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National security is no longer only about buying battleships and fighter jets, but also about lines of code, AI algorithms, and miniaturised satellites.   Saudi Arabia has topped the Gulf countries in terms of industrial production, with an expanding industrial base, targeting the establishment of 36,000 factories by 2035. The Kingdom has recorded overall growth in non-oil GDP thanks to economic diversification driven by industrial production, and growth is expected to reach 5% by the end of the year. Click Here to Read Complete Report
Private companies and defense startups are becoming bigger players in Saudi military innovation. Unlike traditional contractors, they work faster and bring skills from commercial tech fields like software, robotics, and data analysis. Their rise is changing how governments buy solutions—favoring flexible partnerships, venture-style funding, and innovation hubs that help develop new defense technologies early on. Start-up acquisitions and technology purchases are transforming how defense budgets are set nowadays. According to the Stockholm International Peace Research Institute latest data, global military expenditure hit a record $2.718 trillion in 2024, a significant 9.4% real-terms increase from 2023, marking the sharpest rise since the Cold War's end, driven by major spending hikes in Europe (especially Germany) and the Middle East, with the US, China, and Russia leading national outlays. Military expenditure in the Middle East reached an estimated $243 billion in 2024, an increase of 15% from 2023 and 19% more than in 2015.  
Startups Outpace Traditional Defence with Strategic Cost-Efficiency
While big defence corporations remain essential for large-scale production, integration, and long-term sustainment of complex platforms, the economic realities of developing cutting-edge, specialized technologies increasingly favor the lean, high-velocity model of defence startups. Their lower burn rate, compared to the big ones, isn't just a financial metric; it's a strategic accelerator for innovation in modern warfare. (Financial Models: Start-ups Vs Large Organisations). The General Authority for Military Industries (GAMI) has already established an academy in Riyadh to invest in young 2,000 Saudi talents annually, who have the potential to launch their own defence start-ups after graduation and display their innovative ideas in the World Defence Show. 
These defence start-ups are funded mainly by venture capital, which often comes with mentorship and market-driven insights, helping these young companies refine their business models, identify dual-use technologies with broader commercial appeal, and ultimately accelerate the transition of disruptive ideas from concept to deployment. This’s unlike the traditional funding way followed by big defence companies, which rely heavily on complex government procurement, grants, and the internal R&D budgets of large, established contractors. One recent innovation, which was displaced in the 2025 Saudi World Defence Show, was developed by an Estonian-Croatian defence start-up called Defensphere OÜ. Defensphere was founded in January 2021 by only eight founders from Estonia and Croatia. The team consists of professionals with military, defence industry, and drone business backgrounds. Their breakthrough innovation is called Vegvisir, a system for armored vehicles that provides an immersive, 360-degree "see-through-armor" capability. This innovation solves the critical, life-threatening problem of limited situational awareness that personnel experience inside armored vehicles in conflict zones.
With deadly conflicts raging on multiple fronts and the erosion of the traditional US-led world order, defense has emerged as one of the year’s biggest trades. The S&P 500 Aerospace & Defense Index is up 34% this year and its European counterpart has surged 75%. More than $19 billion of venture capital funding flooded into defense-related startups in the second quarter of 2025, according to Pitchbook data, up 200% from a year earlier. SpaceX, which was launched as a tech start-up by Elon Musk in 2002, has become the most valuable private firm in America, worth $350 bn. Another major defence company nowadays is Palantir, which was a start-up in 2003, has become a key supplier of software to Western armies, has a market value of more than $250 bn, more than Lockheed Martin, Northrop Grumman and General Dynamics, a trio of traditional defence contractors, combined. Anduril, a younger firm that makes autonomous weapons, is currently raising $2.5 bn at a valuation of $28 bn. PitchBook, a data company, says investors have poured nearly $40 billion into defense-related startups year-to-date in 2025. (PitchBook, Q3 2025). Historically, venture investors shied away from supporting hardware industries, especially those like defence that can gobble up lots of capital that is changing in the West and the Middle East. That has left an opening for upstarts that can make cleverer, effective and much cheaper versions in the defence industry. |
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