NATO's 5% GDP defense pledge unlocks a startup opportunity — Sweet Capital's Pippa Lamb on Europe's military awakening

correspondent, Pippa Lamb from Sweet Capital. Welcome to the stream. How are you doing? What's going on? Hey guys, how's it going? Coming in from Europe. Uh it's great. Is your Starlink connection strong? I know they don't have uh they don't have broadband out there in the old continent. You know what?

We're all just trying to get ourselves to the Hague and get some of that defense procurement that uh yes we're now gonna be spending on. So uh yeah hopefully the Starlink will make it here. No hopefully hear me. Okay. Hopefully. Uh yeah. Give us the breakdown of the latest news uh from NATO. Yeah. So it's it's exciting.

I mean I think that pretty much all global press has been focused on this morning.

You know, President Trump and the current US administration has really managed to do, thank you very much, has managed to do the thing that no US leader has actually managed to do before, which is to get Europe and US's allies here is to actually open up their their their wallets and increase their annual commitment to percentage of GDP on defense spending.

So, you know, this is something that dates back to, I think, 2017. I mean obviously certain uh a lot of American presidents have have really pushed for this before. This isn't a new ask from the US side. Uh but certainly um this is the first time we've really seen some some progress.

Um I mean to put this in context the US has really paid yeah has paid about twothirds of uh you know the NATO budget for for the recent years.

So it's really been uh on it upon the upon Europe to really you know increase how much they're contributing and so I think it's certainly a big win for the US but also a big win for national security across across the west and its allies.

So yeah, definitely definitely good sentiments here in the ground and I think certainly when it comes to if you see how uh if you see how Trump's mood has changed uh from when he uh when he was boarding that helicopter a couple of days ago to some of the comments he was making uh after Secretary General Rutter's uh comments.

I think that you know the US is in a really interesting position now and so is NATO. Did we ever figure out what did the NATO chief he's claims he didn't call Trump all this? No. No. Break this down. Um I I don't know if you saw anything. I I I couldn't tell what was fake news. Uh do you did you have any insight there?

The NATO So I So I saw the headlines. I saw there's an ABC News headlines from yesterday. Says NATO secretary general calls Trump quote unquote daddy. Wait. Oh yeah. And then the White House put out a video about this. I don't know, but then the NATO secretary general, uh, I guess came out and denies it. Yeah.

The White House, this is on the official page, put out a one minute video. Uh, and it just and the and the comment on axe is, "Daddy's home. Hey, hey, hey, daddy. President Donald J. Trump attended the NATO summit in the HEG Netherlands.

" And then the secretary general came out and said, "Daddy referred to US leadership, not Trump. " Okay. So, yes. Um, still the official White House social media never disappoints. I have to say that is I always have my expectations and they surpassed it's it's pretty wild.

I I did re I did go back and watch the the original clip to try and understand the an analogy and effectively Trump was comparing some of uh some of our some of the geopolitical conflicts right now to children uh playing in the playground and then of course Secretary General Rutter then comes and says and sometimes if people are being children then he brings in the daddy analogy and of course in the press conference Trump just jumped on that.

He said, "Yeah, they called me daddy. " You know, he it was he just ran with it. And uh as we saw on the White House account this morning, I think there's reals, there's, you know, there there's YouTubetubes, they they really went for it.

So, uh so on on new dispense spending, um there's actually a graphic that is pretty interesting to pull up. Here it is. The United States is paying like more than twothirds. So, uh in 2023, uh NATO's budget was 1. 3 trillion. uh 860 billion of that came from the United States.

Germany was the next second highest with 68 billion. So less than onetenth. Then the UK at 65 billion, France at 56 billion, Italy at 31 billion and then a bunch of other countries in the 10 to five to 8 billion range. Canada's at 30 billion. Um and so yeah, this is a big change.

