Darkstar VC Breaks Taboo, Invests Purely in Ukraine-Forged Defense Tech
The landscape of venture capital investment is constantly evolving, driven by technological shifts, market demands, and global events. For years, defense technology remained a niche, often avoided by mainstream VCs due to ethical considerations, complex procurement processes, and the perceived lack of venture-scale returns compared to consumer or enterprise software. However, recent geopolitical developments, particularly the full-scale invasion of Ukraine by Russia, have dramatically altered this perception. Defense tech has rapidly transitioned from a 'no-go zone' to a sector attracting significant investor interest.
Yet, even within this burgeoning sector, a common requirement persists for many investors: the technology must have 'dual-use' applications. This means the innovation should serve both military and civilian markets, broadening potential revenue streams and mitigating some of the perceived risks associated with purely defense-focused ventures. This dual-use philosophy is embedded in initiatives like the NATO Innovation Fund, a €1 billion vehicle specifically designed to back startups supporting the alliance's security, freedom, and human empowerment goals, often with an eye towards technologies applicable beyond the battlefield.
Breaking decisively from this prevalent dual-use trend is the Estonian venture capital firm, Darkstar. Founded with a bold and singular mission, Darkstar is dedicated to investing in purely military applications. Their explicit goal is to contribute to the rearmament of Europe by backing combat-proven solutions emerging directly from the conflict in Ukraine. This focus is not merely strategic; it is driven by a profound sense of urgency and a clear-eyed view of the current security environment. Ragnar Sass, co-founder and general partner at Darkstar, articulated this imperative: "This is very critical, not only today but for the next 10 years."
A Founder's Pivot: From Unicorns to the Frontline
Ragnar Sass is a prominent figure in the Estonian startup ecosystem, known for his involvement in several high-profile ventures. His journey into the world of defense tech investment was far from predetermined. Sass was an early beneficiary of the entrepreneurial spirit fostered by Skype's founders, who funded his very first startup, a community platform for pet owners. This early success paved the way for his co-founding role in Pipedrive, a widely successful CRM and sales tool. Pipedrive's unicorn-sized exit provided Sass with the capital to become a prolific angel investor, making more than 50 angel investments across various sectors. Some of these early bets also achieved unicorn status, including the identity verification company Veriff.
Despite his extensive angel portfolio, none of Sass's initial investments were in the defense sector. Even after Russia's full-scale invasion of Ukraine in February 2022, which prompted him to personally organize and deliver aid convoys to Ukraine – a country with which he has deep personal and business ties – the idea of investing in weapons systems was not an immediate one. Sass openly admitted that it took considerable time for him to reconcile the concept mentally. "It took quite a long time mentally to understand that I want to be involved in weapon systems," he stated.
The turning point arrived about a year and a half ago when he made his first defense investment in the Estonian drone startup Krattworks. This investment marked a significant shift, not only signaling his entry into the defense sector but also becoming his final investment as an angel. Sass is now channeling his investment efforts and capital into Darkstar.
Darkstar's Strategy: Hands-On, Battlefield-Driven, and Pan-European
Darkstar's approach is characterized by its hands-on engagement with portfolio companies and its direct connection to the end-users of defense technology. The firm actively assists startups in navigating the complexities of bringing their products to military customers across Ukraine and Europe. For Ukrainian teams, this support extends beyond funding to crucial help with establishing compliant entities in NATO countries like Estonia, a necessary step for participating in European procurement processes and accessing grants. "In any company which wants to be part of European procurement or even grants, the operational side has to be perfect," Sass emphasized, highlighting the importance of robust operational structures for defense contractors.
The fund has a fundraising target of €25 million (approximately $29.2 million) over the next six to twelve months. Darkstar intends to focus primarily on pre-seed and seed rounds, with typical check sizes ranging from €500,000 to €1 million. They have already made two initial investments, both in Ukrainian-Estonian startups: FarSight Vision, which specializes in geospatial analytics and 3D mapping crucial for drone operations, and Deftak, a company developing ammunition specifically for drones.
Darkstar's origins are rooted in practical engagement with the tech and defense communities. The firm began as a coalition organizing hackathons and bootcamps, leveraging Sass's decade-long experience with the hackathon community Garage48. This background in rapid prototyping and problem-solving informs their approach to identifying and supporting promising defense innovations.
The firm recently completed a first close of €15 million (approximately $17.5 million), attracting capital from European entrepreneurs, family offices, and notably, Estonian state-backed LP SmartCap. SmartCap's participation underscores the growing recognition among some European governments of the need to directly support defense innovation, even without the dual-use requirement. Lithuania's sovereign VC fund, Coinvest Capital, is another example, having been authorized to make defense investments without requiring civilian use cases in 2023. It is no coincidence that these pioneering approaches are emerging from the Baltic states.
The Baltic Perspective and the Urgency of Innovation
The Baltic states – Estonia, Latvia, and Lithuania – share a unique historical experience and geographical proximity to Russia. This has instilled in them a heightened sense of urgency regarding defense and security that is now spreading across Europe. Investors from this region are often quicker to recognize the critical importance of defense capabilities and the need for rapid technological advancement in this area. Sass articulated this, noting that without real know-how in the defense sector, investors and companies will struggle. For Darkstar, building this essential know-how meant engaging directly with the ultimate users of the technology from the very beginning.
In Darkstar's context, the primary end-users are Ukraine's military brigades. The conflict has seen Ukraine adopt a remarkably decentralized approach to technology adoption, empowering combat units to identify needs and integrate solutions rapidly. While this presents challenges for outsiders navigating the system, Sass gained a significant head start through extensive personal engagement. "In the last three and a half years, I have been to Ukraine 20-plus times, and I have personally met 100-plus unit commanders – spent time with them, talked with them, learned from them," he shared. This deep immersion provided invaluable insights into the real-world requirements and operational dynamics on the ground. Sass also found surprising commonalities between the agile, problem-solving nature of elite military units and the fast-paced environment of startups: "Elite units are more similar to startups than we can imagine."
