UK defense innovation strategy opens new doors for SMEs with AI and autonomous technology
As the government launches a landmark £400 million innovation fund aimed at changing military technology and procurement, small businesses across the UK are invited to play a central role in the country’s future defence strategy.
This is a move that can significantly reshape the opportunities available to SMEs in areas such as artificial intelligence, robotics, cybersecurity and advanced materials.
The UK Defense Innovation Fund will announce in Prime Minister Rachel Reeves’ first spring statement that it will begin launching in July 2025. This marks the attempt by the Ministry of Defence (MOD) to move faster, think about smaller people, and leverage the UK’s 5.5 million small and medium-sized small and medium-sized small and medium-sized enterprises to gain a technological advantage.
Historically, the UK’s defense contracts have been a reservation of a handful of major players, such as industry giants such as Bae Systems, Thales and Rolls-Royce. These companies will still play a crucial role. But in a world of rapid development threats and rapid innovation, the Department of Defense is increasingly aware that the boldest ideas often come from the usual suspects.
Defence Secretary John Healey recently spoke about the need to touch on the need to “beyond the threat” through the full glory of British entrepreneurs (engineers, coders, robotic experts and data scientists working on small teams). It’s not just about strengthening the armed forces. It is also a way to stimulate economic growth by unlocking new business opportunities for UK innovators, many of whom are already active in civilian applications of these same technologies.
“The best defense technology is usually built for battlefields, but the fastest in the civilian world.” – Juliet Mann, tech investor and former NATO consultant
The £400 million fund will be delivered in phases, with initial focus areas likely to include autonomous vehicles spanning land, ocean and air, decision-making tools powered by AI, wearable battlefield technologies, resilient communication systems, advanced sensors, and green energy innovations such as mobile power storage. These projects are not speculative and they are seen as crucial to the future military effectiveness of Britain. But it is crucial that many of them are also “dual use” technologies that can serve civilian markets, opening up a wider pathway for commercialization.
Unlike traditional Mod procurement cycles, which have been widely criticized for their slowness and complexity, while new innovation funds are considering SMEs. The goal is to provide funding in a short-term, sprint-like phase and have flexible modular contracts that do not lock businesses into a framework for many years. This structure will enable young and small companies to contribute meaningfully without the need for defense’s major scale or cash flow.
This shift may be impactful for small companies that are used to browse the traditional Chinese tape festival and slowly move public sector contracts. A planned and simplified application process, a dedicated onboarding team to guide SMEs through the entire process, and a faster payment mechanism (especially low-value contracts). The regional innovation hub will also play a role, planned on new defence accelerators, including the Northeast, the West Midlands and Wales, helping to ensure that the fund’s interests spread to the capital.
Of course, this is not a blank check. SMEs will need to meet high standards regarding security, reliability and interoperability. But Whitehall’s overall tone is obviously more inclusive than it used to be. There are active efforts to uncover defense procurement and reduce its threat to first-time participants.
One of the most exciting elements of the strategy is the clear focus on dual-purpose technologies – which can achieve military purposes but also have obvious potential for private sector adoption. AI systems for logistics and forecasting, drone surveillance tools, mobile microgrid infrastructure and wearable biometric devices all fall into this category. For founders and investors, this could make defense an attractive sector, not only a grant revenue, but also a catalyst for wider product development and market entry.
This is especially important when venture capital is cautious, with many high-potential startups struggling to obtain early stage capital. Defense contracts (even a small fraction) can provide valuable verification and cash flow that help free up private investment or expand into export markets.
There is already evidence that public attitudes are shifting, shifting this approach. The war in Ukraine and the increasing tensions in the Indo-Pacific region have brought the need for technical self-sufficiency and indigenous capabilities. Those who support UK SMEs to build the next generation of defense tools are increasingly seen as patriotic and practical.
For SMEs ready to seize the opportunity, the coming months will be crucial. The Defense and Security Accelerator (DASA) and Defense Equipment and Support (DE&S) will issue calls for proposals starting in July and anticipate guidance documents and standards in advance. Businesses should be ready now – review their IP strategies, think about compliance, and, where appropriate, establish partnerships with academia or established defense suppliers.
The appetite in the government is accelerating and procurement is becoming more lean. But the difference this time is urgency. The threat from the British face is too fast for the usual business. If you have a technology that can save lives, raise awareness of situations, or provide better data for commanders, you will soon find that you are not only welcome, but also actively aspired by the Department of Defense.
In short, defense is no longer just an area of overall contractors and slow tendering. The door is opening up to entrepreneurs, startups and scale-ups. For SMEs with the right ideas and the courage to enter new markets, opportunities may be important, not just financially, but the future that can shape the UK’s capabilities both at home and abroad.
