EUR: How Finland’s decentralized innovation centers thrive

Presented by FTI Consulting

BLUF: Finland’s defense tech ecosystem is highly decentralized, with specialized local hubs playing to local strengths. The approach is pulling in huge amounts of VC investment, and producing success stories like space unicorn ICEYE; military clothing developer Foxa; and RAIN, which provides AI comms management for military command and control. 

Finland also gets the bulk of defense tech VC investment in the countries of the EU and NATO’s eastern flank. 

European Defence Agency and national-level defense officials have briefed industry representatives in Brussels on their requirements for 20 next-gen naval ships. They want drone and electronic warfare, stealth and anti-hypersonic missile capabilities, among other things. 

Fintech service Revolut gave evasive answers to The Arsenal about its policy on not accepting defense industry users.

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Hunched over a laptop in an old train depot on a cold, dark January afternoon in southern Finland, Teemu Seppälä told The Arsenal that when NATO Land Command generals visited recently to see miltech startups’ wares, he offered them a Finnish tradition: sauna.

The officials were attending a tech demonstration organized by the Defence Innovation Network Finland (DEFINE), a national defense tech hub based at the site in Riihimäki, a town 64 kilometers (40 miles) north of Helsinki. The hub draws in startups from around Finland and other parts of Europe.

Unusually for someone working in defense, Seppälä is employed by the local government, which is responsible for the town of just 28,610 people. 

The sauna-equipped former train depot in Riihimäki is the cornerstone of a growing national network of defense hubs run by local governments. 

With support from the independent state innovation fund Sitra, DEFINE expanded earlier this month to include the towns of Espoo, Forssa, Oulu, Joensuu and Hämeenlinna. 

The Häme University of Applied Sciences and the Metropolia University of Applied Sciences are also newly-minted members of DEFINE.

Finnish defense tech is booming and investors are taking notice. The Finnish Defense and Aerospace Industries Association (PIA) estimates that industry revenue was €2.95 billion in 2024, which could rise to €12 billion by 2030. Seppälä says the figure doesn’t properly account for startups’ potential, and that other estimates go as high as €20 billion. Among the EU and NATO’s ten eastern flank countries,* Finland receives the majority of VC investment for defense, dual-use, cyber and space technologies, according to Dealroom. 

Riihimäki has long served as a garrison town for the army and an industrial zone for established Finnish defense firms, including rifle maker SAKO, state-owned Patria and its subsidiary, Millog. 

Now, it’s becoming a home for startups. 

“In one year, we have organized three accelerator batches,” Seppälä told The Arsenal. “Out of that, two have made exits”—meaning they’ve been acquired by larger firms. 

“Around ten have got VC investments,” he added. “Many of them have been able to close a deal with the defense forces or some of the industrial primes.”

One startup he highlighted is RAIN, an AI company selected for the first batch in late 2024, when DEFINE was still limited to Riihimäki. Its software was built to manage networks of telecom towers, providing information such as power consumption, usage and temperature. 

RAIN has partnered with other Finnish startups—including SpaceTime, a cloud storage company, and Confidential Mind, which provides enterprise-grade generative AI—to build command and control systems for NATO forces, Seppälä said.

CPE Production acquired DEFINE alumnus Foxa, which produces a variety of military clothing including camouflage, fire-resistant and waterproof gear. Berlin-based autonomous drone company Pleno, which was also part of DEFINE’s first cohort, was acquired by STARK.  

The local hubs in DEFINE have distinct specialties, distinguishing them from Riihimäki as a military center that draws in a wide variety of defense tech startups. 

Espoo, for example, is building on its long-thriving civilian tech startup scene and its local Defence Tech Hub. Joensuu, on the Russian border, will serve as a testbed for border security applications for technologies such as AI and photonics. Meanwhile, Oulu—host to  Nokia’s ‘Home of Radio’ campus—specializes in radio technologies and 6G.

DEFINE aims to improve startups’ access to procurement opportunities, without hundreds of eager companies “bombarding” the military with emails and phone calls, said Heikki Aura from Sitra, which funds DEFINE.

