A €1bn venture capital (VC) fund to invest in defence startups and backed by Nato allies has lost four of its five founding partners, as well as its chair, in the past 18 months.
Even in the fast-moving world of venture capital, that’s a high turnover. But the Nato Innovation Fund (NIF) is no ordinary investor. It’s a first of its kind, multi-state fund set up in the wake of the invasion of Ukraine to boost early-stage funding for “dual use” technologies, both civil and military.
So far, it has made 14 direct equity investments in startups including Wales-based Space Forge, which is exploring making advanced materials in orbit; Kraken, a manufacturer of drone boats; and Isar Aerospace, a German company seeking to challenge SpaceX in Europe.
Two dozen Nato allies are limited partners in the NIF, meaning they each contribute taxpayer cash but don’t run the business of investing day to day. That’s done by a standalone, privately owned, for-profit VC fund overseen by a supervisory board.
Like much of modern warfare, the fund operates in a grey zone. “The challenge is that the kinds of investments that make quick and significant returns may not be those that serve the public good, and the defence of Europe,” says Elisabeth Braw, senior fellow at the Atlantic Council and board member of defence startup Gallos. She says this can make staffing “complicated”.
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In May 2024, one of the fund’s founding partners resigned after a disagreement over compensation. According to reporting by Sifted, three other partners left the next year, for unrelated reasons. One of the partners contacted by The Observer described the early governance structure of NIF as “a hot fix for several competing objectives”. They said their decision to resign was a “challenging choice” that felt was “imperative” at the time.
In October, Klaus Hommels, the German founder of prominent European VC Lakestar and an early- stage investor in Helsing, a German defence start-up, stood down as NIF chair to take on an advisory role, after criticism about overlapping investments by Lakestar in Isar Aerospace.
A spokesperson for NIF said: “Suggestions that any NIF board members have had any undue or improper influence over our investment decisions are not just misleading, they are categorically and demonstrably false.” They said Hommels did not receive information on the fund’s pipeline before it was executed, and did not vote or discuss individual investment decisions. The fund says it now has a refreshed investment partnership with “extensive experience”.
Europe’s quest to find a strategic edge has arguably never been more important. Last week Nato secretary general Mark Rutte warned that Europe is “Russia’s next target” and that “too many believe that time is on our side”.
Critics say that includes the NIF. “If you’re the sort of VC that has this multilateral setup, then you are, by definition, slower,” says Braw. “But I think the bottom line is: is it better to have something like this than not to have it? Yes.”
More than 230 defence tech start-ups have been founded in Europe since Russia’s of Ukraine. This includes 52 in 2025, according to Dealroom, a data researcher. VC investment has jumped, reaching $1.5bn in the most active year yet.
Not all those investments have been scrutinised closely enough. NIF, whatever its flaws, has robust “responsible use” principles that guide investment decisions. It also holds an advantage in its ability to “platform” new technologies, enabling portfolio companies to take part in Nato exercises.
“The real multiplier effect of NIF is not necessarily the actual cash that is coming in, because that could be raised from private VC,” says one adviser to industry. “It’s that a serious supranational body considers you to be a good investment option.”
Photograph by Brady Kenniston/Nasa Spaceflight