When Kusti Salm left his post as permanent secretary at Estonia's Ministry of Defence in August 2024, he had spent years overseeing the procurement strategy that turned one of Europe's smallest countries into one of NATO's fastest-growing defence spenders. His next move was to build missiles.
Frankenburg Technologies, the company Salm founded, raised €30mn in a Series A round in February 2026, making it the largest early-stage defence deal in Estonian history. The Mark I, a counter-drone missile small enough to hold in one hand, is designed not for artisanal production but for industrial output of 100 a day. BAE Systems has signed a warhead development agreement. Babcock International has agreed a deal to explore a maritime counter-drone launcher. A company that did not exist three years ago now has partnerships with Britain's two largest defence prime contractors.
Salm's trajectory, from procurement official to missile manufacturer, captures the speed of what is happening in Estonian defence. But it also reveals a strategic choice. Most small NATO countries respond to security pressure by buying foreign equipment, typically American. Estonia has done that too, but alongside the purchasing it has been deliberately seeding a domestic defence industry designed to export from the start. The country's defence exports grew from €46mn in 2020 to roughly €350mn in 2024. The government is targeting €2bn in total defence industry turnover by 2030, of which €1.4bn would come from exports. About 170 companies now work in the sector, roughly 20 of them founded in the past year alone.
Estonia's defence budget is set to reach €2.4bn in 2026, or 5.4 per cent of GDP, up from around 3.2 per cent in 2025. That will give it the highest per-capita defence spend in Europe at roughly €1,752 per person. Sharing a 294-kilometre border with Russia has always concentrated attention in Tallinn, but the build-up is driven by more than proximity. The government has made an explicit bet that defence manufacturing can become a meaningful part of the national economy, not just an expense line. For a country of 1.3 million people, the ambition is unusual. The execution, so far, has been unusually fast.
You can browse 42 Estonian defence companies on our interactive map.
The money
In January 2025, SmartCap, Estonia's state-owned fund manager, launched a €100mn Defence and Security Technology Fund, the first sovereign vehicle in the Baltics dedicated exclusively to defence technology. Its initial deployment was €10mn into Darkstar, a VC fund backing Estonian defence startups that mainstream investors had long avoided. Long sales cycles, regulatory complexity and the reputational caution of institutional limited partners had kept private capital away from a sector that, until recently, most European VCs treated as uninvestable rather than merely risky.
SmartCap structured the fund as equity investment, not grant funding, meaning it is designed to generate returns and recycle capital rather than function as a one-off government subsidy. The distinction matters because it signals to private investors that the state expects these companies to become commercially viable, not merely strategically useful.
The fund arrived alongside a wider thaw in European defence venture capital. NATO Innovation Fund, 1710 Capital and Alpine Space Ventures have all begun writing cheques. The European Investment Bank eased long-standing restrictions on defence lending. New EU programmes like SAFE are preparing to direct billions more into the sector. But Estonia moved ahead of most countries by creating a dedicated sovereign vehicle tied to domestic companies rather than waiting for Brussels-led instruments to take shape.
The defence budget is the real engine. With spending set to hit 5.4 per cent of GDP in 2026, Estonian government procurement generates enough domestic demand to give local companies revenue, which gives investors something concrete to underwrite. Estonia crossed NATO's 2 per cent spending target years ago and kept climbing. The €100mn fund works because there is already a paying customer in the room. When the government is both regulator and buyer, and spending at this intensity, the risk calculation for private capital shifts substantially.
The practical effect is that Estonian defence startups can point to a domestic revenue base before approaching foreign customers, a sequence that makes investment cases far easier to build. Lithuania and Latvia have also raised defence spending sharply, with Lithuania reaching 3.9 per cent of GDP and Latvia 3.8 per cent in 2025, but neither has matched Estonia's pace of company creation or established a dedicated sovereign defence fund.
The companies
Frankenburg is the most visible product of that shift, but the industrial base is broader than missiles. Estonia's defence cluster now spans cybersecurity, autonomous ground vehicles, drones and counter-drone systems, each anchored by companies with real revenue, international customers and, increasingly, production infrastructure.
The cybersecurity cluster is the oldest and began with a crisis. In April 2007, coordinated cyberattacks hit Estonian government ministries, banks and media outlets for three weeks, disrupting online services across the country. The attacks, widely attributed to Russian-linked actors, came during a diplomatic dispute over the relocation of a Soviet war memorial in Tallinn. Estonia's response was to turn its vulnerability into policy. The following year, NATO established its Cooperative Cyber Defence Centre of Excellence in the city, a research and training hub now backed by 39 nations.
The centre does more than research. It runs Locked Shields, the world's largest live-fire cyber defence exercise, which brings allied military cyber commands to Tallinn each year and creates recurring demand for the kind of cyber range platforms and training infrastructure that Estonian companies build. CybExer Technologies, founded by co-founders of the CCDCOE, builds cyber ranges used by NATO allies and by the European Space Agency for its Space Cyber Range programme. Cybernetica, founded in 1997 and one of Estonia's oldest technology firms, works on post-quantum cryptography and secure data exchange protocols for European government clients. Both companies sell expertise that was shaped under genuine state-level attack, a credential that is difficult to replicate.