I guess the the current benchmark is 2% of GDP and this is I guess it is an agreement to to try and get to 5%. Now that's going to roll out over the next decade to 2035. Um and and I mean the real key takeaway is that now Trump is publicly supporting NATO. He's been very against it, but he's in favor.

Um but and and then there was also some questions about the the shift away from the focus on Russia and Ukraine. Trump wants to end the conflict there. Uh we can talk about that, but then eventually I want to get into what this means for startups. Yeah.

I think I think what's also interesting is is I have the same questions as you, right? So they put out these headline numbers. It all sounds very good. We all agree that there needed to be more of a balance between the US spending versus the rest of NATO.

And I think what was really encouraging to see in terms of how this is going to impact markets is if you look at comments that came out from the UK this morning from Prime Minister Starmer, he actually said okay well we've got this uh you know target by 2035 we are going to dedicate up to you know five well 5% of of GDP spending on defense.

But he actually then gave us further information and said that actually if you look at where we see the national security needs now we actually expect to surpass 4% of spending by 2027 or in 2027.

So that's to me that's that's a great uh you know signal to markets that this isn't some sort of lofty target that they're going to try and hit and push out and sort of you know relabel things as defense or or really kind of be very gradual about how they're deploying and how they're going to procure.

I see this and I think okay Europe is really serious about this. The UK is currently just for perspective at around 2. 3% uh percent of its its GDP. So it's slightly above that 2% benchmark. But the fact to go from you know 2. 3% to 4% by 2027 is is really encouraging.

And I know certainly on the ground we're already seeing quite a lot of increased interest in European defense plays.

um some of the existing you I suppose call them incumbents but you know the andrils of the world are getting really excited about this market and less so for from a change on their side but a fact that okay the you know the UK and Europe is potentially finally actually putting its money where its mouth is in terms of how it wants to procure and how it really wants to beef up its national security efforts.

Yeah, the question will be how does that budget actually get distributed between new players like Helsing which Daniel at Spotify had a nicely timed uh investment into that. It's almost like he had a crystal ball or something and then new new kind of uh the new American players the daddy of the Nordic tech scene.

Think of him as that. Yeah, I'm sure the NATO the NATO chief would probably refer to him that way.

And then you know Andrew all the way down to you know the the Boeings and the I I mean the four companies that I think are really interesting to study in this in this like as this development plays out are probably Rhymmetal, Helsing, and Palunteer.

Um and and they all kind of represent very different strategies and and but you could see money flowing to any of them. But then there are also um decisions with all of those.

Obviously Ryan Matal very old company legacy incumbent in Europe and so easier to get across the the a deal done because they have all the infrastructure there. Hellsing's kind of the upandcomer and the the hot American company. Palunteers uh you know founded by some Germans but ultimately American company.

What are you seeing? And it's interesting even Rhinel has been on this crazy run. It's $432 a share. In 2022, you could have bought it for 30 bucks a share. Wow. And what is it now? And 430. 410x. Um, so so yeah, up up tremendously. Even even this year is up, you know, 250%. Yeah.

So, so, so, so what what are you thinking about? Uh, I mean, this seems like a massive military budget increase in Europe. How serious is the rhetoric around the desire for homegrown defense technology solutions in Europe broadly?

So I mean I think Jordi as well on your point on Rhin Metal I think you also want to pull up the chart for Saab that's been rallying you know a lot.

So you're definitely seeing some allocation from institutions into existing incumbents but I think for me and other members of the startup and venture community what we're really asking is how serious is seriously is this going to impact the preipo and private markets.

And I think what's very interesting here is you also saw Anderil announced a partnership with Ryan Mattal I think about a week ago.

Um, so you're certainly going to see some, you know, there's there's plenty to go around in terms of the market opportunity and I think the sentiment is really beginning to shift now in terms of, you know, both investors and governments opening their wallets.

