Dear Investors and Friends of D3,
I'm on my way to Davos to speak at Ukraine House on the panel, "In It to Win It: Ukraine’s DefenceTech is Transforming the War, the World — and Ukraine." If you're in Davos or know someone I should meet while there, let me know!
When we launched D3, our hypothesis was that after the war, some Ukrainian miltech companies would be acquired by established NATO defense contractors, while others would emerge as modern primes for attritable weapons. The war isn't over, yet we’re already seeing both dynamics accelerate.
One example: AeroVironment (AVAV), the U.S. defense company behind the Switchblade and Puma drones, reached out to D3 looking for Ukrainian companies to invest in, co-develop with, and eventually acquire. Their goal is to leverage local innovation to co-create products outside the U.S., bypassing ITAR restrictions and expanding into NATO markets. AeroVironment is a publicly traded company with a market cap of $4.8B.
This week, we also hosted investment banker Mike Rapp in Kyiv. He is actively scouting small-to-mid-sized Ukrainian defense companies that he can take public in the U.S., helping bring Ukrainian defense innovation to a global stage.
Meanwhile, D3 portfolio company Airlogix is steadily positioning itself as Ukraine’s most likely contender to become a modern defense prime. More details can be found in the Portfolio section below.
Total = 537 (+10)
We’ve observed a decline in deal flow from Ukraine, prompting us to expand our search for opportunities elsewhere. This week, our Associate Taras will be attending a defense tech hackathon in Estonia to explore new startups from the Baltics and Western Europe.
At the same time, we’ve been deepening our ties within the Israeli defense ecosystem, where deal flow has significantly picked up. Interestingly, Israel has fewer active defense-focused VCs than one might expect. Moreover, many Israeli founders are eager to validate their prototypes in Ukraine at a major war against a well equipped enemy, using it as a proving ground while simultaneously accessing NATO and Ukrainian markets.
Below, we outline the pipeline dynamics for 2024, including a breakdown by vertical, region, and maturity.
In D3’s first year of operation, drones dominated the pipeline, accounting for more than half of all opportunities. Now, we’re seeing a shift toward RF solutions, a natural evolution as Ukraine defends itself against tens of thousands of enemy drones.
Unfortunately, the share of military software has remained largely unchanged. Ukraine urgently needs to attract more developers to the defense sector. Unlike hardware, software solutions require battlefield datasets to be effective—something Ukraine has in abundance, while the rest of the world lacks access to comparable real-world combat data.
