ScaleWolf Managing Partner Edvinas Kerza: 'We are witnessing just the beginning of commercialization and securitization of the defence sector'

The war at Lithuania's doorstep has sparked a surge in the commercialization and securitization of defence. Many young people – from amateur backyard innovators to talented engineers in auspicious defence startups funded by unique venture capital firms like the Vilnius-based ScaleWolf—are eager to contribute to national defence. “Indeed, we have an unimaginably large number of patriotic and enthusiastic people with open hearts, bright minds, and boundless energy to innovate. Some of the teams we are funding are especially admirable, as they literally started from scratch," said Lithuania's former Deputy Defence Minister Edvinas Kerza, now Managing Partner at ScaleWolf, a Vilnius-based defence venture capital fund helping dual-use defence startups, in an interview with The Baltic Times Magazine.

Could you please provide an example of what you mean by 'scratch’?

Some of the stories are nothing short of amazing. One standout example comes from the hackathon "Fire Shield 2024," an event held in October that focused on cybersecurity and defence innovations. Initiated by the Lithuanian Riflemen's Union and organized in collaboration with Kaunas Science and Technology Park ("Tech Park Kaunas") and three investment funds, including ScaleWolf, the event produced an extraordinary result.

Five young men, meeting for the first time on Friday, came together and by Sunday had won the competition. They developed a relatively simple yet groundbreaking technology capable of saving the lives of injured troops on the front lines. This innovation is particularly valuable in scenarios professionals refer to as "blind shooting"—combat in total darkness, where soldiers cannot see their enemy but are still under fire, often struggling to aim or even handle their weapons effectively. 

The team developed a piece of equipment designed to be installed on a firearm, which connects to a vision device mounted on a helmet or a specialized phone placed on the user’s chest. Impressively, they created the prototype in just two days.

As of this interview (conducted on December 18), the team is in Kyiv, presenting their invention to senior officers of the Ukrainian army. Following their evaluation, the device could proceed to production and practical application. By the way, ScaleWolf has supported the team with a grant of 15,000 euros.

By my estimation, over 60 defence startups have enrolled in and completed the ScaleWolf pre-accelerator and accelerator program. How many of these startups have relied on your funding and are still operating successfully in the highly competitive defence market?

 Most have received ScaleWolf grants – from several to 20 thousand euros. Notably, more than half of the teams received further investments, even up to a couple of million euros, scaling up and hiring staff and expanding along the way. 

What trends did emerge in the third ScaleWolf Pre-Accelerator held in July 2024?

It has become evident that there are still areas in the defence sector that remain underdeveloped. Among these are medicine and biotechnology, despite having individuals and teams capable of innovating next-generation medical solutions. For example, advancements that accelerate wound healing, halt severe bleeding or restore physical condition and capability are critical for frontline operations and remain an untapped potential.

Another underexplored field is space technology. Historically, we presumed that as a small country, space endeavors were beyond our reach. However, this belief is misguided. By combining the talents of a small country like ours with those of our larger allies, we can achieve remarkable outcomes. A great example of this collaboration is how we brought a Canadian team to Lithuania. They established a defence-oriented startup here, opened an office, hired local talent, and utilized both Canadian and Lithuanian resources to drive innovation.

This collaboration was made possible after amendments to our legislation created an enabling environment for such partnerships. It demonstrates that with the right mindset and framework, small nations can play a significant role in areas previously thought unattainable.

How many graduates of your pre-accelerator program now work in Lithuania? What percentage of them are assisting Ukraine in the combat zone? And have any expanded their reach further, collaborating with organizations like NATO?

In the early stages, every startup seeks to establish local partnerships. Collaborations often begin with organizations like the Riflemen Union, the military, and other critical defence infrastructure players, as well as former military personnel who offer invaluable expertise. These partnerships not only provide essential feedback on product development but also help startups navigate the sales process.

For Lithuanian defence startups, failing to meet local standards significantly limits their prospects abroad. However, when it comes to testing products in actual combat zones, Ukrainian forces play a crucial role. Approximately 80 percent of our startups test their equipment on the frontlines in Ukraine. Only those that successfully pass both local and Ukrainian evaluations can realistically aspire to enter international markets or secure partnerships with NATO.