But I do think that, you know, on one hand, I do still tend to agree with this argument that defense primes are really hard businesses. There is always going to be, in my view, a monopolistic or olopolistic element to how these markets run. It's not that we're going to come out and see, you know, 10 ands all spring up.

I think ultimately a defense prime doesn't doesn't spring up overnight. And as you mentioned, you already have Andre in the US who, by the way, has been very present in Europe and the UK from the very start. Um, you also obviously have, you know, are Swedishbacked but German company, uh, Helsing. Yeah.

And there's some really interesting companies coming out of the UK right now. There's one in stealth at the moment which has been getting a lot of interest uh both here on the ground but interestingly a lot of the cap table is is American. So I think yeah world two for America undefeated the air horn is always ready.

It's always ready. That's great. I think so look on one hand I I haven't changed my thesis on defense investing overnight. I still think that there is a monopolistic uh advantage that that companies like Andrew will will have here.

But I do think at the same time this does mark a real change in sentiment and opportunity around European and UK defense. And I think there are a few reasons why. I think number one if you look at you know pure dollar spend the you know Europe and the UK is just coming from a a much further or earlier starting point.

So if you look at the multiples in terms of of pure purchasing and and procurement, they're going to far outspend the US because they've been so behind. So on a pure kind of procurement dollar basis, you know, Europe has to play catchup.

So I think that's obviously going to be uh, you know, a tailwind both for, you know, companies like Andreil, but also some of the the local players and I do think that this is is kind of furthering this idea of what's called trusted capital. So the opportunity for the US and its allies.

So certainly, you know, getting in uh so some contracts for a heling or or a local company here in the UK. I think the second piece that's really interesting is that the UK in particular uh is you know behind from a manufacturing standpoint.

So there's going to be a huge uh opportunity for a lot of companies to really onshore here.

uh and that could be you know American companies who want to build out manufacturing capabilities here in the UK or across mainland Europe and that is also going to result in you know investment dollars spent um and a huge opportunity for for the defense sector.

I think the counter to this uh and and this goes along with a lot of conversations that I've had with with Brian Chimp from Anderil, who by the way was having a lot of these conversations at Bilderberg in in Stockholm a couple of weeks ago um across the Paris Air Show and and with with leaders here in in the UK and Europe.

Um and that's that the criticism has to be that Europe has had a template for modern warfare on its doorstep for the last, you know, several years. is, you know, Putin first invaded Crimea in 2014. There have been so many blueprints for how modern warfare looks um on our doorstep.

Yet, the governments haven't really got the memo. This is really the first time that we're seeing governments come out with real new blueprints for how modern warfare should be conducted.

Um so you know the the classic example is you know Houthi rebels uh sending over drones and you know the US and its allies having these exquisit exquisite weapon systems to to shoot down these these drones.

So you know Europe has really been asleep at the wheel when it comes to to some of these more kind of modern warfare or or scrappy warfare strategies.

And I think that from what it sounds like from conversations here on the ground, the government is actually getting the memo now, which does clear that path for startups to enter with a different product spec. Um, I think not to talk up my own book being British, but I do think that the UK is leading the pack here.

Sorry.

uh you know the UK has just done a strategic uh military defense review and they're actually really taking some interesting steps in terms of how they're reshuffling how they organize the military and uh you know I think some great work's been done uh here on the ground with you know it was UK tech week uh a week ago and you know Matt Clifford who is an adviser to to the prime minister talked specifically about how there is going to be an opportunity to have a trillion dollar market cap out of the UK and he actually mentioned that you know defense really could be somewhere that that we could see that happen.

So what about uh what about British dynamism? Is there a ground swell of excitement in on the ground in Europe? You have uh some great manufacturers Bentley, Rolls-Royce, Aston Martin, and then you also have ARM. So the computing ARM is computing history as well.

So it does feel like there's still some very um you know uh we just got a new we just got a new head of MI6. So the one public facing uh who was a woman actually the first ever chief of MI6 and her role actually at MI6 had previously been Q.

