Authors: Elena Vrabie and Bogdan Iordache

What do you do when your enemy has more troops, tanks, firepower, and a defense budget ten times yours? In Europe, the question is no longer whether you’d rather face a lion or an army of ants; it’s about how Primes (i.e., large defense contractors) and tech startups can build, test, and adapt for combat that’s already knocking at the border. Welcome to the new era of warfare, where iteration beats intimidation, and ‘cost per kill’ is a metric that is increasingly hard to swallow.

“As Europe and the US have been focused mostly on the moonshots – the space technologies, or the advancements in manufacturing, cybersecurity, or material science, little has gone towards what we call the new defense that you can use on the front line tomorrow. It was my job to have a compelling message for them to come: If you are a serious defense investor, you need to understand what’s going on here. You cannot avoid it. This is going to define the future of war fighting,” shares Eveline Buchatskiy, Founding Managing Partner at D3 Venture Capital Firm, a Ukraine-focused early-stage fund born out of the war on a mission to Dare to Defend Democracy.

Looking at Ukraine as a successful case study, it has had no choice but to fight smarter from the first shot. The ZSU (Zbroini Syly Ukrainy – “Armed Forces of Ukraine”) thus turned to speed, adaptability, and battlefield-tested innovation to level the playing field. Procurement dropped from years to months, and defense startups enrolled with autonomous drones, acoustic sensors, and AI-powered command systems. 

In the interview below with Underline Ventures, Eveline, an engineer at the core and former VP of Special Projects at Ukrainian unicorn airSlate, shines a light on the challenges and opportunities of investing in defense startups during wartime, emphasizing the importance of fast procurement, technical founders, and real-world testing. She highlights gaps in the market, both for startups and investors, and why dual-use technologies aren’t a priority for D3.

Underline Ventures: How have things changed this year compared to when you launched D3? Have you had to adjust your investment thesis, sourcing strategy, or even your expectations regarding what is fundable and what is feasible?

Eveline Buchatskiy: During our first year of operation, it was important to fund local teams in Ukraine as quickly as possible and support the creation of a local miltech ecosystem that would in time provide the rest of the world with very valuable lessons in product development and iteration at rapid speed and in close connection with the end user, the military. New procurement cycles and doctrines were formed and are now being transferred to those NATO members that understand the consequential nature of this war for them as well. 

We initially focused on unmanned systems, covering all types of UAS and UGV solutions. We are now augmenting the portfolio with countermeasures against drones, autonomy software, battle and combat management systems. Fundable teams are highly technical, fully committed, and determined to build a global company that outlasts this conflict and keeps allied nations ahead. 

UV: One thing that stands out about many Ukrainian defense tech startups is how sharply focused they are on solving immediate needs on the battlefield…What do you think about this dynamic between building solutions that address immediate frontline needs and developing technologies that can scale globally or appeal to international investors and markets?

EB: I don’t see these as mutually exclusive. The fact that a technology solves an urgent need on the battlefield makes it more attractive to international markets because it works. And these systems continue to get upgraded with the changes in combat conditions. 

The opposite is problematic. We see several international companies get large contracts with various defense ministries without ever going through the ultimate test on the frontline, and they are most likely to fail if ever put on a mission. 

UV: You mentioned that a D3 non-negotiable is having technical co-founders in the company. Do you have other criteria, or would there be a special occasion for pre-product investment?

EB: Our sweet spot is pre-seed investment, which means pre-product in most cases. We are comfortable with investing in companies that have only a concept. The team is not required to have a ready product, but it should have the technical skills and experience to continuously innovate and bring to market solutions to complex challenges.

UV: Have there been instances where the tech looked solid, but you walked away because the team didn’t feel right or didn’t have the necessary grit/resilience/experience?

EB: Yes, in a few cases. For instance, we still don’t have naval drones in our portfolio. We would love to have it, but there aren’t too many companies in this space. It’s harder to find targets in naval space, perhaps because the barrier to entry is a little bit higher than other products.

