Why Sweden has the necessary tools to lead new Nordic defense drive

In November 2021, three months before Russia’s all-out invasion of Ukraine, Swedish Prima Materia invested 100 million euros in German defence technology startup Helsing. This wasn’t a coincidence.

Prima Materia is Spotify founder Daniel Ek’s investment arm. Spotify in turn has had Peter Thiel’s Founders Fund as an early investor. Palantir, in which Thiel and Founders Fund are invested, is a strategic partner with Helsing. These early U.S. technology connections have helped spur a close transatlantic venture capital relationship, which is now seeping into defence.

But Sweden doesn’t only boast a Tier 1 international VC network. More importantly in this age of tension, it also houses the largest private equity fund in Europe. Founded by the Wallenberg family, EQT draws defence advantages from SAAB, the Swedish fightermaker that also invested in Helsing.

Sweden, being a country that hasn’t fought a war since the Napoleonic Wars when it lost Finland to Russia, is in this regard probably the most powerful silent defence technology player in the world.

What’s more, and what is lesser known, Sweden has a long historic relationship with global intelligence organisations. Between 1945 and 1972, Sweden ran a covert nuclear arms program under the Swedish Defence Research Agency. This program, declassified in 1992, got so advanced that it was believed to have been pressured to be shut down by the CIA.

To meet the vacuum left by the US commitment to defend Europe, the Swedish government recently pledged an additional 30 billion euros for improving air defence, mainly fighters and rockets but also new technologies such as drones. Focus on these will be on local production.

All these have fertilised the Swedish ground to such a degree that it is ripe for scaling the most viable defence technology startups, increasingly likely specifically within air defence.

The State of Sweden’s Defence Tech

Not surprisingly, the most promising Nordic defence technology startup is being seeded in Stockholm. When Danske Bank published its inaugural Nordic defence tech report last November, only one real defence-first startup was included: Nordic Air Defence.

Nordic Air Defence, or NAD, is developing a counter drone to take down hostile drones such as Irani-Russian Shaheds, of which Russia has launched against Ukraine more than 10,000.

What’s different with NAD is that it isn’t a traditional quadcopter, but an electric missile with a unique pulsating steering system propelled by a single motor. This allows for higher speeds and lower cost in a category where the cost for the defender has been higher than that for the attacker.

Having ties to the Swedish Defence Research Agency, the same organisation that ran the clandestine nuclear weapons program, NAD has developed a patented electric drone with the form factor of a traditional missile. Its first version, the Kreuger 100, is developed for Counter-UAS purposes, but it can be scaled up in size for different use cases, even loitering. Previous products with the same form factor have been rocket propelled.

With roots in Katla Aero, and headed by Karl Rosander who previously founded podcast unicorn Acast, NAD is backed by a slew of industry shakers, such as former head of McKinsey Sweden Johan Ahlberg and former Volvo head Jan Gurander. Its early staff consist of previous employees from leading defence technology firms such as Palantir and Quantum Systems. The uniqueness of the product is increasingly attracting top talent from competing firms.

Reflecting Sweden’s strong transatlantic bond, NAD in November closed a pre-seed round with investors such as Norway’s SNÖ Ventures, backed by Thiel, as well as Northzone founder Jörgen Bladh and Palantir’s head of government Noam Perski. Scouts from Accel, an early investor in Finland’s Supercell, and EQT are also on the cap table.

NAD has also developed a tuned-down version of the K100 for protecting civilian infrastructure such as power plants and airports. Production will be modular with the ability to swiftly relocate and shift facilities. All this sums up to NAD having the potential of becoming the Nordic defence technology category builder around which the ecosystem will grow.

Swedish Defence Investors

In Europe, investors who can put their money in defence are few and far between. Limited partners, the investors who back venture funds, have typically been barred from investing in defence because of ESG rulings. Now, investors are realising that without functioning defence for the democracies, there will be neither environment, social nor governance.

Swedish limited partners are now readying themselves to cross that line. And this is where the magic of Sweden’s deep private capital markets will happen, creating a network effect that will bond transatlantic co-investments around common defence goals. The exact same network effect that birthed Spotify, now valued at 120 billion euros.

Another not unimportant detail in why Sweden, a member of the European Union but not the euro, has an advantage is that it can be more agile in its transatlantic relations as the US is testing how its historic allies react to warming relations with Russia. By chance, or design, Sweden is able to manoeuvre in most every possible geopolitical conundrum.

The defence technology ecosystem that facilitates the fastest contracting channels for both local and allied needs as well as access to the biggest and most liquid capital and exit markets will attract the best talent, the most investments and create the best defence technology startups. Sweden stands in this regard head and shoulders above any other Nordic country. Maybe even within all of Europe.

While its neighbours are forced to attract attention through loud and often wasteful startup events, Sweden is stealthily working its networks and building a defence technology flywheel.

Dr. Jonas Dromberg is the founder and principal at Revalence Ventures, an early investor in Nordic Air Defence. Based in Helsinki and Stockholm, he has spent more than two decades in venture capital and finance. A former Bloomberg bureau chief, Jonas served as venture partner at one of the top Nordic venture funds and received his doctorate at IE Business School in Madrid researching VC limited partners and family offices. He is a member of the European and AUKUS defense investor networks.