How money enters miltech — legal setups that work

The European defense and dual-use technology market is expected to demonstrate rapid growth in 2025. Capital is increasingly concentrated around specialized events and well-structured deals. Private investments in defense and dual-use technologies in Europe increased by 26% in the first half of 2025, reaching nearly € 946.3 million. 

This was stated by Petro Krychun, Partner and Head of International Tax at Crowe Mikhailenko, in his column for Novyny.LIVE.

Demand for speed and transparency

Today, investors in defense technology are looking for more than just "heroic" stories from the front. They are interested in basic elements such as the speed of closing a round, a clear list of owners (capitalization table), one responsible signatory, and transparent compliance. In turn, funders are trying to strike a balance between the flexibility of instruments, the requirements of the defense supply chain, and the limitations of Ukrainian jurisdiction during wartime.

In practice, this boils down to three sets of decisions: which instrument to choose, which legal "shell" to build, and how to incorporate export and sanctions compliance without slowing down the deal.

Choosing a tool: a live decision tree

When speed is the main priority at an early stage (pre-seed or seed), investors and funders often opt for simple deals that don't require an immediate valuation of the company. The most common options are SAFE or KISS agreements under Anglo-American common law. With these agreements, the investor provides funding upfront and receives shares later, when a formal round with a business valuation is established.

Such agreements prevent the ownership table from becoming cluttered with small stakes and allow the round to close quickly. For the global pool of angel investors and microfunds, this is a clear, almost reflexive framework.

However, investors increasingly want more control over complex defense products. A short SAFE is not enough. They want to see convertible debt in the form of a convertible note with an interest rate, an upper valuation limit, a discount, and covenants on exports, end use, data circulation, and artificial intelligence model "weights."

Convertible debt allows investors to customize the economics of the transaction while including critical miltech restrictions in the documents, such as export conditions, transfer of intellectual property rights, and data movement between jurisdictions. For hardware and dual-use solutions, convertible debt often appears to investors as a more mature and manageable tool than a "pure" SAFE.

Ukrainian specifics add a layer of complexity. The enforcement of traditional venture capital instruments is inconsistent. Although envelopes and options are effective, a significant number of rounds are structured under US or UK law through a foreign holding company or a separate special purpose vehicle (SPV). This issue is further complicated by wartime currency restrictions and cross-border payment rules. All of these factors should be included in the cash flow model before talking to the main investor.

Jurisdictions and shells: what a working framework looks like

Once a tool has been chosen, the question arises as to where it legally resides. For teams focused on the U.S., the most common choice is a Delaware C-Corp as the parent company and a Ukrainian LLC as the development center. This structure aligns well with U.S. fund logic, employee stock option programs (ESOPs), future secondary transactions, and most importantly, government contracts.

However, there is an important caveat: if American investors are involved, a Technology Control Plan (TCP) must be planned immediately. This is a set of internal rules that restricts access to sensitive data and code for individuals from certain jurisdictions in accordance with U.S. export regulations (EAR and ITAR).

For the European pool of investors, a classic structure is a UK Ltd company as the parent and an LLP or LP partnership as the syndicate for the deal. This structure is convenient for early rounds involving a large number of angel investors and several small funds. Banking, anti–money laundering (AML) procedures, know-your-customer (KYC) checks, and documentation for convertible deals have been refined over years of practice.

For club checks ranging from €5 to €20 million, Luxembourg structures are used. Funds such as SCSp or RAIF serve as an umbrella for several deals, enabling institutional investors to invest in miltech with the administration and reporting they are accustomed to.

For dual-purpose solutions involving European buyers and a mix of grant funding, it is often convenient to establish "light" holdings in Estonia or the Netherlands (OÜ/BV). These holdings integrate well with co-investment platforms and are perceived by European regulators as their own.

Ukrainian corporate law is gradually being harmonized with European law — the updated law on joint stock companies is a step in the right direction. However, for large venture capital deals, most defense teams still choose foreign holdings and Anglo-Saxon instruments because they are more predictable for global investors.

Exports and sanctions: compliance as a part of the story, not an extra

After selecting the instrument and the "shell," a third element enters the scene: export and sanctions compliance. By 2025, it will no longer be perceived as secondary. For professional investors, the absence of such a framework is a red flag.

Updated rules from the U.S. Bureau of Industry and Security (BIS) for categories 3A090, 4A090, and 4E091 require a new approach to AI models and "weights." Funders must consider not only the technological readiness level (TRL) but also the export classification (ECCN), de minimis rule, and extended jurisdiction rule (FDPR). Chipsets and modules must be described in human language in the data room.

Covenants should include an obligation to maintain a register of these classifications and promptly notify investors of changes. This protects both parties in the event that regulations are updated again.

With the participation of American investors, the aforementioned TCP becomes a condition for closing the round. This isn’t about "checking a box in a pitch deck" — it’s about real policies: physical and information security, staff screening, team training, and access logging for codebases and data repositories. Increasingly, the conditions precedent explicitly state that without an approved technology control plan, the funding round will not close.

The European Union is adding its own perspective. Article 12g of Regulation 833/2014 requires a "no-Russia clause," which bans the re-export of sensitive goods to Russia and bypass countries. This clause must be included in contracts with suppliers and partners. Investors insist that these clauses "flow" further down the chain and be backed by the right to audit.