So I don't know if you follow the James Bond films but her background was is that's not just Hollywood creation. I thought that was entirely for the cinema. Well I mean I think I think that the world is a cinema genre the greatest cinema of all time.

uh that would be the adjacent role that she had before and so but but C uh which is is the name that is given to the bureau chief that is the one front-facing f uh uh role of of MI6. So, but but she obviously does have a background in in that space.

And so, I think it is very interesting and and you know, it would be remiss to say that the UK has has got a fantastic R&D um sort of heritage, you know, where whether it be in um you know, AI, obviously, we've talked about this before, Demis uh and and Deep Minds um and a lot of you machine learning talent.

We've also had, you know, incredible stuff in in robotics and and synthetic biology.

There's some really fantastic R&D uh centers, you know, outside of London, Oxford, Cambridge, Bristol and uh and actually we we also saw uh some exciting news in the autonomous vehicle space about a week ago with UK company called Wave who announced their first uh public road rollout of autonomous vehicles on public roads which is going to be in partnership with Uber uh which is going to be the first time we have like a Whimo equivalent experience um witnessing them on the streets.

of London. So yeah. Yeah, I think we're we're gonna have it's it's Alex Kendall from Wave as the CEO. I think we're gonna have him on the show soon. I'm excited about he's great.

And and also I think if you look at some of the work that again uh advisor to to Downing Street Matt Clifford has done the the government came out with this AI opportunities plan in at the beginning of the year and in the spending review last week the UK committed to spend I think two billion dollars uh or maybe it's two two billion uh pounds on on AI opportunities and a further uh1 billion uh pounds for area which is an R&D deep tech body.

So I think certainly you know defense is one angle.

We're also going to see continued interest you know in autonomous vehicles and robotics and some of these really deep tech sectors that actually the UK has got a very deep history in um that you know hopefully is going to translate into market opportunities for both both local investors but also US investors that want to get some exposure to some of these increased dollars that are going to be spent.

Interesting. Um, flipping back a bit to the Ukraine situation. Um, is it possible that we see like a drone company come out of Ukraine? Ukraine has a long heritage of fantastic software developers. There's a lot of companies that have had like offshore Ukrainian engineering teams for a long time.

like the the the populace has clearly been uh very technical, but then you know the the pressure cooker of the war has resulted in just insane industrial capacity. I'm pretty sure they make more drones in Ukraine than I think even even China like anywhere in the world they're making the most of them now.

A lot of them are like handmade and it's it's not fully automated. It's not fully productized. But um like my my hope would be the the war dies down but then there's this residual capability that comes out of that.

But have you heard any like rumblings about that or do you think that there's any sort of like peace dividend that could come out of Ukraine?

I think that what you know as I alluded to before the Ukraine has really been a blueprint for you know how modern warfare is conducted and I think that certainly we've you know definitely been following very closely in Europe what's been happening on the front line uh in the Ukraine.

I think also, you know, the Americans have also been paying close attention. If you look at a lot of the work that Eric Schmidt has been doing, especially since uh the US announced that it, you know, its intention is to pull back some of its commitments to the Ukraine.

I think you've had private individuals such as as Eric Schmidt, you know, really take the mantle when it comes to how some of these newer sort of more scrappy drone technologies are being built.

So I certainly think that that is going to provide an opportunity for um you know scaling across procurement on you know other areas of the cont uh the continent. I do think that in some ways and I was talking to a defense founder this morning about this there is an opportunity in this middle space.

So I think that you know traditionally we had these exquisite weapon systems which were really you know the the the luxury well pick your your car of choice the Aston Martin of the V2 spirit. Yeah there we go. Okay. And then we had the very kind of scrappy you know you know drones that are being built on the front line.

And I think what is the really kind of sweet spot right now is going to be trying to fill out some of that that that gap in the middle.

