From Battlefield Innovation to European Capital: An Interview with Andriy Kolodyuk on Defence Investment, Venture Capital and Ukraine's Future

Russia's full-scale invasion of Ukraine has fundamentally transformed Europe's understanding of defence, industrial resilience, and technological innovation. Since February 2022, European governments have committed hundreds of billions of euros towards rebuilding military capability after decades of underinvestment. NATO allies have accelerated defence spending, the European Union has introduced a series of new defence-industrial initiatives, including the European Defence Fund (EDF), the Security Action for Europe (SAFE) instrument and the European Defence Industry Programme (EDIP). Along with these support mechanisms, governments across the continent have announced ambitious plans to expand ammunition production, strengthen supply chains and increase military readiness.

Much of this debate, however, has focused upon public expenditure. Considerably less attention has been devoted to the role that private capital, venture investment and institutional finance must play if Europe is to build a genuinely competitive defence-industrial ecosystem. Governments can increase procurement budgets and launch new funding programmes, but they cannot alone generate the speed of technological innovation required to compete against ever more sophisticated strategic competitors. The future of European defence will depend not simply on larger military budgets, but on the ability to mobilise private investment in emerging technologies, scale innovative companies, and integrate commercial innovation into defence procurement far more rapidly than has traditionally been the case.

This challenge has become more urgent while warfare itself undergoes extensive transformation. The war in Ukraine has demonstrated that relatively inexpensive autonomous systems, artificial intelligence, electronic warfare capabilities and software-defined military technologies can fundamentally reshape operations on the battlefield. Small, highly innovative companies have often delivered operational competencies at a pace that traditional defence procurement systems have difficulty matching. Rather than development cycles measured over decades, Ukrainian companies frequently iterate products in weeks, responding directly to operational feedback from soldiers deployed along one of the world's most technologically dynamic battlefields.

Ukraine has therefore become something considerably more significant than simply the recipient of Western military assistance. It has emerged as one of Europe's most important defence innovation ecosystems. Thousands of companies are developing battlefield-tested technologies spanning unmanned aerial systems, electronic warfare, cyber capabilities, artificial intelligence, secure communications and autonomous systems. Many of these firms have accumulated operational experience that is difficult to replicate elsewhere. The country's wartime economy has unintentionally created one of the fastest defence innovation cycles in modern history.

Despite this transformation, European investment into Ukraine's defence technology sector remains comparatively modest when measured against the strategic importance that European leaders attach to Ukraine's long-term security and reconstruction. Political support has remained strong, military assistance continues to expand, and policymakers frequently describe Ukraine as central to Europe's future security architecture. Yet private investment has not followed at the same pace. Regulatory fragmentation, procurement complexity, political risk and institutional constraints continue to limit the flow of capital towards many of the companies that have already demonstrated their technologies under combat conditions.

This disconnect raises broader questions about the future of Europe's defence-industrial strategy. Does Europe suffer from a shortage of capital, or from structural barriers that prevent existing capital from reaching innovative firms? Can venture capital become a meaningful driver of defence innovation? How should governments balance support for established defence manufacturers with the important contribution made by startups and small and medium-sized enterprises (SMEs)? Perhaps most importantly, what role should Ukraine play within Europe's long-term defence-industrial ecosystem once the current conflict eventually concludes?

To explore these questions, I spoke with Andriy Kolodyuk, Chairman and Founder of the Ukrainian Venture Capital and Private Equity Association (UVCA). As one of Ukraine's leading venture capital investors and advocates for defence innovation, Kolodyuk has spent years strengthening Ukraine's technology ecosystem while building stronger investment links between Ukrainian companies and international investors. His perspective gives valuable insight into how private capital, procurement reform and battlefield innovation intersect at a time when Europe is attempting to rethink the foundations of its own defence-industrial base.

Europe Has the Capital But Not the Mechanisms

One of the most striking themes emerging from our discussion was Kolodyuk's argument that Europe's principal challenge is not the availability of investment capital itself. Rather, the problem lies in the systems through which that capital reaches innovative companies.

