Calibre interview: Matt Croker, Director of M&A at the Heligan Group

On Wednesday the 2nd of April, 2025, the UK’s defence minister John Healey met with a group of venture capital firms in a first for the UK. He was meeting with them to encourage them to invest in the UK’s defence and technology sector. “With countries across Europe facing new threats, stepping up to take more responsibility for our continent’s defence is an ethical investment, and it’s good to see increasing numbers of private investors recognising that,” Healey said. The drive is understandable; in the US, venture capital and private equity are largely responsible for many of the country’s autonomous technologies. The maritime company Saronic secured $600 million (£460 mln/€554 mln) in February this year, bringing its valuation up to $4 billion. The funding will be used to build a factory to build autonomous maritime vessels. Anduril secured $1.5 billion in Series F funding (£1.13 bn/€1.4 bn)  in 2024 leading to a valuation of $14 billion, the company has now started work on building its Arsenal-1 hyperscale factory, promising to build tens of thousands of expendable weapons and systems every year. 

The success of private investment in the US is clear, and it offers benefits that governments can use to improve the economy and ensure national defence. The sector for these kinds of investments is broad, extending from national security, law enforcement and public safety. These three areas may attract similar types of investors, and the interest is growing according to a 2024 report from the Heligan Group, a UK based Investment Bank. Between 2022 and 2024, 202 UK companies received venture capital investment, the report states, and from 2018 to 2024, there were 191 entries and 64 exits from the UK market. Entry means that a private equity firm invested in a company in one of the three sectors, either providing growth capital, buying a controlling stake, or through a management buy-out. Exits refer to what happens when a private equity firm sells its stake in a company, reflecting successful growth. 

There’s a lot to learn, and a lot to know about private equity and venture capital in defence, so Calibre Defence met with Matt Croker, M&A Director at the Heligan Group to better understand the subject. 

A halo effect and private equity

Defence has traditionally been for a challenging sector for investment companies and banks. Concerns around ethics and the well-established challenges of doing business with governments is widely acknowledged. “If you asked me 18 months ago, the investment climate made closing transactions harder to navigate.  There were fewer active investors and lenders but that climate is changing and there are definitely more now,” Croker explained. “There is a halo effect around the sector  where investors have made good returns on the growth of companies, which then entices other investors and lenders into the sector,” he added. 

This is good news for defence, it means that capital is more readily available to small and large companies as they develop new technologies and capabilities. This is particularly important for innovation, which generally benefits from many clusters working on the same problem set from different directions. They do ultimately need to cohere around a set of solutions, but having the capital available to invest in and support many companies working in artificial intelligence – for example – means that the Ministry of Defence (MoD) will have more options to choose from when it eventually decides what it needs. 

However, it’s not possible to assign this to a specific government policy, Croker explained, “there are tailwinds in terms of policy and government pledges to increase spending which means the market is naturally going to grow. So, that will always draw investors.” This is key, the defence industry can be constrained in that its customers can sometimes only be governments, so an investors’ path to a return is intrinsically linked to government spending in defence. This is changing to some extent with the greater acceptance of dual-use technologies, which are now actively encouraged but that hasn’t always been the case. 

“Technology is playing a role, defence is making much greater use of technology, which creates a different kind of revenue because it is more predictable, more repetitive and the flow through to growth is more predictable,” Croker said. Software is central to this model. Think of your phone or computer, and the regularity with which it is updated, now imagine if you had to pay £1 or €1 every time that you needed an update. The phone company would be making millions in additional revenue almost every month. A similar model applies to defence where software is increasingly supplied as a service through capabilities like Palantir’s data management systems, for example. That means yearly revenue from licenses, and potential for additional income from updates and developments as the customer begins to ask for new capabilities from the software. 

There has also been an increase in dual-use technologies in defence; a data management platform or tool that exploits mobile phone Ad ID data might be equally applicable to commercial investigators as defence intelligence teams, for example. Whereas a tank will only have one customer. “Dual use means that you have a more predictable and dependable customer base and government sales early on can ease entry into the commercial market,” Croker explained, “It is a means to sell into the private commercial sector showing they are a credible business with interesting customers,” he said.

How does private equity work? 

If you’re like me, you might understand that private equity and venture capital involves giving a company money to develop its operations, but you might not realise (also like me) that they mean different things. Croker explained: 

“If we take a company through its lifecycle, at the start it might have a handful of employees and they are looking for seed funding to take an idea or product through to commercial viability.” Seed funding is where the founder, an angel investor or friends seed the initial funding to get the idea up and off the ground. “The next phase is venture capital. In the defence tech sector, investors typically seek recurring-like revenue north of £1 million. This could mean rolling the product out across different users, selling to different police forces in the UK for instance, to show you have proven there is a demand for the product,” Croker went on to explain. “Venture capital then invests in the sales machine to take the company forward and increase its revenue.” 

