Defence Fund

SmartCap Defence Fund: strengthening the Estonian defence industry and the European defence tech ecosystem

SmartCap Defence Fund’s principal objective is to develop the Estonian defence industry and advance innovative defence and security capabilities to address the growing global demand for new defence and security solutions. SmartCap Defence Fund also contributes to economic growth and diversifies access to capital for defence companies in Estonia. For this purpose, investments shall be made into funds, managed by either first-time or established fund managers, that invest in military or dual-use companies.

SmartCap intends to invest in up to four already operating or soon to be established defence investment funds, to which the Defence Fund would make an investment within the range of €5 to €20 million per fund.

Specific requirements and restrictions for the funds:

  • Already operating or soon to be established venture capital or private equity fund that makes growth equity investments in defence companies. The fund shall primarily invest in equity and quasi-equity instruments.
  • The fund should have a core strategy to invest in defence companies that produce or develop products and/or technologies or provide sector-specific services exclusively for military use or for dual use, applicable to both civilian and military applications.
  • The fund manager shall demonstrate their contribution and value-add of their investment strategy to Estonian defence industry. The fund shall invest at least the SmartCap Defence Fund’s investment amount into defence companies that are established and operating in Estonia, whereas limited investments in defence companies established and operating in other NATO member countries are possible, if there is a meaningful value-add to the Estonian defence ecosystem.
  • The fund shall be established as a limited partnership fund or other alternative investment fund in a NATO member country. The fund manager and all related entities must also be established in a NATO member country.
  • Team members and related entities of the fund manager, as well as the partners or investors of the fund shall not be established or operating in, nor shall their shareholders or investors (including the UBOs of such investors in case of legal entities) be the citizens of Russia, Belarus, or citizens of other countries that are on the FATF ‘blacklist’, UN sanctions list, or any other sanction or exclusion list applicable to the fund.
  • The fund will not invest in enterprises that are established or operating in, or whose existing shareholders or new investors (including the UBOs of such investors in case of legal entities) are the citizens of Russia, Belarus, or other countries that are on the FATF ‘blacklist’, UN sanctions list, or any other sanction or exclusion list applicable to the fund.
  • No state aid is provided by SmartCap. SmartCap Defence Fund invests pari passu with independent private investors, requiring that at least 30% must be invested by independent private investors at the same time and under the same terms as the SmartCap Defence Fund.
  • The first closing of the fund is expected to take place within six months from signing the investment commitment from SmartCap Defence Fund, unless extended with the prior written approval of SmartCap.
  • The fund must not be subject to investment restrictions that limit it from investing in weapons and ammunitions.
  • An adequate conflict of interest policy to ensure that all transactions are on an arm’s length basis, or any activities which could create an opportunity for actual or potential conflicts of interest to arise shall be handled according to best industry practices.

SmartCap may prioritize investments in funds that, among other factors:

  • Have a clear strategy to invest in defence companies whose products or technologies are exclusively for military use.
  • Focus their investments on defence companies established and operating in NATO member countries.
  • Contribute to the development of Estonia’s defence and security capabilities.

SmartCap shall retain sole discretion when allocating investments to funds and may use additional considerations when prioritizing its investments.

Funds and their managers that fit the mandate of the SmartCap Defence Fund will be assessed throughout the investment process as SmartCap considers, among other elements, the following aspects:

  1. Team composition, profile, track record, joint working experience, relevant expertise and experience, competencies, and capacity.
  2. Investment strategy validity and viability, including relevance to SmartCap Defence Fund objectives and consistency with the fund manager team’s profile, competitive advantage, model portfolio, potential value-add to defence companies, deal sourcing and existing pipeline.
  3. Fund terms and conditions, legal and organisational structure, viability and sustainability of the fund manager and fundraising status and outlook.

SmartCap Defence Fund shall remain open as long as it has uncommitted resources available that are allocated for fund investments. SmartCap may amend the investment terms at any time and reserves the right, at its sole discretion, to cancel or discontinue SmartCap Defence Fund’s investments in venture capital and private equity funds in its entirety at any time.

See our Investment Process and Responsible Investing sections, to learn more about our approach to investing.

Are you a fund manager seeking investment from SmartCap Defence Fund?

Reach out to our investment team at and share your pitch deck!