UK defence tech investment heads towards £1bn after tripling in 2026

Venture capital investment in UK defence technology companies has almost tripled to £720 million this year and is projected to approach £1 billion by the end of 2026, driven by growing investor interest in drones, autonomous systems and military applications of artificial intelligence, according to a new report from the Royal Academy of Engineering.

The £720 million recorded by the end of September compares with approximately £240 million raised during the whole of 2025. The projected full-year figure would mark a record for the sector and reflects growing private investment in technologies with military and security applications.

The findings form part of the Academy’s State of UK Deep Tech 2026 report, published on 9 November. Produced using data from Dealroom, the report examines investment in engineering and science-based companies, including those developing technologies for defence.

Drones and autonomous systems accounted for approximately £330 million of defence-related investment this year, while applications of artificial intelligence attracted around £230 million.

The figures cover defence technology and technologies with potential defence applications, rather than investment exclusively in companies supplying military equipment.

Drones and AI lead defence investment

The sharp increase in funding reflects growing investor interest in technologies that could change how armed forces operate, particularly autonomous platforms and systems that use AI to process information or support decision-making.

The Academy identifies Cambridge Aerospace and Kraken Technology Group among the companies attracting significant investment.

Their inclusion illustrates the increasing attention being paid to newer defence technology businesses alongside established military equipment manufacturers.

The report’s findings also come as the Ministry of Defence seeks to make it easier for smaller technology companies to enter the defence market.

The MoD has established UK Defence Innovation to support the development and adoption of emerging technologies. Its work is intended to help bring new capabilities into military use and improve access to defence opportunities for businesses outside the traditional supplier base.

A £20 million accelerated contracting programme is among the measures aimed at reducing barriers for smaller companies.

The first 13 businesses received contracts in May, with more than half having no previous experience of supplying the defence sector.

The programme covers technologies including quantum sensing, autonomous systems, secure communications, space manufacturing and synthetic training.

Although government procurement contracts are separate from the venture capital investment recorded in the Academy’s figures, they are important to the wider effort to help emerging defence technology companies develop products and secure customers.

Access to contracts can be particularly important for smaller businesses seeking to demonstrate technologies before moving into larger-scale production.

UK deep tech investment set for record year

The growth in defence technology investment forms part of a wider increase in funding for UK businesses developing advanced engineering and scientific technologies.

The Academy expects venture capital investment across the country’s deep tech sector to reach £12.8 billion in 2026, surpassing the previous peak recorded in 2021, with 13 unicorns created this year. Approximately £9.6 billion had already been invested when the report was compiled.

The UK remains the world’s third-largest deep tech market, behind the United States and China. Its 2,600 privately held deep tech companies have a combined valuation of £155 billion. The wider ecosystem, including businesses that have been acquired or publicly listed, is valued at £503 billion.

The report also identifies a substantial shift towards artificial intelligence.

AI-related companies accounted for 71% of UK deep tech venture capital investment in 2026, compared with 36% in 2025. Much of the increase was driven by large funding rounds involving Isomorphic Labs, Wayve and Ineffable Intelligence. Investment across the remainder of the sector remained broadly flat.

Funding gap remains a concern

Despite the increase in investment, the Academy warns that the UK continues to face difficulties helping promising technology businesses expand into large international companies.

UK investors provide 59% of early-stage deep tech funding but account for only 21% of later-stage investment.

This leaves many growing companies dependent on overseas investors when they need larger amounts of capital to expand operations. The report identifies an estimated domestic growth capital gap of between £3.8 billion and £12 billion.

It also points to difficulties accessing specialist infrastructure, navigating procurement systems and securing early customers.

Sir John Lazar, president of the Royal Academy of Engineering, said the UK needed to ensure that its most successful technology companies could continue growing from a domestic base.

“The challenge now is ensuring that more of these companies can grow to global scale from a UK base and that the value they create continues to strengthen our economy and innovation ecosystem,” he said.

Dr Caroline Hargrove, chair of the Academy’s Enterprise Committee, said the UK had demonstrated its ability to establish innovative companies but needed to do more to help them expand.

“The UK is brilliant at creating deep tech companies, but we need to match that with an ability to scale them,” she said.

The report found that only 2.8% of UK deep tech companies reach the highest levels of commercial scale, compared with 6.5% in the United States.

The Academy argues that improving access to domestic investment, particularly at later stages of development, would help more businesses remain in the UK as they grow.

Ana Avaliani, the Academy’s director of enterprise and place, said the importance of deep tech now extended beyond its contribution to economic growth.

“Deep tech is no longer simply an economic opportunity; it has become a strategic national capability. Capital is essential, but it is not enough. The UK must also provide access to specialist talent, infrastructure, procurement pathways, regulatory clarity and commercialisation support so that breakthrough technologies can scale, compete globally and remain anchored here,” she said.

The findings underline a challenge for the UK’s emerging defence technology sector. Private investors are committing more money to drones, autonomy and AI, but the ability of those companies to expand will also depend on access to customers, manufacturing capacity and longer-term finance.