Venture capital funds are pouring into the defense technology market, driven in part by the wars in Ukraine and Iran, with drones, autonomous vessels and battlefield artificial intelligence emerging as some of this year’s most sought-after investment areas.

According to PitchBook data provided to the Financial Times, startups have raised $12.3 billion since the beginning of the year.

The figure is nearly double that recorded during the same period last year and has already surpassed the full-year total for 2025, which stood at $9.95 billion.

The surge comes as recent conflicts highlight growing demand for a new generation of weapons systems that are cheaper and faster to produce.

However, concerns are also emerging that parts of the market may be overheating, as some investors become willing to pay increasingly high valuations on expectations that governments will continue expanding defense spending.

“We are probably witnessing the most significant change yet in the way wars are fought,” said Daniel Rudnicki Schlumberger, head of security and resilience initiatives for Europe, the Middle East and Asia at JPMorgan. He added that valuations had risen sharply as investors recognized that the sector represented “a long-term need.”

Shonnel Malani, managing partner at private equity group Advent International, argued that although concerns about some elevated valuations were “very valid,” the factors underpinning demand would remain in place even after current conflicts come to an end.

In March, Advent announced plans to invest up to $1 billion in next-generation defense technologies.

Malani said:

“The underlying driver of why we need defense technology and these defense capabilities… is very real. This is not hype. There is a broader range of sophisticated technologies that can be used against us, and we have to meet that challenge.”

The Financial Times reported in May that German drone startup Helsing, backed by Daniel Ek, had raised $1.2 billion at a valuation of roughly $18 billion.

Another German company, Stark, is also in talks to raise at least €300 million, a transaction that would value the “kamikaze” drone manufacturer at approximately €2.5 billion.

“This is a very active market… We are working on solutions that align with the long-term budgets of European militaries,” said Benoit Fosseprez, general partner at investment group AVP.

AVP recently launched a new €500 million European defense technology fund together with venture capital firm Earlybird.

US Vice President JD Vance on Thursday criticised Israeli officials for refusing to support Washington’s nuclear agreement with Iran, defending the newly signed memorandum of understanding and urging Israel to back the deal.

Vance accused members of the Israeli government of failing to appreciate the value of American support and defended the agreement during a press conference at the White House.

Referring to Israeli Prime Minister Benjamin Netanyahu as “Bibi,” Vance told reporters: “You’ve seen some people in Bibi’s cabinet attack the agreement and, in some respects, attack the President of the United States in a very personal way.” He stopped short of directly criticising Netanyahu himself.

“First of all, Trump is currently the only head of state in the world who is sympathetic to the nation of Israel. And he is the head of state of the world’s superpower,” Vance said. “If I were in the cabinet of the Israeli government, I would not attack the only powerful ally I have left in the world.”

Vance noted that two-thirds of the munitions used in Israel’s defence over the past three months were manufactured in the United States and financed by American taxpayers. He said Israeli officials should reconsider the perception that the primary problem facing Israel is the US president and instead confront the realities of the situation.

The remarks were directed at Netanyahu’s coalition partners, Finance Minister Bezalel Smotrich and National Security Minister Itamar Ben Gvir. Both have argued that the agreement poses a threat to Israel’s security and have called on Israel to disregard its provisions.

In an earlier interview with The New York Times, Vance said he found “the general panic in Israel a little strange,” arguing that concerns surrounding the agreement stemmed from distrust of the United States.

“It is obvious that broad segments of Israel’s political system and society are very sensitive about this agreement,” Vance said. “But I also think they have taken some misinformation about the agreement, amplified it and worked themselves into a kind of panic.”

Asked how he would respond to the ministers, Vance said: “I think my answer would be: What exactly is your proposal? You are a country of nine million people. You cannot solve every national security problem you have by killing people.”

Addressing the situation in Lebanon, Vance said hostilities between Israel and Hezbollah could continue for some time, but stressed that all parties must adhere to their commitments under the agreement. Reiterating expectations that Hezbollah halt rocket and drone attacks, he also said Israel should avoid acting without restraint in Lebanon.

Vance said the US administration expected a comprehensive ceasefire across all fronts, including Lebanon, Hezbollah and Israel. While recognising Israel’s right to self-defence, he said attacks on areas of Beirut populated by civilians were unacceptable.

“One thing that has frustrated the President at times is that it seems we are on the verge of a major breakthrough under the agreement, and then suddenly there is a large explosion in a civilian area of Beirut and many people with nothing to do with Hezbollah are killed,” Vance said. “That is unacceptable.”

Vance also addressed criticism concerning sanctions relief and funding provisions for Iran, two of the most controversial elements of the memorandum.

He said the United States had not fully lifted its blockade of Iran but had merely allowed certain transit activities in line with obligations under the early stages of the agreement. Vance added that Iran’s economy remained in severe decline.

Arguing that Iran’s industrial infrastructure had suffered extensive damage over the past three months, Vance said limited oil sales would not be sufficient to revive the Iranian economy.

He also said the pragmatic faction within Iran had prevailed in internal debates and asserted that Iran’s missile programme and nuclear facilities had been largely neutralised, leaving the situation at a level acceptable to the United States.

Israeli objections to the agreement

Meanwhile, Israel’s ambassador to Washington, Yechiel Leiter, voiced cautious opposition to what he described as a US willingness to allow Iran to retain some of its ballistic missiles.

Describing Iranian officials as “murderous thugs,” Leiter said Israel remained concerned that Tehran would use such missiles against its neighbours.

