Good morning there,

In the last year, lots of VCs have told me they’re increasingly interested in investing in defence tech. But many of them are also quick to add that they only invest in “dual-use” technologies, or those with military and commercial applications — not weapons.

But most of these technologies could easily be weaponised. So is it a cop-out? That’s what I dig into below. 

Elsewhere today, we look at British autonomous vehicle startup Wayve’s $1bn fundraise (Europe’s largest AI round to date), what deeptech startup ideas VCs are eager to be pitched and the top fertility startups to watch.

— Anne Sraders, senior reporter

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VCs and LPs should stop kidding themselves about ‘dual-use’ defence tech 

Many VCs are telling me how exciting defence tech is these days, and how they’re increasingly looking to invest in companies making technology or services to protect national interests. But if you dig a bit deeper, most of them will add that they aren’t willing to fund companies developing things that could be used offensively — i.e. to attack enemies. 

Instead, most say they’re investing only in ‘dual-use’ technology — that has both military and commercial applications. But in my view, this ‘dual use’ label is a bit of a cop-out. Almost all of these dual-use technologies could be used to cause harm to people. VCs and their investors, LPs, should stop kidding themselves that they’re able to invest in this area without tackling the moral implications of funding technology used as a weapon. 

“You could easily daisy chain back to say, 'Okay, well if this is doing location tracking even better, at some point that’s going to lead to something offensive',” one defence investor, who requested anonymity to speak freely, recently told me.

“If you want to be truly philosophical about this, anyone who pays tax is funding weapons. Full stop,” they added. 

While there’s a difference between actively and passively funding weapons, they do make a good point: “If you’re a GP doing defence and you’re philosophically against weapons, you probably shouldn’t be doing it.” 

“Even if what you're investing is only defensive, if someone thinks that that will never play a role in something offensive, it just indicates to me that they haven’t thought through it fully.” 

Obvious examples of these types of dual-use technologies that could be weaponised include drones and satellites — hot areas for VCs at the moment. 

Some dual-use investors see things differently. “We are thinking [of this in terms of] armed versus unarmed dual-use technologies, rather than defensive versus offensive,” Christian Saller, general partner of German VC firm HV Capital, tells me. In HV’s portfolio is German AI drone startup Quantum Systems, which raised €63.6m in funding last fall, and would fall squarely in this grey area. 

Saller points out that Quantum Systems develops unarmed air surveillance drones that are also used by the military. “This is a technology that we feel comfortable with, both from a [legal perspective with limited partner agreements] and also from an ethical perspective,” he says, adding that HV isn’t currently considering investing in startups making arms.

It’s not surprising why VCs are drawing a distinct line around dual use: much of the hesitancy seems to be coming from LPs, as Sifted has reported. It’s standard to have language in LP agreements (LPAs) that says VCs can’t invest their money in things like pornography or weapons.

But as defence tech has become less controversial, particularly since Russia invaded Ukraine in 2022, this has posed a problem for VCs wishing to invest in the sector but restricted based on their fund parameters. I’ve heard some VCs are trying to renegotiate their LPAs to let them invest in defence tech, while others are thinking about raising new funds altogether. 

“Renegotiating LPAs is a complex process that most VCs shy away from,” notes Saller, adding that’s why most generalist VC firms currently focus on dual-use investments. 

Some VCs argue that LPs haven’t interrogated their position on the issue enough. “I truly think it is mental laziness on the part of LPs,” the defence investor argues. “They just don't want to spend the mental effort to think about where they stand on this.”

I can see the argument on both sides. After all, even something as ubiquitous as the internet can facilitate attacks and conduct surveillance. By that logic, what really is offensive tech? If a company makes most of its money from commercial — not military — applications, does that change things? 

But I think VCs — many of whom are suddenly looking to invest in the newly-buzzing defence tech space — should be a bit more honest with themselves. If you’re tiptoeing on the line, you should have a long, hard think about your moral boundaries and where investing in dual-use tech leaves you.

I’m very curious to hear from you, VCs: do you disagree that dual use is a slippery slope? Have you thought about investing in defence tech? Would you only invest in dual use, or would you be interested in investing in offensive or armed tech (LPAs permitting)? What moral qualms do you have with defence tech? I’m all ears. 

— Anne Sraders, senior reporter

💰 Autonomous vehicle startup Wayve has raised a $1bn Series C led by SoftBank, alongside NVIDIA and Microsoft. It’s the largest round for an AI startup in Europe. 