The next phase is focused on growth. “Let’s say the company has gone from £1 million revenue and loss making to now making £20 million revenue with £3 million profit. This is when private equity comes in. Private Equity could take a significant minority position (less than 50%) or a majority shareholding and provide investment to go out and grow further, maybe opening a facility somewhere else, or an acquisition of a similar company,” he elaborated. This phase may also occur in line with a management buyout, where the original founder is bought out of the company and a new CEO established to take it forward and drive growth. “Heligan focuses on the venture capital and private equity side,” Croker explained, but companies might not want private equity investment, he added. In that case, Heligan might work with the company to secure debt investment, typically provided in the form of a loan from high-street banks or challenger banks. 

“First of all, you need to understand what the shareholders want to achieve by using a debt provider. It’s akin to going to the bank and asking for a loan, they will say “no” if you don’t have clear objectives. If you don’t have a clear plan then debt might not be the right option,” Croker said. “But, let’s assume the company has decided it wants to achieve X and debt is the best solution. You then agree to the repayment profile, it might be that the interest is paid off monthly and at the end of the five year term, the principal is repaid or refinanced. Heligan works with the company to structure the debt facility which helps achieve the company’s objective without over burdening the business and in a manner that provides comfort to lenders.”

Generally speaking, banks want to support companies to expand and grow, he said. They will flex their structures and build payment schedules that work according to cash flow requirements. “If you have to spend a lot very quickly, it could be agreed to pause interest payments for a period of time to support growth and not create cash challenges.  If the financial profile is presented clearly to a bank they are often receptive and flexible within reason,” Croker said.. The halo effect and government support for defence is now increasing the pressure on banks to support defence companies through debt investment. “But the high-street banks are definitely more risk averse than challenger banks,” according to Croker. 

Not all plain sailing

Despite all of this, it is not all plain sailing for private equity and venture capital in defence. There are some challenges, which have been echoed in other Calibre Defence interviews. “Whether you are turning over three or a hundred million, the challenges are similar. One of them is a number of large programmes that often get changed, as well as smaller ones that get cancelled without notice. There are others that do get awarded, but they end up getting delayed by a few months or a quarter,” he said. 

This creates uncertainty for new defence companies. Croker explained further, “if a company knows that they are part of a framework or on track for a contract, they might turn away other work. This also creates issues around recruitment – software engineers are really difficult to recruit into defence, for example because the salaries rarely match the commercial world.” So, if a contract is delayed or cancelled at the last minute, a company might choose not to recruit the requisite engineers and talent needed to deliver on the project, leading to cost overruns and delivery delays. 

“The second major challenge is that when you go to investors or a bank and explain that situation, they become nervous and might not want to invest or change the risk profile,” Croker went on to explain. This can make cash flow management difficult for a small company. It might not be too much of a challenge for a large prime with multiple contracts and maintenance and support contracts providing regular revenue. But for an SME working from contract-to-contract, this could prove to be the end of the company and its capabilities. 

That’s not all, the British government has set targets for defence spending with SMEs. This is an interesting point, so Croker explained: “There are many companies with really good capabilities, but despite that, it can be difficult for primes to spend that money down with them. They might score highly in terms of capability and design, but they lack the infrastructure to do the quality control and deliver per tenders.”

“This may lead the prime to step in, which can lead to cost overruns and programme delays,” he added. But that’s not the only impact on the investment landscape for defence. Croker said that, “the narrative and talk is mismatched with the commercial reality and buying decisions. It is getting better, and opportunities that were on radars are now starting to convert into revenue. But the key takeaway is that navigating the bureaucracy and uncertainty of the procurement cycle in the UK negatively impacts an SME’s ability to go out and secure growth capital.” 

Calibre comment 

Private equity and investment is playing a key role in the West’s defence industry. Anduril in the US has bought rocket motor and radar producers ensuring that their capabilities can evolve and remain available, despite difficulties securing government orders. Helsing has recruited AI engineers and software developers throughout Europe to specialise in AI for defence applications. Others like ICEYE have received multiple large funding rounds enabling the establishment of the largest commercial synthetic aperture radar satellite constellation, now used by governments and commercial entities alike. These are just some examples of the impact that private equity has had on the defence ecosystem. However, as always, a word of caution is necessary. This level of investment will not be sustained if MoD’s do not place orders, which could lead to a loss of confidence and eventually capability that would be hard to recover.