“The Finnish military forces are very much involved in the day-to-day work,” Aura said, such as by giving startups feedback on their products. 

Like elsewhere in Europe, smaller firms in Finland have struggled to compete with major players that have long-standing relationships with the government, such as Patria, which is largely state-owned.

That’s changing, said Antti Kosunen, founding partner at defense-focused VC firm 17Tech. 

“Now I will say that it is possible to do deals with government as a startup,” Kosunen told The Arsenal. “I’m giving you a different answer now than I would have given a year ago.” 

The procurement process has also become faster, he added.

An official from the City of Espoo said Finland’s well-established civil startup scene and its tradition of military service have fed the growth of miltech startups since the Russian invasion of Ukraine. Espoo has been particularly successful because it already had a well-established civilian startup ecosystem around Aalto University.

For example, Espoo is home to Finland’s space ‘unicorn’ ICEYE, which last year provided Poland’s first ever dedicated military satellites. Another successful Espoo startup is Varjo, which produced high-resolution mixed-reality headsets for both military and civilian applications.  

Finnish defense, dual-use, cyber and space tech firms have raised $1.5 billion (€1.3 billion) in VC investment since 2019, and $661 million during 2024-2025 alone, according to Dealroom.

“After we joined NATO, the investors got much more interested in Finnish startups,” said the Espoo official, who asked not to be named to speak candidly. 

It also allows Finnish startups to participate in DIANA, NATO’s innovation accelerator. NATO, in turn, is involved in DEFINE, Aura said.

“It's made a lot more money available to them,” said Nicholas Nelson, general partner at Archangel Ventures, a VC firm for European defense tech based in London and Tallinn. 

Before it formally joined NATO, Finland was part of the Joint Expeditionary Force (JEF) in 2017, a British-led coalition of ten northern European countries**. That participation, Nelson said, also made joint procurement easier. 

Nelson said Finland’s decentralized approach mirrors developments in the US. 

“What’s really been effective there is getting outside of the traditional Silicon Valley areas,” he told The Arsenal, pointing to Alabama, Colorado and Georgia as new centers for different kinds of defense tech.

Still, Finnish defense tech founders have their eye on Silicon Valley. In a call with The Arsenal during a visit to the Bay Area, Mikael Westerlund said he was there to raise money for his Espoo-based startup, Agate Sensors. 

He said the firm’s spectral sensors can be fitted to combat uniforms to monitor soldiers' vital signs, such as blood pressure. They are also working to prove that the technology can monitor stress indicators such as cortisol. Additionally, the sensors can be used in autonomous systems, such as drones, to improve target recognition.

Everyone The Arsenal spoke to pointed to Finland’s long-standing mandatory military service for men and its 1,340-kilometer (830-mile) border with Russia as explanations for why a country of just 5.5 million people has such a lively defense tech scene.

In addition to 900,000 people with military training, Finland has a lot of engineers left over from Nokia’s glory days, Kosunen said.

Kosunen, a lifelong investor and entrepreneur, said deterring Russia from attacking motivated him to set up his defense VC fund. 

“It was so obvious that we just have to do something to keep Finland, Finland,” he told The Arsenal.  “I don’t want my boys to be on the front line,” the father of three added.

*Finland, Estonia, Latvia, Lithuania, Poland, Czechia, Slovakia, Hungary, Romania and Bulgaria.

**Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Netherlands, Norway, Sweden, UK.

On 15 January, officials from the European Defence Agency and several member-state defense ministries briefed industry representatives in Brussels on their requirements for a future European Combat Vessel (ECV).

Seven EU countries—Belgium, Cyprus, Greece, Spain, Italy, the Netherlands and Portugal—have partnered to develop and eventually procure a total of 20 next-generation “multi-modular ships.”

The detailed list of requirements includes advanced integrated combat management systems, AI-enhanced decision support systems, cyber defense and electronic warfare systems, and drone integration. 

Member states also want the ships to have stealth capabilities—meaning reduced radar, electromagnetic and infrared signatures. The new ships also need to be able to defend against hypersonic and ballistic missiles, in addition to carrying counter-UAV systems and swarm defense. 