And certainly, you know, if you look at some of the the products that that Anderil have buil been building and some of the incumbents that I'm uh sorry, I should say new entrance that I'm looking at here in the UK, they're really trying to to trying to fill that not not quite the the very early entry sort of technology pieces, but that kind of one up which are more affordable um and you can still use against you know your Houthy rebels or whoever and it's not going to kind of use up your entire budget.

But it's also uh you know modern technology. Um it's it's you know looking at at technologies like like autonomy uh autonomous vehicles. Um so I think that that is a really strong uh entry point for some of the incumbents sorry the the new startups we're seeing now. Yeah.

It's kind of a an interesting wrinkle to the idea of like when you're ramping up defense budgets as vast as NATO is in this case.

Um it's it's it's like the budget itself isn't necessarily as big as America, but there's so much new budget coming online that you're almost better equipped to buy autonomous systems as opposed to the United States and the Army modernization effort is reallocating budget.

No one's saying like, "Oh yeah, let's double like we don't have the money to double it.

Um and so every dollar that we allocate towards an autonomous we could but but every dollar that we allocate towards an autonomous system, a modern system has to come away from an exquisite system that has a ton of constituents, a ton of people that build it, a ton of the parts come from so many different states and regions and different senators that that Yeah.

Whereas if you're bringing net new budget online, it's a lot easier to go with the newest and and best technology that's actually equipped for the modern. My question is, will we see, you know, a $5 billion company that just makes drones for defense, right? Like could a Nuros be something like that?

Or if you look at history of these contractors, you see that they often are are very the primes are obviously all multi-product, right? Um, and so we will have to see how it develops. Very cool. I think what's most encouraging though for me is the sentiment has changed.

So I think there was this hubris right amongst a lot of the I mean US and its allies but particularly in Europe where they just wanted to create these exquisite weapon systems that were really never designed to be used.

And so I think the biggest shift for me has been kind of like waking up and realizing that this is totally unfit for purpose and actually you kind of look silly by having these exquisite systems that are completely you know you know you can't you can't use them.

So I think that for me when I start to see it more of a kind of cultural shift in government which is very rare.

Uh that's when I think you can start to see some of these impacts like trickling into markets and be it in in the later stage or in public markets but then also really kind of at this I'd say series A stage at the moment where you're seeing a lot of interest from from US and European investors. Very cool.

I mean it's really exciting stuff. We got to track it more. Uh I'm excited to talk to some of these founders uh Wave and Helsing. a lot to get them on. What other situations are you monitoring? There's a lot going on this week.

Uh we've been we've been uh I don't know if you've been following the the prediction market space, but uh with the with the New York City May uh the primary was interesting. Is that is that a is that you paying much attention to that category?

Do you think there's potentially opportunities for new prediction markets or um are are is poly market and and other players kind of racing away?

I mean, I haven't been following it so closely beyond, you know, it's impossible to even sitting here in London avoid all the the memes that are coming out about about what's going on in New York. I think that, you know, I think Shane uh Coupin is a fantastic operator.

I don't know how much space there is in in terms of, you know, post deregulation of some of this space. You know, you would think that there there are going to be other entrance.

I think that, you know, Shane's created such uh, you know, in some ways a a head start for himself and and how Poly Market is is is doing that I haven't been spending active time looking at sort of new entrance in that space.

But um you know look ultimately I'm a you know our our fund has a heritage of of gaming and so I think certainly whenever there's an interesting consumer trend that is unlocked or there is a regulatory shift that can I guess impact how a consumer product is is being built then we do pay attention but yeah I've definitely been spend spending way more time on uh some of this uh geo geop yeah what about um any uh you mentioned wave earlier in the autonomous vehicle space with their UK UK launch.

Are you expecting uh has there been any chatter about what Tesla would do around autonomous vehicles in in the UK? I think they they sold um sort of uh I think they sold around 25 or 30,000 cars in the UK last year.