Battlefield Innovation and the Deal Flow from Ukraine
The war in Ukraine has become an unexpected crucible for defense technology innovation. The widespread and effective use of relatively inexpensive technologies, such as first-person view (FPV) drones capable of destroying equipment worth millions, has captured global attention. However, Sass cautioned against the simplistic notion that these technological developments are easily replicable. He highlighted the underlying sophistication and the rapid pace of adaptation on both sides of the frontline. "Most elite drone battalions in Ukraine have their own R&D," he revealed, indicating a level of localized innovation and technical expertise often overlooked. Furthermore, the conflict has seen the rapid deployment and counter-deployment of new technologies, such as fiber-optic drones, which have proven to be a game changer in specific scenarios.
For startups outside of Ukraine, developing solutions for this dynamic environment requires constant validation against real-world conditions. This is where Darkstar's bootcamps play a crucial role. The firm organizes intensive programs, like the upcoming one in Kyiv, designed to provide companies with direct "feedback, field-testing opportunities and combat validation," according to their website. These bootcamps offer an unparalleled opportunity for startups to test their technologies against the realities of modern warfare and receive direct input from experienced military personnel.
These bootcamps also serve as a significant source of deal flow for Darkstar, allowing the team to work closely with potential portfolio companies over several days. However, the pipeline extends far beyond the bootcamps. Ukraine itself is a rich source of potential investments, with an estimated 2,000 eligible teams. Sass noted a key characteristic of many Ukrainian defense startups: they are often more mature than typical early-stage ventures. "Many of the Ukrainian companies we are looking at are not six months old; they have been around two-plus years and they have already managed to build a product and company with minimum capital," he explained. This indicates a resilience and efficiency born out of necessity and the urgent demands of the conflict.
Addressing potential concerns about the general mobilization of Ukrainian men, Sass stated that it is not as significant an obstacle for defense startups as might be assumed. Founders building effective combat products can often receive exemptions and travel approval. Furthermore, a notable percentage of Ukraine's defense startup founders are women, including Viktoriia Yaremchuk, the CEO of Darkstar portfolio company FarSight Vision. Another hurdle, the restriction on defense tech exports out of Ukraine, is also reportedly in the process of being removed, which would further open up opportunities for these companies to access international markets.
Building a Pan-European Defense Tech Ecosystem
Darkstar's investment philosophy extends beyond Ukraine, applying a similar location-agnostic approach that Sass once advocated for Nordic startups moving to Silicon Valley. While deeply focused on the innovations emerging from the Ukrainian conflict, Darkstar will not exclusively invest in companies based solely in Ukraine. The firm is actively engaging with teams across Central and Eastern Europe, as well as in countries like Latvia, the U.K., and Germany. This broader geographic focus reflects a strategic vision to build a diverse, pan-European portfolio of defense tech companies. Sass anticipates that within a couple of years, the portfolio will represent a significantly mixed group of companies from various European nations.
This pan-European ambition is reflected in Darkstar's leadership team. Ragnar Sass is joined by Estonia-based GPs Kaspar Gering, who brings a decade of experience in engineering and data science from Wise, and Mart Noorma, the director of the NATO Cooperative Cyber Defence Centre of Excellence. A fourth GP, Philip Jungen, is based in Germany, and the firm also has a partner and additional staff located in Ukraine. This diverse team brings together expertise in technology, venture capital, and defense, creating a strong foundation for their specialized investment strategy.
Darkstar's investment categories are broad, covering critical areas of modern warfare. These include autonomous systems, air defense, electromagnetic warfare, communications, cybersecurity, sensors, and surveillance and intelligence. While their primary focus is on pure military applications, they remain open to technologies that may also possess dual-use potential within these categories.
Exit Potential and the Future of Defense Tech Investment
The path to liquidity for defense tech startups, particularly those without civilian markets, has historically been less clear than for traditional tech companies. However, the current geopolitical climate and the urgent need for rapid technological upgrades among NATO countries are changing this dynamic. Sass suggested that some of Darkstar's portfolio companies could become attractive acquisition targets for large, cash-rich prime defense contractors. These established players often struggle to develop and deploy innovative solutions quickly enough to meet the demands of modern warfare, making agile startups valuable partners or acquisitions.
Beyond acquisitions, Sass believes that some defense startups, fueled by government demand and the transformation of warfare witnessed in Ukraine, could achieve significant scale independently. He envisions the possibility of companies reaching hundreds of millions in revenue and even pursuing initial public offerings (IPOs). While the long-term success of purely defense-focused startups on the public markets remains to be fully proven, the rapid rise and substantial valuations of companies like Anduril and Helsing, coupled with the emergence of new defense-focused funds, indicate that the prospect of venture-scale returns in this sector is being taken increasingly seriously by investors.
Ultimately, for Ragnar Sass and the Darkstar team, the motivation extends beyond financial returns. It is deeply intertwined with the security challenges facing Europe. While Sass embraces the humor and online activism of movements like NAFO, a global online community using memes to support Ukraine and counter Russian propaganda, he also delivers a stark warning about the nature of the threat. Russia's relentless war economy and its capacity for rapid adaptation necessitate a corresponding acceleration of innovation and deployment on the European side. "The enemy is moving very fast, and that's exactly why I believe that we need to have the tech community being involved way more to address that huge and growing threat," Sass concluded. Darkstar's focused, hands-on investment strategy in battlefield-proven technology from Ukraine is a direct response to this urgent call to action, aiming to leverage the agility and innovation of the startup world to bolster European security.