acquisitions and thus do not directly indicate the portion of investments still awaiting exit. By September 2026, 70% of defense PE exit value came via IPOs, which in turn makes investors more dependent on public-market conditions. Malani also said some startups are rushing to public listings before they have the operational maturity for life as public companies.
What this means for your portfolio
The bottom line: more private equity capital is meeting rising defense demand. That can speed scaling for proven technologies and broaden the buyer base when companies raise money, but it also raises valuation risk and leans more on IPO windows for exits. For defense exposure in your portfolio, the mix of bigger growth checks, a broader investor bench and an exit market led by IPOs is the setup to watch.
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