It’s a move that could dramatically reshape the opportunities available to SMEs working in fields such as artificial intelligence, robotics, cybersecurity and advanced materials.
Announced in Chancellor Rachel Reeves’ first Spring Statement, the UK Defence Innovation Fund will begin rolling out in July 2025. It marks the most significant signal yet that the Ministry of Defence (MoD) is seeking to move faster, think smaller—and harness the disruptive energy of Britain’s 5.5 million SMEs to gain a technological edge.
Historically, defence contracts in the UK have been the preserve of a small number of major players—industry giants like BAE Systems, Thales and Rolls-Royce. These companies will still have a vital role to play. But in a world of fast-moving threats and rapid innovation, the MoD is increasingly aware that the boldest ideas often come from outside the usual suspects.
Defence Secretary John Healey recently spoke of the need to “outpace threats before they emerge” by engaging the full brilliance of Britain’s entrepreneurs—engineers, coders, robotics specialists and data scientists working in small teams, often far from Whitehall. It’s not just about strengthening the armed forces. It’s also a way to stimulate economic growth by unlocking new commercial opportunities for UK-based innovators, many of whom are already active in the civilian applications of these same technologies.
“The best defence tech is often built for the battlefield—but scales fastest in the civilian world.” – Juliet Mann, tech investor and former NATO adviser
The £400 million fund will be delivered in stages, with initial focus areas likely to include autonomous vehicles across land, sea and air, AI-powered decision-making tools, wearable battlefield technology, resilient communication systems, advanced sensors, and green energy innovations such as mobile power storage. These projects are not speculative—they are viewed as essential to the UK’s future military effectiveness. But crucially, many of them are also “dual-use” technologies that can serve civilian markets, opening up broader pathways for commercialisation.
Unlike traditional MoD procurement cycles, which have been widely criticised for their slowness and complexity, the new innovation fund is being designed with SMEs in mind. The aim is to deliver funding in short, sprint-like phases, with flexible modular contracts that don’t lock businesses into multi-year frameworks. This structure will allow younger and smaller companies to contribute meaningfully without needing the scale or cashflow of a defence prime.
For small firms used to navigating procurement red tape and slow-moving public sector contracts, the shift could be transformative. There are plans for simplified application procedures, dedicated onboarding teams to guide SMEs through the process, and faster payment mechanisms—particularly for lower-value contracts. Regional innovation hubs will also play a role, with new defence accelerators planned for locations including the North East, West Midlands and Wales, helping ensure the benefits of the fund are spread beyond the capital.
Of course, this is not a blank cheque. SMEs will need to meet high standards around security, reliability and interoperability. But the overall tone from Whitehall is unmistakably more inclusive than in the past. There is an active push to demystify defence procurement and make it less intimidating to first-time participants.
One of the most exciting elements of the strategy is the clear focus on dual-use technologies—innovations that can serve military purposes but also hold clear 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 defence an attractive sector not just for grant income, but also as a catalyst for wider product development and market entry.
This is especially important at a time when venture capital remains cautious, and many high-potential start-ups are struggling to secure early-stage funding. A defence contract—even a small one—can provide invaluable validation and cashflow, helping to unlock private investment or expand into export markets.
There is already evidence that public attitudes are shifting in favour of this approach. The war in Ukraine and growing tensions in the Indo-Pacific have brought home the need for technological self-sufficiency and home-grown capability. Supporting British SMEs to build the next generation of defence tools is increasingly seen as both patriotic and practical.
For SMEs ready to seize the opportunity, the coming months will be crucial. The Defence and Security Accelerator (DASA) and Defence Equipment and Support (DE&S) will begin issuing calls for proposals from July, with guidance documents and criteria expected in advance. Businesses should be preparing now—reviewing their IP strategies, thinking about compliance, and building partnerships with academia or established defence suppliers where appropriate.
There is a growing appetite across government for faster, leaner procurement. But what’s different this time is the urgency. The threats the UK faces are evolving too quickly for business-as-usual. If you have a technology that can save lives, improve situational awareness, or give commanders better data, then you may soon find yourself not just welcomed, but actively courted by the Ministry of Defence.
In short, defence is no longer just the domain of monolithic contractors and slow-moving tenders. The door is being thrown open to entrepreneurs, start-ups and scale-ups. And for SMEs with the right ideas and the courage to enter a new market, the opportunities could be significant—not just in financial terms, but in the ability to shape the future of British capability at home and abroad.
