The 2026 Defence Innovation, Science and Technology Strategy identifies the problem. Now policymakers must act on the solution.
The release of the 2026 Defence Innovation, Science and Technology Strategy places innovation at the centre of Australia’s strategic calculus.
That is commendable.
The six priority capability areas – autonomous systems, artificial intelligence, quantum technology, undersea warfare, long-range fires, and high-energy lasers – represent the genuine frontier of military technology development.
The strategy’s ambition to accelerate the speed at which Australia develops, integrates and operationalises emerging technologies is precisely the right framing.
Yet there is a critical gap between strategy and execution. Australia’s defence research institutions, universities and emerging defence tech companies possess extraordinary capability and intellectual property.
What they lack catastrophically, is access to the capital markets that are now the primary engine of defence technology development across allied nations.
Consider the contrasting pictures unfolding in the United States and Israel. In the US, venture funding for defence tech start-ups totalled about $38 billion through the first half of 2025, with companies like Anduril Industries recently valued at $30.5 billion following its latest funding round.
This is not government spending. This is private capital recognising that defence innovation represents an extraordinary market opportunity, coupled with genuine national security necessity.
Many of these companies are pursuing modular designs borrowed from commercial giants like Apple and Tesla and are accelerating development and prototyping while sidestepping the government’s traditional decade-long acquisition cycles.
Anduril used private funding to design and field the Roadrunner, a reusable vertical take-off aircraft in just two years, which the Pentagon subsequently rewarded with a $250 million contract.
Similarly, global venture capital is flowing into Israeli defence start-ups at an unprecedented rate, with companies like Line 5 raising $20 million in seed funding and Kela Technologies reportedly raising close to $100 million across multiple rounds backed by top-tier investors including Sequoia Capital and Lux Capital.
This is happening not despite geopolitical risk, but because of it. Investors recognise that defence innovation is economically generative.
Israel has taken direct action. The Finance Ministry, along with the Defense Ministry’s Directorate of Defense Research and Development, approved up to NIS 200 million ($60 million) in state guarantees to promote the establishment of venture capital funds focused on the development and production of advanced defence technologies.
This initiative explicitly aims to bridge the gap between the shortage of private capital and the growing need for military innovation.
Australia has chosen a different path.
With the exception of Defence Innovation Grants and modest government research and development funding, our defence innovators lack access to the venture capital, private equity and commercial financing mechanisms that are now standard across allied defence ecosystems.
This is not merely inefficient. It is strategically dangerous.
The consequence is predictable. Australian researchers develop extraordinary capabilities that then languish as prototypes. Companies that might scale into globally competitive defence-tech firms struggle to raise growth capital. Intellectual property is acquired by foreign entities because Australian start-ups lack alternative funding pathways.
Most egregiously, the talent pool – the engineers, scientists and entrepreneurs – capable of delivering the technologies identified in the 2026 strategy gradually deploys to Silicon Valley, Tel Aviv or London, where capital and opportunity are available.
The 2026 Defence Strategy correctly identifies “stronger strategic partnerships with industry” as essential. Yet partnerships require that industry can actually finance innovation. A university spinout that cannot access venture funding is not a partner. It is a supplicant, waiting for government procurement to materialise.
The 2026 Defence Strategy correctly identifies “stronger strategic partnerships with industry” as essential. Yet partnerships require that industry can actually finance innovation.”
What needs to happen? Several mechanisms have proven effective elsewhere.
First, dedicated defence venture capital funds with government backing. This need not mean government directly investing taxpayer dollars in risky ventures. Rather, government guarantees, structured similarly to Israel’s model, that de-risk early-stage investment by ensuring loss absorption for funds that meet specified criteria. This crowds in private capital rather than displacing it.
Second, dual-use technology emphasis.
Venture capital is willing to take bets on innovation that other funders would be unwilling or unable to take, particularly if that innovation has application in both military and civilian markets. A company developing AI-enabled autonomous systems for defence also has commercial applications in agriculture, mining and transport. That diversification of revenue opportunity makes the company investable by traditional venture funds. Encourage this overlap relentlessly.
Third, regulatory clarity around export controls and national security screening. One of the principal barriers to defence tech fundraising is uncertainty. Investors need to understand upfront which technologies face CFIUS-equivalent restrictions, which have export control constraints, and which can be freely commercialised internationally.
This clarity reduces the risk premium demanded by capital.
Fourth, institutional investor engagement. Australia’s superannuation funds, infrastructure investors and institutional capital managers are actively seeking exposure to defence-tech opportunities. Yet they lack clear pathways to Australian defence start-ups.
Create investment vehicles, sector-specific funds with appropriate governance and reporting that channel this capital into the companies Australia needs to build.
Fifth, talent retention mechanisms. Offer tax incentives or equity-matching schemes that encourage defence-tech entrepreneurs and employees to remain in Australia rather than migrating to the valley. The intellectual capital matters more than the intellectual property.
The 2026 Defence Innovation Strategy represents a genuine strategic pivot. Australia is correct to identify emerging technologies as central to national security.
The strategy is ambitious, aligned and credible.
But it will fail unless we solve the capital constraint that has historically limited Australian defence innovation from reaching scale.
The United States and Israel recognised this years ago. Venture capital is now integral to their defence strategies. Australia has acknowledged the problem rhetorically.
The moment has arrived to move from strategy to execution to build the capital ecosystem that allows Australian defence innovators to compete, to scale, and to deliver the capabilities that our strategic environment now demands.
The alternative is to watch our best ideas, our best people and our strategic advantage migrate offshore, funded by foreign capital, built in foreign factories and serving foreign interests.
That would be an entirely preventable failure.