European policymakers frequently describe defence financing as one of the continent's greatest strategic challenges. However, according to Kolodyuk, capital is already available. Pension funds, institutional investors, sovereign wealth funds and private venture capital collectively possess enormous financial capacity. The difficulty lies in translating political commitment into investable opportunities supported by predictable demand and accessible markets.

When asked why Europe continues to discuss learning from Ukraine while investment into Ukrainian defence companies remains relatively limited, Kolodyuk argued that operational success has yet to be matched by institutional investment mechanisms.

"Europe recognises Ukraine's technological leadership, but capital deployment still lags behind political ambition... We have thousands of battle-tested defence companies developing solutions in drones, AI, electronic warfare, and cybersecurity. The next step is to translate this operational success into investment at scale through dedicated defence funds, sovereign investment vehicles and stronger partnerships between Ukrainian innovators and European industry."

His observation highlights an important distinction within European defence policy. Political support for Ukraine has expanded considerably, yet financial structures capable of integrating Ukrainian innovation into the wider European defence market remain underdeveloped. While governments continue supplying military equipment, relatively little private investment has flowed towards the companies producing many of the technologies currently defining modern warfare.

This demonstrates a broader challenge confronting European strategic autonomy. Public procurement can finance immediate capability requirements, but maintaining technological leadership over the longer term requires continuous private-sector investment. Defence innovation resembles commercial technology development, where venture capital supports rapid experimentation, iterative product development and scalable manufacturing. Without stronger investment mechanisms, Europe risks creating a defence ecosystem that remains heavily dependent upon public funding while struggling to commercialise emerging technologies.

Procurement, Not Capital, Is the Real Bottleneck

Perhaps the strongest argument advanced by Kolodyuk concerns procurement. Throughout the interview, he repeatedly returned to the proposition that procurement, rather than finance, represents Europe's greatest structural weakness.

Asked about the principal barriers preventing private capital from reaching Europe's most innovative defence SMEs, he rejected the assumption that investment itself is scarce.

"The biggest challenge is not the availability of capital... it's market access. Defence procurement remains slow, fragmented across nations, and largely designed around established primes. Investors follow customers, and startups need predictable procurement pathways, not just grants."

This diagnosis reflects a reality that has become progressively apparent across Europe's defence innovation sector. Venture capital does not simply invest in promising technologies; it invests where sustainable commercial demand exists. In defence markets, governments are ultimately the primary customers. If procurement systems remain fragmented, slow-moving and heavily oriented towards incumbent contractors, investors face considerable uncertainty regarding the ability of emerging firms to generate long-term revenue.

Rather than a shortage of innovation, Europe therefore confronts what might best be described as a demand-generation problem. Innovative companies can develop world-class technologies, but unless governments purchase those capabilities rapidly and consistently, private investors remain reluctant to finance large-scale expansion. Revenue, not subsidies, provides the strongest signal that emerging defence technologies possess viable long-term markets.

This distinction has important ramifications for European defence policy. Much current discussion focuses upon creating additional funding programmes, grants and innovation competitions. Although valuable, these initiatives cannot substitute for procurement reform. Investors ultimately follow customers, and customers in defence remain overwhelmingly governmental. Accelerating procurement may therefore prove considerably more effective at mobilising private capital than introducing yet another public funding mechanism.

Ukraine's Wartime Innovation Model Has Rewritten the Rules of Defence Technology

Beyond procurement, Kolodyuk believes Europe's most important lesson from Ukraine concerns the speed at which innovation now occurs during modern conflict. Traditional defence acquisition has customarily relied upon development programmes spanning years or even decades, with lengthy testing cycles, complex certification procedures and rigid procurement structures. Ukraine has demonstrated that this model is incompatible with contemporary warfare.

When asked what European investors should learn from Ukraine's wartime innovation ecosystem, Kolodyuk argued that adaptability is one of the most valuable competitive advantages in defence technology.

