CEO Sille Pettai emphasized that SmartCap will not impose any restrictions on investments in weapons and ammunition, marking a significant shift in the firm's investment focus towards defence technology.

Pettai pointed out that less than half of existing defence funds are able to invest in weapons startups due to various restrictions, highlighting a limited pool of potential investments.

SmartCap, the state-backed Estonian investor, has launched a €100 million fund specifically aimed at investing in defence startups and venture capital funds that support weapons-related projects.

In addition to the new defence fund, SmartCap manages a €100 million climate-focused fund and a €250 million fund for generalist VCs, showcasing a diversification in their investment strategy amid shifting global priorities.

Despite these challenges, SmartCap is willing to take on higher risks by backing first-time funds in the defence sector and is prepared to act as a cornerstone investor.

Many limited partnership agreements in the venture capital space restrict investments in defence, often categorizing it alongside industries like pornography, which complicates the ability of VCs to engage in defence technology.

This strategic pivot comes as SmartCap has observed substantial growth in the defence industry, moving away from generalist VC funds that only sporadically engage in defence-related investments.

However, the long-term sustainability of startups and funds in the defence tech industry remains uncertain, especially in light of evolving geopolitical situations, such as ongoing peace talks regarding the Ukraine conflict.

Unlike the €1 billion NATO Innovation Fund, which refrains from investing in ammunition manufacturers, SmartCap aims to facilitate the development of defence technology to enhance the capabilities of Estonia and its NATO allies.

Furthermore, SmartCap plans to invest in funds outside of Estonia that are dedicated to contributing to the Estonian ecosystem, with a primary focus on the Nordic countries.