According to a new report by Tech Force in UA and the Better Regulation Delivery Office, 88% of Ukraine’s defense tech companies sell directly to military units, compared to 64% that fulfill traditional government contracts.
The shift demonstrates a development cycle unfamiliar to most Western defense establishments: direct battlefield feedback driving rapid product iteration, often outpacing traditional procurement processes.
From garage startups to professional operations
The numbers, contained in the new and first-ever report on Ukrainian defence tech producers titled aptly “War-driven: The rise of Ukrainian defence tech and the private industry behind it,” released on Thursday at the “Joint Ventures, Joint Defence” forum in Lviv, paint a picture of an industry that shouldn’t exist according to traditional defense doctrine.
Ukrainian startups are expanding at an absurd 218% annual growth, building factories in three months while Pentagon contracts take years to approve.
Nearly three-quarters of the Ukrainian defence tech companies were founded or pivoted to military technology after Russia’s 2022 invasion, creating an entirely new ecosystem from scratch.
“The war itself decides which weapons are best,” says Vadym Yunyk, president of Tech Force in UA, representing nearly 80 defense companies producing everything from attack drones to electronic warfare systems.
“Russian aggression has not only forced us to find new ways to resist the enemy. It has compelled us to rethink what Ukraine’s defense industry can and must be.”
The data shows these aren’t the garage tinkerer stereotype Western officials might expect. According to the fresh report, 73% of companies have undergone independent financial audits — making them professionally managed companies in all the thinkable ways.
Three-quarters collect soldier feedback daily through messengers, QR codes, and online forms, enabling product updates measured in weeks rather than decades-long development cycles. Some companies have made over 100 revisions to flagship products in the past year alone.
Speed and resilience by design
The operational model is equally revolutionary. Companies maintain multiple production sites across different regions to mitigate missile strike risks, with 42% operating five or more facilities.
The median time to establish a new production site is just three months.
Most employ flexible workforce models, common in Ukraine’s IT sector, mixing traditional employees with gig specialists and individual contractors.
Building supply chains Europe lacks
The industry could also solve problems that Europe can’t. Initially dependent on Chinese components for rapid scaling, companies systematically shift to EU and US suppliers as security demands have increased.
Now 28% source at least half their parts domestically — building exactly the resilient supply chains European policymakers keep promising to create. This localization has strengthened innovation and supply chain resilience, creating a virtuous domestic capability-building cycle.
The capacity paradox
There’s a strategic irony: Europe desperately wants these battle-tested technologies, yet Ukrainian export restrictions and EU bureaucratic barriers prevent the apparent solution.
Ukrainian companies operate at just 55% capacity — meaning they could nearly double output without new investment — while European defense ministers scramble for production capacity.
The disconnect extends beyond capacity to capability. Ukrainian producers have mastered asymmetric warfare technologies that NATO militaries struggle to understand, let alone procure.
Traditional defense contractors are still delivering incremental improvements on Cold War platforms, while Ukrainian startups iterate monthly through generations of drone and electronic warfare systems.
Investment appetite meets political barriers
The financial appetite is clearly there. With €4 billion in projected revenue for 2025, these companies are attracting investment interest, though they’re selective about funding sources. Smaller firms seek R&D financing through convertible instruments, while larger companies focus on scaling production through debt or joint ventures.
Company size significantly influences financing preferences, reflecting growing sophistication in capital strategy.
So, while there is an “unprecedented global interest in Ukraine’s defense tech industry” alongside “the readiness of Ukraine’s partners for real industrial cooperation,” there still exist significant bureaucratic hurdles to tackle.
The report, representing the first comprehensive disclosure of Ukraine’s private defense sector, also includes recommendations for EU governments.
Tech Force in UA and the Better Regulation Delivery Office urge European leaders to seize the current strategic window by investing in Ukraine, providing guarantees and financial tools for cross-border partnerships, granting Ukrainian producers access to EU defense programs, offering investment insurance against wartime risks, and streamlining acquisition processes.
Ukraine has accidentally built the defense industry of the future.
Whether Western governments will streamline procurement processes to access these battle-tested technologies remains uncertain. The strategic opportunity to partner with Ukraine’s defense innovation ecosystem may not persist indefinitely as global competition for these capabilities intensifies.