"The biggest lesson is speed and the ability to adapt to the constantly changing warfare. Ukrainian companies iterate in weeks rather than years because they work closely with end users and receive continuous operational feedback. Investors should value agility, rapid deployment, and the ability to adapt products quickly. These characteristics are becoming competitive advantages well beyond Ukraine."

This continuous innovation loop has become one of Ukraine's greatest strategic assets. Engineers receive operational feedback directly from frontline units, allowing systems to be redesigned, modified and redeployed within exceptionally short timeframes. Electronic warfare systems are updated as Russian capabilities evolve. Drone software is rewritten to overcome new jamming techniques. Artificial intelligence algorithms improve through constant operational use rather than laboratory testing.

The implications go well beyond Ukraine itself. Modern defence innovation resembles commercial software development more than traditional military procurement. Companies capable of rapidly adapting products will experience considerable competitive advantages over firms dependent upon lengthy development cycles. Venture capital naturally favours these characteristics because rapid iteration reduces technological risk while enabling companies to respond more effectively to shifting customer requirements.

For European governments seeking to strengthen strategic autonomy, this represents an important shift in thinking. Defence-industrial competitiveness can no longer be evaluated solely by manufacturing capacity or research expenditure. It depends upon the ability to generate continuous innovation through close collaboration between military end users, engineers, investors and industry.

Europe's Defence Future Depends Upon SMEs as Much as Defence Primes

Throughout Europe, much of the increase in defence spending has flowed towards established prime contractors including Rheinmetall, BAE Systems, Leonardo, Airbus Defence and Space, Saab and Thales. These firms continue to be indispensable to European security, possessing decades of experience, extensive manufacturing capacity and the ability to deliver large-scale military platforms.

Kolodyuk does not dispute their importance. Rather, he argues that Europe's future defence ecosystem must become considerably more balanced.

Asked whether investment has become overly concentrated among major defence companies, he responded:

"Large defence companies continue to be essential, but breakthrough innovation comes from startups and SMEs. The future of defence will depend on combining the scale and manufacturing capabilities of the primes with the speed and creativity of smaller technology companies. Europe needs both and much stronger collaboration between them."

This observation indicates broader trends already visible across global defence markets. Many of the technologies transforming modern warfare, including autonomous drones, AI-enabled targeting, battlefield software, cyber capabilities and electronic warfare solutions, have originated within relatively small technology firms rather than traditional defence contractors.

Large manufacturers retain advantages in production scale, certification, logistics and long-term sustainment. Smaller companies often possess greater flexibility, faster decision-making and significantly shorter innovation cycles. Rather than replacing established defence firms, startups complement them by developing technologies that can later be integrated into larger defence platforms.

The challenge for Europe is therefore institutional rather than technological. Procurement systems designed primarily for major contractors frequently struggle to accommodate swiftly evolving SMEs. Unless governments actively facilitate collaboration between startups and established industry, much of Europe's most innovative technology risks remaining trapped outside mainstream defence acquisition.

Procurement Reform Will Determine Whether Private Capital Follows

When asked which single reform would most effectively unlock private investment into European defence technology, Kolodyuk returned once again to procurement.

"Create genuine demand for European defence innovation. Governments should dedicate a meaningful share of defence procurement to innovative SMEs and startups. Revenue is the strongest catalyst for private investment. Venture capital follows customers, not subsidies."

This argument carries important implications for policymakers. Governments frequently attempt to stimulate innovation through grants, accelerators and research funding. While these instruments continue to be valuable, they rarely provide the long-term commercial certainty that institutional investors require. Revenue generated through procurement contracts demonstrates that technologies have moved beyond experimentation into deployable capability.

For venture capital firms, predictable procurement pipelines reduce uncertainty regarding future cash flows, making investment substantially more attractive. In effect, procurement policy becomes investment policy.

