On March 2nd, 2023 the Estonian government authorised the Minister of Entrepreneurship and Information Technology to invest 30 million euros in NATO’s billion-euro Innovation Fund through the national fund management company SmartCap.
Estonia will invest 30 million euros in NATO Innovation Fund through the SmartCap Venture Capital Fund, managed by the state-owned fund management company SmartCap. The purpose of the Innovation Fund is to create and finance new companies that develop deep technologies with dual, i.e. civilian and military use.
“Current security situation has significantly increased the need for new technologies in the field of defence. In my opinion, the Estonian defence industry has a great growth potential. The recent Garage48 defence hackathon convinced me of that even more, and I believe that our companies have a lot to offer our allies. On the other hand, underfunding of dual-use and advanced technologies is a problem across all Europe. The Innovation Fund will enhance cooperation between NATO countries and offer a secure financing option for the development of strategically important areas,” explained Kristjan Järvan, Minister of Entrepreneurship and Information Technology.
Today, it is difficult to find the money for the development of deep technologies for the defence industry on the market because there is a lack of willingness to provide the so-called patient capital necessary for the development of capital-intensive deep technologies. It is especially challenging for companies whose customer is the state, which is common in the security and defence industry, because in most cases the state is not ready to buy prototypes but wants ready-made solutions that already work.
According to SmartCap’s board member and fund manager Sille Pettai, NATO Innovation Fund gives Allies an opportunity to see new emerging technologies and, above all, to find and invest in such companies that have a clear output on the commercial market, as well as potential for dual-use output and a possible security and defence output. Using the fund NATO can maintain its technological edge and secure its position as a carrier of technological innovation in the world.
“Today in Estonia we have many successful and innovative technology companies, an outstanding business environment, and a strong defence policy and national defence system. However, we still need to build a bridge that would enable a well-functioning ecosystem of technology companies operating in the field of defence which we are presently lacking,” said Pettai. “SmartCap considers contribution to the NATO Innovation Fund as an important measure that would create preconditions for local companies and venture capital funds for attraction of money from the supranational strategic fund and for gaining access to a unique network and potential customers.”
The total volume of NATO Innovation Fund will be 1 billion euros, and the respective agreement was signed by 22 countries at the NATO summit held in June last year. The fund will start investments — directly and indirectly — into start-ups developing EDTs primarily geared for commercial markets that also have potential defence and security applications, starting at the end of 2023.
The start of participation in the NATO Innovation Fund is also provided for in the Government’s Action Programme 2022-2023.