In ground robotics, Milrem Robotics is the country's most internationally recognised defence company. Its THeMIS unmanned ground vehicle has been deployed in Ukraine, where it has performed casualty evacuation and logistics resupply under real combat conditions. That deployment gave Milrem a feedback loop that companies testing only on proving grounds cannot match. At IDEX 2025, Milrem unveiled the Havoc, an 8x8 autonomous combat vehicle designed to operate within mechanised formations. A $200mn deal with the UAE in 2024 had already marked the company's expansion from logistics platforms toward semi-autonomous combat systems. Milrem has been steadily hiring across engineering and international business development.
Drones are the fastest-growing segment. Threod Systems, based in the university city of Tartu rather than the capital, posted €38mn in sales in 2024, up from €20mn the year before, with a 24 per cent net profit margin and customers across 27 countries. The company is projecting further growth as NATO orders accelerate. Threod produces fixed-wing surveillance drones and launcher systems for loitering munitions, product categories where European demand has spiked since 2022 as armed forces absorb the lessons of drone warfare in Ukraine. Tartu's distance from the capital is deliberate. The city's technical university provides a steady pipeline of aerospace and electrical engineers, and being outside Tallinn keeps operating costs lower.
DefSecIntel Solutions developed EIRSHIELD, a counter-drone system, and is building Estonia's "Drone Wall" along its eastern border alongside Latvia's Origin Robotics. The programme combines radar, electronic warfare and kinetic interceptors into a layered defence.
Frankenburg itself anchors a new Defence Industry Park in Pärnu County, south of Tallinn, sharing the site with Nitrotol, an Estonian explosives manufacturer, Thor Industries UK and Infinitum Strike. The park places warhead production, propulsion systems and final assembly on a single site. Components do not cross borders. Quality control is centralised. The entire supply chain can be audited by a single government team. For a country that cannot afford the sprawling industrial geography of larger NATO members, co-location is not a preference but a necessity.
What holds it together
NATO's Defence Innovation Accelerator for the North Atlantic, known as DIANA, runs an Estonian hub that selected 12 companies for its 2026 cohort, three of them Estonian: C2Grid, which builds AI-powered situational awareness tools for tactical operations, Spacedrip, which develops deployable water reuse systems for military field operations, and LSMedical, which produces rare-earth-free precision magnets for defence applications. DIANA provides structured access to military end-users and test infrastructure. For many early-stage defence companies, that access matters more than capital. Investors can be found later. A NATO procurement officer who has tested your product and can vouch for its operational fit cannot be substituted.
The Defence Business Lab, a joint initiative of Tehnopol, Sparkup and the Ministry of Defence, runs a pre-accelerator for software engineers and commercial tech founders who have never sold to a military customer. The programme walks them through procurement cycles, security clearance requirements and the sales dynamics that make defence fundamentally different from enterprise software. Estonia's small size is an advantage here. A founder can sit with procurement officials, test range operators and potential military end-users within the same week. In France or Germany, that kind of access might take months of institutional gatekeeping.
There is also a cultural dimension that is easy to overlook. Estonia's Kaitseliit, the volunteer Defence League, has roughly 18,000 active members with about 30,000 across its affiliated organisations, in a country of 1.3 million. National service remains part of the social fabric. Defence is not an abstract policy topic for most Estonians. That creates a talent environment qualitatively different from countries where defence industry work carries stigma or indifference. Engineers from Estonia's commercial tech sector, companies like Bolt and Wise, have increasingly been looking at defence startups as a viable alternative. The motivation is partly patriotic and partly commercial. Salaries are rising and the work is technically demanding.
But not everything is working smoothly. Guardtime, whose KSI Blockchain technology has been used in contracts with NATO, DARPA and Lockheed Martin, went through significant layoffs in January 2025, letting go of roughly half its 48-person workforce. Guardtime has genuine commercial traction, which makes the layoffs more instructive, not less. Even well-positioned defence companies face pressure when programmes shift or procurement timelines stretch. The cycle of government spending, startup formation and investor enthusiasm can obscure the fact that building a durable business on defence contracts requires navigating the same commercial risks that affect contractors everywhere.
Still, the underlying pattern holds. Government spending creates demand. Accelerators de-risk early companies. Production infrastructure shortens the path from prototype to delivery. Success attracts the next cohort. The cycle is reinforcing, and for now, it is accelerating.
For engineers, cybersecurity professionals and business development specialists considering European defence, Estonia offers something worth examining. The market is English-speaking, clearance processes move faster than in larger NATO countries, and the cost of living in Tallinn sits well below London, Munich or Paris while defence tech salaries have risen to compete with commercial technology compensation. The skills most sought are embedded systems, post-quantum cryptography, defence-specific business development and manufacturing operations. The distance between a startup and its government customer can be measured in city blocks rather than bureaucratic layers. We track 42 Estonian companies on our interactive map, with live hiring status and direct links to careers pages.
Defence spending and budget figures from Estonian government documents and NATO reporting. Company revenue, deal values and production targets sourced from company announcements and verified press coverage. DefenceJobs.org is an independent job board not affiliated with any government or defence contractor.
Browse open positions in Estonia or explore Estonian companies on our map.