This represents a subtle but important shift in how governments should approach defence innovation. Rather than viewing procurement solely as a mechanism for purchasing equipment, policymakers need to regard it as a strategic instrument capable of shaping private investment behaviour across the wider defence ecosystem.

Strategic Autonomy Requires a Pan-European Investment Ecosystem

The concept of European strategic autonomy has become one of the defining themes of European security policy since Russia's invasion. Nevertheless, strategic autonomy cannot be achieved simply through higher defence budgets. It also requires an integrated innovation ecosystem capable of attracting capital, commercialising emerging technologies and scaling advanced manufacturing.

Looking ahead five years, Kolodyuk outlined an ambitious vision for Europe's future.

"Success would mean Europe has built a fully integrated defence innovation ecosystem where governments, industry, investors, startups, and research institutions work together. I would like to see pan-European AI and drone clusters, several €10-20 billion defence growth funds, sovereign co-investment vehicles, and Ukrainian and European companies building global defence champions together."

Notably, reconstruction barely featured within his vision. Instead, Ukraine appears as an equal participant within Europe's future defence-industrial base rather than merely a recipient of financial assistance. This distinction is significant. It suggests that Ukraine's greatest long-term contribution may not consist solely in rebuilding damaged infrastructure, but in strengthening Europe's technological competitiveness.

Perhaps the most revealing answer emerged when Kolodyuk compared Europe's investment ecosystem with those of China, Russia and the United States.

"Europe's strength is innovation, but its weakness is fragmentation. We have outstanding entrepreneurs, research, and capital, yet our markets, procurement systems, and regulations remain divided. As Commissioner Kubilius said during our AI in Defence Summit, Europe cannot afford fragmentation in AI in defence. The same applies to defence innovation more broadly. We need a true pan-European ecosystem that connects capital, procurement, industry, and technology if Europe wants to achieve strategic autonomy."

His assessment neatly encapsulates Europe's central dilemma. The continent possesses many of the ingredients required to lead in defence technology: world-class universities, sophisticated financial markets, advanced engineering capability and globally competitive manufacturers. Yet these assets remain divided across national regulatory frameworks, procurement systems and capital markets. Fragmentation, rather than capability, has become Europe's principal strategic weakness.

Conclusion

Europe's response to Russia's invasion has transformed the continent's security environment. Defence spending has risen sharply, governments have launched ambitious industrial initiatives, and political leaders acknowledge that technological innovation will determine future military competitiveness. Yet Andriy Kolodyuk's observations suggest that Europe now faces a second challenge that goes beyond defence budgets alone.

The continent does not simply need to spend more. It must spend differently.

Ukraine's wartime innovation ecosystem has demonstrated that the future of defence depends upon rapid technological adaptation, close cooperation between industry and military end users, and investment models capable of scaling emerging technologies at unprecedented speed. In this environment, venture capital, institutional investment and procurement reform become fundamental elements of national security policy rather than peripheral economic considerations.

Perhaps most importantly, Kolodyuk challenges policymakers to reconsider how they view Ukraine itself. Too often, discussions surrounding Ukraine remain dominated by military aid, humanitarian assistance and post-war reconstruction. While these remain essential, they risk obscuring another reality. Ukraine has already become one of Europe's most dynamic defence technology ecosystems. Its companies have accumulated operational experience, engineering expertise and innovation capabilities unmatched elsewhere on the continent.

The question facing Europe is therefore no longer whether Ukraine has something to contribute to European security. The battlefield has already answered that. The more pressing question is whether European institutions, investors and governments can adapt quickly enough to integrate Ukrainian innovation into a genuinely pan-European defence-industrial ecosystem.

If they succeed, Europe will gain far more than stronger military capabilities. It will possess a defence innovation ecosystem capable of attracting global investment, accelerating technological development and strengthening the continent's long-term strategic autonomy. If they fail, Europe risks allowing one of the world's most battle-tested centres of defence innovation to remain constrained not by technology or entrepreneurial talent, but by the very institutional fragmentation that Kolodyuk identifies as Europe's greatest weakness.