• The UK-based company, which is developing software for AVs, will use the funding to develop its technology and launch its first commercial products to car makers.
• It comes at a critical moment for AV companies — with many looking to begin generating revenue after years of investment in R&D.

💸 Definely, a Microsoft and Google-backed AI legaltech startup, has raised $7m. The round was led by Octopus Ventures, with participation from Cornerstone VC and Zrosk Investment Ltd, alongside several angels.

• UK-based Definely offers a suite of products that include an AI-powered document drafting tool, a proofreader and a PDF scanner. It’s among many startups racing to deploy AI in the legal sector.
• The startup plans to use the money to build more AI-based products and double down on expanding its US operations. 

🤑 Octopus Energy’s valuation has risen to $9bn after share purchases from existing investors, according to Sky News. Former US vice president Al Gore’s investment fund, Generation Investment Management, and Canada Pension Plan Investment Board (CPPIB) have increased their stakes in the UK’s second-largest energy supplier. The fresh valuation is 15% higher than it was when Octopus raised £800m in December last year. 

• The company has also been on an acquisition spree in recent years, focused on energy suppliers and tech for its tech arm, Kraken. Here’s who’s been acquired.

🤝 Meet Europe's fintech soonicorns.

🫡 10 pitches deeptech VCs want to hear.

👀 Fertility startups to watch, according to investors.

😮 The VC behind Europe’s leading startup ecosystem. (Sponsored by UVC Partners)

May 14 | Berlin. DACH reporter Miriam Partington is at Stay in Tech!, an event focused on attracting and retaining female tech talent. Going to be there? Drop her a line. 

May 14 & 15 | Helsinki. Climate tech reporter Freya Pratty will be at Cleantech Scandinavia’s Cleantech Capital Day. Get in touch if you’re there. 

May 15 | London. Reporter Sadia Nowshin is moderating at ‘Greeking Out in London’, hosted by entrepreneur community Endeavour Greece and Genesis Ventures. Are you there? Reach out.

May 15 | Stockholm. Europe editor Mimi Billing is at Sana Labs’ AI Summit, which features names like Geoffrey Hinton and Jeanette Winterson. Drop her a line if you’re also going. 

May 15 | Online. Contributing editor Éanna Kelly will bring together a panel of experts from Delivery Hero, ANNA Money, Twilio and Qonto to chat about the evolving startup landscape and how data could be the key driver when scaling businesses old and new. RSVP. 

May 15 & 16 | Poznań. CEE reporter Zosia Wanat is at ImpactCEE. Also attending? Reach out for coffee.

May 16 | Malmö. Mimi Billing is at Mashup, an invite-only event for founders and VCs. Also on the list? Get in touch. 

May 16 | Berlin. Miriam Partingon is at the German Startup Awards. Also there? Drop her a note to catch up. 

May 21 | Online. We’ll be showcasing five of the hottest early-stage healthtech startups currently fundraising (and potentially one or two healthtech founder superstars) — exclusively for Pro subscribers. RSVP. 

June 3 | Vienna. Join Sifted at the ViennaUp Startup Festival for an exclusive networking event to connect with the fastest-growing startups on our Central Europe Leaderboard. Limited space available. RSVP. 

June 4 | Munich. Newsletter editor Tom Nugent is moderating a panel on the state of Europe’s spinout ecosystem at Spinoff Summit 2024. Going to be there? Reach out.

VENTURE

Milan, Italy-based Futura, which uses AI to help students personalise and track their learning, raised €14m in Series A funding. Eurazeo led the round and was joined by investors including  United Ventures and Axon Partners Group.

Zurich, Switzerland-based Memo Therapeutics, which develops antibodies to treat kidney transplant patients at risk of BKV infection, raised CHF 20m (€20.5m) in Series C extension funding from investors including Ysios Capital and Kurma Partners.

London-based Eleos, a digital provider of life insurance and income protection products, raised $4m in seed funding. Fuel Ventures and Indico Capital led the round and were joined by investors including APX.

Delft, Netherlands-based zepp.solutions, which develops hydrogen fuel cell systems to turn hydrogen gas into electricity, raised €3m in funding from investors including the Rotterdam Energy Transition Fund.

DEBT

London-based iwoca, software for SMEs to access loans quickly, raised £270m in debt funding from Citibank, Insight Investment, Barclays and Värde.

If you’d like to submit a deal, get in touch. 

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