The money has arrived. Between January 2025 and June 2026, the FTSE 350 Aerospace & Defence Index rose more than 85%; venture funding into European defense startups reached €7.4 billion ($8.4 billion) in 2025; and the European Union’s €150 billion SAFE loan program now ties major contracts to building at scale, fast, with most components sourced inside the bloc.
Europe does not have an idea problem. Its challenge is turning ideas into mass-produced capability, and the joint ventures (JVs) meant to do that too often stall before they deliver.
The logic of a JV is sound: pair a fast-moving innovator with an incumbent that has factories, program relationships, and government credibility, and you can field capability faster than either could alone. A JV is often the right structure precisely where a full acquisition is not, whether because of national-security rules, foreign-ownership scrutiny, or a desire to prove the partnership works before committing permanent capital. A JV is not a compromise; it is a deliberate way to solve problems no other structure handles as well.
The deals that are progressing show what good looks like: Rheinmetall and ICEYE set up a satellite-manufacturing venture in 2025, and more recently, Helsing and OHB have teamed up to fuse battlefield AI with satellite-building in their KIRK venture. Both are promising because each side brings something the other cannot easily replicate. KIRK itself grew out of an earlier alliance, a reminder that the strongest partnerships tend to deepen over time rather than arrive fully formed.
So why do others lose momentum? Two reasons are well understood, and two are easy to miss.
Familiar challenges
First, speed. For an innovator, time is the most valuable asset. Approval cycles that are routine for a large organization can consume an innovator’s cash runway and slow the rapid iteration that modern, software-defined warfare rewards. A venture that moves only at the larger partner’s tempo loses much of its purpose.
Second, control. Software is improved through constant, rapid iteration. If the venture is set up so that routine technical decisions must clear the incumbent’s approval processes, speed is the first casualty. The structure looks balanced on paper, but development slows, decisions stall, and the partnership can lose momentum before anything reaches the field.
Overlooked challenges
The third is a difference in how the two sides measure value. A large defense group naturally values what it can see on a balance sheet: factories, order books, and assets depreciated over decades. But much of an innovator’s worth sits elsewhere, in software, algorithms and the ability to rewrite a product in weeks.
Helsing, for example, has been valued above €12 billion, and ICEYE above €10 billion, with almost none of it attributable to tangible assets. Applying a hardware-centric, revenue-based framework to a software-defined business understates the innovator’s contribution and misaligns incentives. The more useful approach treats an innovator’s commercial traction and demonstrated demand as real evidence of value, not something to discount until a defense contract is signed.
The fourth tends to surface only years later: who owns the technology, and the data it generates. If core intellectual property is not clearly ring-fenced at the outset, an innovator can become tied to a single partner and constrained from selling elsewhere, which limits its own value and can strain the relationship as circumstances change. This is why valuation is not a closing formality. Left unmanaged, a misalignment that seems minor at signing compounds quietly and can destabilize a partnership long after formation. Ownership, licensing, and exit terms are far easier to resolve at the start, when incentives are aligned, than once commercial pressures have set in.
None of this calls for financial engineering. It asks both sides to be clear about what each brings and what each receives: the innovator quantifying the value of reaching a certified production line and skipping years of procurement friction; the incumbent quantifying the capability it would otherwise have to build in-house; and both agreeing in advance how the economics adjust if the technology proves decisive in winning a program.
One pattern is worth watching. Partnership activity is not spreading evenly across the market; it is coalescing around a handful of industrial platforms, with groups such as Rheinmetall recurring as serial JV partners across multiple capability areas. As these alliances mature from loose market-access arrangements into named ventures with real equity at stake, valuation discipline stops being optional. Europe’s procurement ambitions will be met by partnerships built to last, where ownership, control, value, and exit are settled before the ink dries rather than after the friction starts.
Milko Pavlov is a managing director and Anita Bucanac is a director in Houlihan Lokey’s Financial and Valuation Advisory business.
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