A recent report has revealed that North American venture capital investment in defence companies surged tenfold to approximately $10 billion between 2019 and 2025. However, manufacturers of essential weapons components are struggling to secure funding to increase production.
The investment gap
The findings come after a year of conflict in the Middle East that has put air defences, weapons supplies, and the protection of critical infrastructure under renewed scrutiny, as Gulf countries invest in local manufacturing and expand their defence exports.
The Bain & Company report, produced with the Aerospace Industries Association (AIA), found that investors are willing to back new military technologies such as drones and artificial intelligence, but factories making the parts needed to build them are finding it harder to raise money.
In a survey of US defence industry stakeholders, 83 per cent cited uncertainty over future government funding or orders as a critical barrier to expanding production. Another 72 per cent identified smaller manufacturers of precision and electronic components as areas where private investment was particularly scarce or expensive.
Manufacturers may need to build facilities, buy machinery, and hire specialist workers years before they know whether a government will order enough equipment to make the investment worthwhile. Getting a new weapon to work is only the first step; producing it in large quantities requires much more money.
Bohsali noted that “The bottlenecks include Tier 2/3 precision and electronic components, raw materials or the move from prototype to production.” He also stated that “no fit-for-purpose investment model exists between early-stage venture capital and institutional production capital.”
The problem is growing as conflicts in Ukraine and the Middle East put pressure on weapons supplies, with some munitions being used faster than factories can replace them. The report drew on 50 interviews with defence industry stakeholders between April and August 2026, an AIA member survey, and financial analysis.
Global military spending reached a record $2.887 trillion in 2025, up 2.9 per cent on the previous year, according to the Stockholm International Peace Research Institute. Europe’s spending rose 14 per cent as governments responded to the war in Ukraine.
Patrice Caine, Chairman and CEO of French defence group Thales, said at the Eurosatory defence exhibition in Paris in June. In Arabian Business‘s July cover story, Patrice Caine, Chairman and CEO of Thales, said that there had been an increase in demand “almost everywhere”. He also described a broader shift in what governments wanted from suppliers, including equipment they could maintain, upgrade, and keep operating during a crisis rather than hardware they could not support independently.
“There is an increasing need from countries for sovereignty, for resilience, for autonomy of decision, which leads to localisation,” he said at the time, on the sidelines of the defence exhibition Eurosatory in Paris.
Gulf defence companies look beyond imports
For the Gulf, the question is how to turn years of defence investment into more local production and reliable supply chains. Iranian drone and missile attacks during this year’s regional conflict have reinforced the economic importance of protecting airports, energy facilities, and trade routes.
The UAE’s air defences intercepted 221 of 238 ballistic missiles and 1,342 of 1,422 drones detected during the opening days of the conflict, according to defence ministry figures released on March 8, demonstrating the capabilities built through years of investment in air defence.
Saudi Arabia is also expanding its domestic defence industry. The kingdom increased the share of military spending localised within the country to 27.3 per cent in 2025, up from 4 per cent in 2018, according to its General Authority for Military Industries. It aims to exceed 50 per cent by 2030.
Changing technology needs
This year’s conflicts are also changing which technologies governments want. Bain identified growing demand for counter-drone systems, electronic warfare, and more secure domestic supply chains. Destroying an inexpensive drone with a missile costing hundreds of thousands or millions of dollars can make air defence expensive to sustain.