Leiter also argued that references to Lebanon in the memorandum were designed to protect Hezbollah. He said Israel could make no compromises on border security and would not tolerate the continued existence of the group’s military presence.

Ben Gvir responded directly to Vance’s criticism in a social media post, calling on the United States to confront Iran with the same determination it showed in fighting Nazi Germany during World War Two.

In his New York Times interview, Vance had referred specifically to “people like Itamar Ben-Gvir and Bezalel Smotrich” when discussing critics of the agreement, asking: “What exactly is your proposal?”

Writing in English on X, Ben Gvir addressed Vance directly, stating: “The proposal is this: Fight the Nazis of the 21st century the way the US fought the Nazis of the 20th century.”

China’s decision to eliminate tariffs on imports from most African countries, combined with rapidly expanding trade flows, appears set to boost the use of the yuan across the continent, supporting Beijing’s broader objective of building alternatives to the Western financial system.

Customs data show that China-Africa trade grew by approximately 18% last year. The removal of tariffs on imports from 53 African countries in May is expected to further increase trade flows and encourage payments denominated in yuan.

Research by the International Monetary Fund indicates that yuan usage tends to rise alongside growing trade ties with China. On Wednesday, Beijing announced new measures aimed at promoting the global use of its currency.

From Nigerian cattle bone pellets and Kenyan avocado oil to South African apples, Chinese ports are receiving greater volumes of African cargo following the tariff cuts. The trend is increasing demand for payments and currency exchanges between the yuan and local African currencies.

Although reliable data on yuan usage in Africa remain limited, adoption is being supported by expanding trade with China, new payment platforms and efforts by some countries to shift debt obligations into lower-cost currencies.

Birju Sanghrajka, chief executive of Standard Chartered Kenya, said yuan transactions were increasing but added that there were still few signs that the currency was displacing the dollar.

“We see it as complementary,” Sanghrajka said.

South Africa-based Standard Bank became the first African commercial bank to connect to China’s Cross-Border Interbank Payment System (CIPS) in November and processed $500 million in transactions during its first four months on the network.

“The transactions we have seen were mainly driven by import and export activities between China and Africa,” said Ives Yang, head of transaction banking sales at Standard Bank CIB.

“We are working to expand CIPS to more countries,” he added.

Beijing says the tariff exemptions are intended to support African exports.

“In an environment where unilateralism and protectionism are creating difficulties and challenges for African countries, China is leveraging the advantages of its enormous market,” Chinese Commerce Ministry spokesman He Yadong said.

Trade flow perspective

Bankers say the shift toward the yuan reflects growing trade volumes rather than a direct challenge to the dominance of the US dollar.

Standard Chartered Kenya has begun issuing yuan-denominated letters of credit. According to Sanghrajka, this allows Kenyan clients to obtain discounts by avoiding conversion costs associated with the dollar.

China and several other countries, including Russia, have promoted payment channels that bypass the dollar. The trend has drawn warnings from US President Donald Trump against abandoning the US currency.

“Part of what we are seeing globally today concerns how the dominance of the dollar can be reduced,” said Muda Yusuf, chief executive of Nigeria’s Centre for the Promotion of Private Enterprise, adding that China is actively promoting yuan-based payment systems.

“When you export to them, you receive your payment in yuan,” Yusuf said.

Reducing foreign exchange risk

According to the African Export-Import Bank, which signed an agreement last year to connect to CIPS, China now accounts for 20% of Africa’s external trade, up from 5% two decades ago.

Other institutions are also seeking to capitalize on the trend.

Togo-based Ecobank, which operates in 34 African countries, and the Bank of China are working to launch a payment product this year that will facilitate transactions between the yuan and local African currencies.

“China is building its own payment and settlement rails that can make transactions almost instantaneous,” said Ecobank Chief Executive Jeremy Awori.

The development is welcome news for investors such as Qu Ming, a Chinese national who owns Kenya-based Sanmark Limited. Moving from dollar-denominated transactions to yuan payments could benefit the avocado oil producer, which employs 50 people.

“This will help us because of the exchange rate,” Qu said, adding that borrowing costs could also decline because yuan interest rates are lower.

China’s position as the largest bilateral creditor to countries including Senegal, Ethiopia and Kenya is also contributing to wider yuan adoption across Africa.

Last year, Kenya converted three Chinese-financed railway construction loans from dollars into yuan, reducing annual interest costs by approximately $215 million. Zambia has announced that from late 2025 it will begin accepting mining royalties and taxes from Chinese companies in yuan to strengthen its reserves and help service debt owed to China.

Avocado exports to China

According to Chinese government officials, the country’s yuan-denominated imports and exports rose 14% year-on-year in April to 4.38 trillion yuan ($647 billion). However, authorities did not provide a separate figure for Africa.

The trend is also visible in Kenya. Avocado exports to China’s vast consumer market have increased from 10 to 20 containers per week in 2022 to around 200 containers today. Volumes are expected to reach 1,000 containers by 2030, putting China on par with Europe, which has long been Kenya’s largest export market.

Speaking at a packing facility just outside Nairobi, Sunripe Managing Director Thiku Shah said China could surpass Europe between 2030 and 2035. He also said a shift by Kenya toward yuan-denominated financing could accelerate the currency’s use in trade.

“If we can invoice in yuan, if banks can accept payment in yuan, and if we can find a buyer for the yuan we hold, that would be perfect,” Shah said.