Ukraine, despite its success in going after the Russian Navy, has only one successful company doing sea drones – Magura V7, all the other companies are not fundable because they are more like volunteers, they want to help their friends in the trenches, which is noble and valuable, but they don’t have ambitions to go through a venture journey, with multiple financing rounds, and then going global. 

UV: The Ukrainian army has undergone major changes in how it handles procurement and proof-of-concept (POC) processes, approaches that differ notably from those of European armies. What are some key lessons they’ve learned in this area?

EB: None of these war achievements would have been possible if we were stuck in the traditional methods of military procurement. One of the changes was bringing procurement power to the end user.

A dedicated marketplace – Brave 1 Marketplace – was launched in April, so now the brigades* can go directly and procure the products. 

Because it’s so technology-driven, it’s not a matter of relationships to be listed in this marketplace. It’s a matter of meeting technical specifications. It’s like removing the relationship-based procurement that was characteristic of the defense sector. 

Before, you needed to do a lot of lobbying and have strong connections. And to do so, you needed to be large to afford it before you could dream of a contract (e.g., Palantir Technologies – $5M+). What Ukraine did was to create the actual meritocracy: if your product does well, we will buy it.

*The Ukrainian Armed Forces consist of various brigades, meaning groups of 1000-8000 people. 

UV: While this approach works for items that can be procured at the brigade level, how does it apply to larger-scale needs, like aircraft and infantry vehicles? Is the acquisition process for those more complex assets similar to the marketplace model?

EB: Traditional weapons that are way more expensive and typically come from other governments, in particular, like the Patriot systems – $1.5 billion (approx. value), howitzers, Leopard tanks, and so on, the MOD (Ministry of Defense) gets involved, it’s a federal contract. But even those that went through their revolution in shrinking the procurement cycles.

For example, last year, the entire procurement of German drones was 1000. In Ukraine, you have 150,000 drones per month being used. So that level of spending generates a whole lot of interest in creating companies and innovation to go after these budgets. The necessity to do that very fast in Ukraine created a whole market.

UV: Beyond capital, D3 offers a tailored support program and access to the Ukrainian Armed Forces. Can you share a behind-the-scenes look at what that mentorship and field-testing relationship looks like for a startup?

EB: We have weekly or bi-weekly calls with the portfolio companies to address any blockers that may be in getting their products to the frontline at scale: testing, logistics, certification, procurement, recruiting, we will get our hands on anything that will accelerate impact for the warfighters defending Ukraine and Europe as a result. 

We have strong connections with several brigades who are keen on adopting new technologies, such as the 3rd Army Corps, Khartia, 14th Regiment, Alpha, and others. Brave1 is also extremely helpful in gathering military units at the testing grounds around Kyiv, called polygons, to give immediate feedback to startups under conditions resembling combat, such as the right combination of EW factors.

UV: How does your support differ for teams based in Ukraine versus those based internationally?

EB: For the teams based in Ukraine, we can focus on helping them find funding, sales, and partnership opportunities internationally. 

For the teams based outside, we make sure we share with them the latest technological developments from the soldiers and commanders to their CTO, and help them get deployed, certified, and contracted in Ukraine. 

UV: What do startup teams usually underestimate when working with the military as a customer?

EB: Price and portability. It’s not about solving a problem “at any cost”. In the age of attritable weapons, soldiers will have a mental block if they have to use, and likely lose, a weapon which costs hundreds of thousands or even millions of dollars. Generals are looking for an acceptable cost of the mission or cost per kill. 

Teams also need to visualize how their systems are powered and deployed in the real world, taking into consideration factors such as the ubiquitous presence of enemy reconnaissance and strike drones, the range of the death zone, and the need to quickly move around and not leave a footprint or signature. All of this speaks to the portability of the system.

UV: How do you think about risk differently in defense tech compared to traditional venture capital? And how does your follow-on investment strategy reflect that?

EB: I am often asked about how a ceasefire in Ukraine would impact our portfolio performance. This is the kind of special characteristic of the defense sector, when one event can change the forecast dramatically. 

We try to minimize risk by diversifying into companies that have access to different defense budgets. As for follow-on, the same principles apply. We have been increasing the initial check size and consolidating the portfolio more, based on higher valuations for the defense companies these days.  