And so depending it could be an interesting dynamic that we'll we'll see with Whimo here in the US and Tesla where Tesla has um you know a much a much more efficient way to build a network uh where they don't have the same capex requirements as someone like a Whimo and I'm interested to see if um if you know how you see that market unfolding in the UK.

It's interesting. I think that Wave has really been the poster child for autonomous in the UK especially in recent years and its partnership with the with with Uber. Um they also have launched NSF. I mean Alex Kendall I'm sure he'll tell you about this when he comes on.

Fantastic founder has been spending a lot of time in San Francisco.

I think an interesting story for me here with the autonomous vehicle space in the UK is that you know much like I was saying earlier the UK has a really strong heritage of deep tech and there was actually initially another competitor uh in autonomous vehicles who was uh sort of incubated out of Cambridge.

I mean so was so was uh so was wave. I think Alex Kendall took his first VC pitch meeting in his Cambridge dormatory or something. You know the law is is perfect.

Um but actually this is I I often use uh autonomous vehicles as an example for uh the government because there was actually a frontr runner ahead of wave at the beginning but because it was incubated out of Cambridge University I think it was Cambridge or Oxford I think it was Cambridge not I'm ex Oxford so not to kind of you know hate on my computer but what was interesting is that there was this technology transfer clause which meant that the cap table got totally messed up by the arrangements in place from from um you know Cambridge University, UK government which basically said for a product of product of this nature um the the the university has to own a certain amount in order to unlock R&D uh you know credits or or you know research uh spending for this company and actually it's it's a perfect example I use for sort of a the old way of building technology in the UK which was incubated out of these like very old historic universities enter then Alex Kendall who also wants to pursue autonomous vehicles and instead of going to the university or do the sort of traditional incumbent capital providers goes out and raises venture capital and is able to therefore scale much faster uh build out the technology I mean again these are not overnight you got MASA on board I'm sure that helped right for sure yeah right and so I think for me it's you know maybe just an interesting anecdote which pertains to this sector about you know how you know maybe mentality in Europe is at some of somewhat of an inflection point.

And I think that autonomous vehicles, you know, is one of the examples where Alex Kendall was able to go out and raise venture capital and really, you know, prove out some of these more kind of hard problem, you know, the teal flying car, uh, you know, adjacencies in Europe.

Um, so I think look, going forward, let's see. I think that uh robotics um you know hardware you know deep tech coming out of uh of the UK is not going to go um anywhere. I think it's going to continue to see a lot of interest from US investors.

Um I think that the fact that that waif have partnered with Uber is also significant. So the idea is that you know it's not simply going to be you know one company is expected to be able to do everything.

I think that on a distribution and kind of regs perspective, it makes a lot of sense to have been partnered um with Uber and I think Dar was here uh yesterday. So yeah, so look, I'm I'm Let's see how the the stage four trials go here.

I think it's going to be it's going to be a bit of a culture shock for for the Brits here to see the cars driving. Well, I think you could have a culture shock. You put a Whimo in the in the streets of London and say it's driving on the wrong side of the road.

It's all No one would have a problem with that cuz Whimo is a Jaguar. That's a British car. Oh, so it feels it might feel at home. But the Wave car is built on the Nissan platform, which is extremely foreign to another. I did hear rumors though that that the Whimo was going to change to a Chinese supplier.

Oh, interesting. That was Yeah, I was really hoping they went with Bentley. Yes, the Bentley Whimo. Yes, when he comes on from Wave, we'll tell him, "Hey, let'save. Let's get Let's rip out Nissan. Let's get on the Continental GT platform. This is logical. Exactly.

We need some like James Bond approved autonomous on the streets. I I'm a big Whimo maxis. So, you know, I'm just excited to be able to to translate that to to the times that I'm here in London. But, uh but let's see. Cool. Well, great. This is fantastic. Have a great We'll talk to you soon. Bye. Bye.

Uh let's go back to the timeline. Talk