In other words, export compliance is no longer a dull legal formality. It’s becoming part of the investor narrative — a signal of how ready the team is to play by global rules.

Typical configurations: who does what

An examination of the deals from 2024-2025 reveals several recurring patterns.

A typical case involves a primary American investor and a dual-purpose hardware or software system. The parent is a Delaware C-Corp, and the development center is a Ukrainian LLC. The first round is SAFE, and the next is convertible debt. The syndicate is raised through a separate Delaware SPV company. The advantages are clear: speed, familiarity with the documents, and readiness for defense innovation support programs, such as those offered by the DoD, DIU, and AFWERX. The disadvantages are also obvious: a strict export regime, mandatory TCP, and constant access control.

The situation is different when an early-stage European lead investor has a large pool of angel investors. In this case, we often see a UK Ltd. as the parent company, a syndicate through an LLP or LP, and an envelope or SAFE/KISS-type agreement. Grants from the EU or national funds are also part of the mix. The advantages include a simpler infrastructure for the syndicate and a clean list of owners. However, there is a risk of underestimating export blocks in charters and investment agreements.

Checks for club deals ranging from €5 to €20 million for several projects are most often received through the Luxembourg-based SCSp fund. SPVs are created for individual transactions under the umbrella of the portfolio, which includes Ukrainian subsidiaries. While this meets the requirements of institutional investors, it requires more expensive and complex administration.

Syndicates and SPVs: how not to drown in paperwork

For miltech deals, syndicates and special-purpose vehicles (SPVs) have long been the norm. The key to a healthy structure is simple. Rather than at the level of each individual investor, information rights and the right to purchase shares in subsequent rounds (pro rata) are established at the SPV level. In most cases, the carry fee ranges from 15 to 20 percent. Initial and annual administration fees should be transparent from day one. The investment agreement includes provisions for the forced sale of shares (drag-along) and the right to participate in a sale (tag-along) to prevent issues during the exit process.

AML/KYC and the sanctions filter are separate. For miltech, this is not only a regulatory requirement but also part of reputational due diligence. Teams with ready-made policies for cutting off "bypass" money and a prescribed beneficiary screening process appear much more convincing to potential investors.

To avoid getting bogged down in operational details, more and more syndicates are using services that automate the SPV back office, including investor onboarding, electronic signatures, distributions, and reporting. In miltech, it's not just about convenience; it's also about sustainability. Less manual work means fewer risks and less "admin fatigue."

How to monetize the moment: for Defense Tech Valley and similar events

Events like Defense Tech Valley 2025 offer miltech teams a rare opportunity to meet funders, foundations, corporate partners, integrators, and government customers all together in one place. Capital is literally "walking the halls."

To avoid missing out, prepare in advance. The data room should focus on the syndicate rather than on abstract concepts. Include a technical map showing the level of readiness (TRL and transitions), export classifications and codes (ECCN), a draft technology control plan (TCP), realistic off-take or pilot projects, and a matrix showing compatibility with the military doctrines of key markets.

During the event, it's important to not only give a good presentation but also have a clear proposal framework for the syndicate. This should include a plan for inspections after the event, which should last two to three weeks. In other words, the team must demonstrate their ability to convert interest into signings, not just collect business cards.

30-day action plan: the founder's checklist

1. Choose a basic "shell" — the US or the EU — for your investor pool and export regime. Then, prepare a charter and rights structure with miltech specifics in mind.
2. Determine the tool: Use SAFE/KISS for maximum speed, or use convertible debt with prescribed covenants (export, data, and transfer of intellectual property rights).
3. Create a framework for the special purpose vehicle (SPV): jurisdiction (UK LLP/LP partnership, Luxembourg SCSp, or Delaware company); carry amount; templates for additional agreements; and KYC policies.
4. Create an export package: An ECCN matrix, a clause prohibiting reexport to Russia in supply contracts, a draft TCP, and a policy on access to repositories and models.
5. Check the military currency and debt restrictions in Ukraine in the payment model, especially if you plan to use convertible debt or other quasi-revenue instruments.
6. For Defense Tech Valley or another specialized event, schedule individual meetings and prepare an on-the-spot term sheet (SAFE or envelope), as well as a short list of steps to close the deal.

Speed, transparency, and compliance

By 2025, miltech capital will consist of three components. First, quick instruments, such as SAFE or convertible debt, are understandable to investors. Second, a clean structure, such as an SPV or syndicate, that keeps the list of owners in one place. The third component is built-in export compliance with US regulations (EAR, ITAR) and European re-export restrictions.

A team that knows how to assemble these elements into a single, functioning construct can reduce time-to-money by several times. They remove key doubts of leads before they voice them and better monetize "peak" market moments, such as event windows like Defense Tech Valley.

Read more: Michael Druckman, the founder and managing director of Trident Forward and a member of the Ukraine Cities Partnership (UCP) advisory board, said that producing Ukrainian weapons with EU partners is becoming serialized due to localization and clear repeat order mechanisms.

Earlier, Ukrainian President Volodymyr Zelensky discussed expanding cooperation in defense with representatives of international and Ukrainian investment funds and business associations.