UV: Can you share an example where direct feedback from the field changed the course of a startup’s product?

EB: That happens every day. And that should be the case for any startup in any sector. Getting continuous customer feedback and adjusting the product accordingly is what gets them to product-market fit. 

We have a UGV portfolio company which initially planned to focus on the demining use case, but after testing with a brigade in Ukraine, they understood they needed to reprioritize the product to carry a turret for fully robotized battles like the battle of Lyptsi last fall. 

UV: Several of your portfolio companies are developing UAVs and C2 systems, from Swarmer to Buntar Aerospace. What are some of the most technically exciting or strategically impactful breakthroughs you’ve seen across your portfolio?

EB: With Swarmer and Buntar, we will soon see a drone mission preparation and execution time go from 9 hours to 9 minutes, and having 8 people working to deploy one drone to one operator managing groups of 20 drones. 

The fight is getting much cheaper as well, and we will soon see breakthroughs in air defense with interceptors that cost less than $10K take down systems costing 10 times that, as well as interceptors for light cruise missiles. 

UV: What’s your view on hardware-heavy defense startups that might take longer to scale? Do they still make sense under your VC model?

EB: Most defense companies are hardware-intensive, and we are ready for that. Even software companies find themselves having to embed their solutions into hardware to more rapidly get contracts, as the defense buyers are still not set up to buy purely software solutions. 

UV: Have you seen successful examples of co-development between two portfolio companies?

EB: Yes, we’ve seen co-development between portfolio companies, but also outside of it. We have a portfolio company called Frontline Robotics that has signed an agreement with Quantum Systems from Germany to co-develop an entire counter-drone system, and they have also invested in them.

In my view, this is a dream world. Having a Ukrainian company with combat-proven technology cooperating with a German company that was a pioneer in coming to Ukraine and establishing a footprint here, and now they will co-develop a product that will serve the needs of the European market. The German army will have things that work, and a Ukrainian company will have a market outside of the country, and to continue to grow, so the defense sector in Ukraine doesn’t die after the war. 

We want the war to be over, but we don’t want all these efforts to be gone. We want to continue to be leveraged for the Western Allies. 

UV: Which technologies do you feel are still “missing” from the Ukrainian defense stack—and where do you hope D3 will find or build the next big breakthrough?

EB: A lot more can be done in autonomy and the use of AI, guided munitions, interceptors for glide bombs, military demining, countermeasures for fiber optics drones, and lasers. 

UV: You’ve spoken online about “robots already taking over the battlefield.” What role do you see for autonomy, ML/AI, and human-machine teaming—and how close are we to full-scale battlefield automation?

EB: For assault missions, there is always going to be a human in the loop in responsible warfighting. Yet, with decentralization of weaponry towards smaller and attritable systems, it is not sustainable to have a one warfighter/weapon ratio. 

AI is already being used for mission planning, which saves several hours and decreases this ratio dramatically. For several other missions, AI can eliminate humans. 

For example, Ukraine has developed an intelligence system for intercepting enemy radio communications and turning those conversations into insights and commands. What that system accomplishes in one day with an ML model would be equivalent to 9 months of manhours.  

UV: What’s your opinion on dual-use technologies? Is targeting both military and civilian markets a good strategy for founders? 

EB: It’s a mistake to be asking the companies to be dual-use intentionally from the get-go. Good entrepreneurs, if they don’t find enough money in the military, will switch the technology to civilian use. A drone that delivers warheads can deliver fertilizers. We are asking them to be distracted and do a miracle. Sure, use your capabilities to pivot to a different market, but not now. 

We do not require and do not encourage founders to look for dual-use opportunities. Early-stage success requires focus. These two markets, civilian and military, are very distinct. As an early-stage company, it is suicidal to attempt to address both markets simultaneously, and there is no need for that, considering the strong demand for military use. 

The world needs to focus on defense. There’s an ongoing war. You have the contracts, you have the demand, you have the money, be focused so you can get to those contracts faster than anybody else you know.