The idea is to procure these capabilities as interoperable modules, rather than purchase a single ship with everything baked-in. 

“The aim is to break down the highly complex [requirements] of the projects into modules and tools,” an official said. 

There also needs to be sufficient flexibility for countries to pursue their distinct aims while maintaining operability with each other, the official said.

An EDA official added that, in all, the requirements in their totality represent an “ideal,” much like the inconsistent visual representations of futuristic battleships seen on different printed documents handed to participants.

The EDA’s forthcoming ‘call for papers’ will allow companies to submit proposals for the capabilities they believe they can deliver. 

The agency’s workshop will then offer industry representatives another opportunity to contribute to the discussion than they had at the relatively short Q&A on 15 January.

The 20 ships would come in three sizes: small (3,000 tons), medium (4,500-6,000 tons) and large (7,000-8,000 tons). The seven governments want initial deliveries to begin in 2035 and full operational capacity by 2040.

No budget has been allocated, an EDA official told The Arsenal, calling media reports putting the total cost at €20 billion—a crude, speculative price tag of €1 billion per ship—unreliable.

Most of the money will come from participating countries, the official said, but some of it could come from the EU’s new European Defence Industrial Programme (EDIP), which EU member states finalized on 8 December.

The UK and Lithuania-based fintech company Revolut has dodged questions about how it enforces its policy that forbids defense companies, including startups, from using its business service.

Revolut provides online multi-currency accounts, money transfers and debit cards for individuals and businesses. It has a banking license in the EU, under the supervision of the European Central Bank, though elsewhere it may not be considered a bank.

The company’s policy forbids “any sort of business or activity related to” several fields, including “weapons, defense and armaments” from opening a Revolut Business account.

In an email, Revolut’s UK communications manager, Beccy Pascoe, told The Arsenal that the company’s list of unsupported industries is based on a variety of risk factors. These include “risk of money laundering (AML) or terrorist financing (CTF), risk of being used for illegal activities,” and “heavily regulated or controlled industries with strict laws.”

Pascoe did not address questions about how Revolut defines a defense company or views dual-use applications. The company did not respond to a follow-up request for clarification.

Garvan Walshe, an Irish entrepreneur and defense researcher at the Wilfried Martens Centre for European Studies, a Brussels-based think tank connected to the center-right European People’s Party, told The Arsenal that he came across Revolut’s terms when looking for a banking service for his new business, a foreign policy newsletter.

“I don't think it would necessarily cover my business currently,” said Walshe. “I just saw it as an issue in the industry, because we have people like the [EU] Defense Commissioner [Andrius Kubilius] saying there’s nothing currently in the EU regulations that prevent the defense industry being taken up by banks.”

The European Commission has repeatedly highlighted a need to improve the European defense industry’s access to finance. ESG priorities, for instance, often deter pension funds from investing in defense. 

“Banks are free, of course, to decide who they have as their customers,” Walshe told The Arsenal. “But this kind of blanket banning of defense stocks is surely going to raise the cost of capital in various ways for defense companies.”

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Planetfall, a UK defense startup, has developed a low‑cost stratospheric strike system intended to give NATO an additional long‑range strike option at a fraction of conventional costs. 

The system uses high‑altitude balloons paired with unmanned delta-wing gliders, enabling strike operations at ranges exceeding 1,000 kilometers (621 miles) while producing no thermal and radio‑frequency signature.

Planetfall is raising £3 million (€3.5 million) at a £30 million valuation to increase production to 1,000 units per month by the beginning of Q4 2026. The investment will also support the launch of three new products covering eight additional military use cases, as well as expansion into the Asian market.

The company’s systems have already been deployed by military users, with more than 75 units flown in multiple countries, including Ukraine. Planetfall has also completed three UK MOD research contracts and established a supply chain of 87% of parts coming from UK suppliers.

“Planetfall was founded on a simple idea: The stratosphere is the next theatre of war,” says founder Victor Freiherr von Suesskind. “It gives nations a strike option with virtually no detectable signature, and this funding lets us scale it now.”

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