That said, the defence market is notoriously challenging for new players. Established giants in Germany, Italy, and other major military powers dominate the industry, leaving little room for smaller entrants. Additionally, the market is highly segmented; most countries prioritize purchasing from their own manufacturers to support domestic industries.

Despite these hurdles, a few Lithuanian companies have managed to form partnerships with leading defence contractors from the largest Western military powers. These collaborations demonstrate the potential of our startups to make an impact on the global stage, even within a highly competitive and insular market.

As a military venture capital fund, ScaleWolf holds a unique position in Lithuania. However, how is the competitive landscape evolving in the broader Baltic region?

Your observation is partially correct. Yes, we are unique in being the only fund specifically dedicated to investing in dual-use defence and security sector startups. However, it's worth noting that other funds, motivated by the lucrative defence market, have recently adjusted their strategies and financing mechanisms to focus on dual-use technologies, both here in Lithuania and in neighboring countries.

What truly sets ScaleWolf apart is our partnership with the Ministry of Defence, which allows us to conduct rigorous due diligence on startups applying for our grants. This collaboration ensures that we support only the most promising and credible ventures in the sector.

At the same time, the broader region is experiencing a surge in military venture capital activity. Both Latvia and Estonia have witnessed significant growth in this area recently. Finland is also making notable strides, while Poland is establishing substantial state-backed funds to invest in defence-focused startup companies. This regional momentum underscores the increasing importance of innovation and collaboration in the defence and security landscape.

Do you think commercialization and securitization of defence have reached their peak? Will it likely slow down with the new developments in Ukraine?

We are witnessing just the beginning of the commercialization and securitization of the defence sector, including in Lithuania.

First, let’s acknowledge that Europe’s arms stockpiles remain alarmingly depleted. Meanwhile, the adversary is significantly expanding its capabilities, heavily investing in military technologies, advanced hardware, and cutting-edge software.

On a more positive note, many technologies initially developed for defence purposes often find transformative applications in civilian sectors. Innovations in areas like farming, shipping, autonomous transportation, next-generation security, and radio technologies frequently stem from advancements in the defence industry.

The geopolitical landscape underscores an alarming trend: new conflicts are emerging, and existing ones are intensifying in multiple regions. The Middle East remains a volatile hotspot, but other regions, such as parts of Africa with significant Russian influence, are equally combustible.

Against this backdrop, nations are accelerating their defensive measures, replenishing arms stockpiles, and scaling their military readiness in anticipation of new or worsening crises. The implications are clear: as the defence sector evolves, it will not only shape military capabilities but also drive broader societal and technological change.

Drones and their scaling advancements are making headlines today, but can you offer insights into what might come next in the evolution of armory development?

I believe that soon, technologies may come into direct conflict with one another. For instance, China is already developing next-generation, human-controlled autonomous robot dogs designed for battlefield deployment. Consequently, countries allied with Lithuania will likely need to develop comparable technologies to counter these advancements.

I fear that, sooner or later, we may witness conflicts extending into space, driven by intense competition among nations with sophisticated technologies. With rockets becoming faster and smarter, we could see scenarios where they are launched and intercepted in space, further escalating tensions.

What would be your advice for startups aiming to succeed in the highly competitive yet lucrative dual-use defence sector?

Every team should understand that three key factors contribute to success. First, having a strong and well-defined idea to work on is essential. Second, a talented and capable team is necessary—one that understands business, marketing, and how to work effectively with technologies. Third, timing is critical. Right now, the timing is ideal.

With these factors in place, you can attract funding, gain the necessary knowledge, and confidently start your own business.

As you mentioned on your LinkedIn page, motivation and inspiration are the greatest driving forces…

Indeed, this is crucial in every activity. The startups that participate in and complete our pre-accelerator or accelerator programs are our best ambassadors. Most importantly, each of them has the potential to make a significant difference—they join, they learn, they benefit, and they contribute to defence and security by saving lives and deterring aggressors.

I strongly encourage everyone to join Scalewolf’s pre-accelerator and 10-week accelerator program. These programs provide funding through fast-track grants and streamlined investments, invaluable insights into accessing government markets in Europe and the USA, and comprehensive product and business development training focused on the defence industry. Participants also gain a pathway to develop corporate beta partners and opportunities to showcase their capabilities to allied partners.