NATO Makes Its Wartime Debut As a Climate Tech Investor

(Bloomberg) -- Glen Kelp was visiting a startup fair last May in Estonia to scout for support for his new company, when he walked past an unexpected booth. It was from NATO. The military alliance was recruiting for its very first business accelerator. 

Kelp knew the defense industry was paying more attention to technology startups — he lives in Tartu, a small Estonian city a few hundred miles from the Russian border. But that interest seemed relegated to sensors and weapons, not his field. The physicist had recently left academia with a research lab experiment: he and two colleagues had devised a method for building incredibly fine ceramic tubes, as thin as human hair, that could form lighter, more energy-efficient versions of the fuel cells used to power electronics or grids. The researchers formed a business, called GaltTec, to market their invention.

At the fair, Kelp read NATO’s material on its new accelerator. “Wait,” he thought. “This is kind of what we’re doing.” Months later, Kelp’s startup joined 43 others in the inaugural batch of the Defense Innovation Accelerator for the North Atlantic, or DIANA, part of NATO’s experiment as a venture capitalist. In 2023, the European organization unveiled DIANA and a €1 billion fund to invest in tech, with money pooled from dozens of member countries. While the Pentagon has launched similar programs, this marks a first for Europe’s militaries. And the initiative is starting amid a flurry of political uncertainties on the continent, not least the potential return of Donald Trump, a NATO vilifier, to the US presidency. NATO formed its fund and accelerator before Russia’s invasion of Ukraine, but the conflict has only underscored why NATO is looking for new ways to fight wars and prevent them—and why it’s entering the energy sector. 

NATO invited startups working on cybersecurity, surveillance, and energy resilience. The last category was defined as tech that helps Allied nations recover from “energy disruptions,” a nod to the fear that’s swept Europe since Russia’s war that power supplies might be choked off. The program accepted 13 startups, primarily in the clean energy sector, that make power grids resilient or support microgrids. They’re working to reinvent a range of components, from electric grid transformers in London to wind turbines in Reykjavik and storage batteries in Delft. 

“The minute you think of climate change, and the battle for natural resources, all these global systemic issues that we might face — we are facing,” says Deeph Chana, managing director for DIANA. “It’s very clear that if they become worse, then conflict will emerge.” 

Chana works from DIANA’s main outpost on the campus of Imperial College London, where he’s on leave from a professorship. But most of the action is elsewhere. There are 23 regional sites where startups can gather — in locations from Tallinn to Seattle — and 182 test centers with labs and training machinery that DIANA plans to open up to its startups, providing resources, Chana says, the young companies “could not easily access on their own.” DIANA is giving participating companies some cash — a €100,000 grant each initially — but that’s not much, especially for those working with large, complicated machinery. Matthew Williams, founder of Ionate Energy, a British startup in DIANA, hopes the program can provide access to testing facilities for the hulking grid transformer equipment his company is working to modernize. “You need very specialized labs,” he says. “It’s also quite expensive.” 

Ionate Energy has run trials with a utility in Spain and Portugal using its equipment, which is designed to help grids better manage the supply of renewable energy. Kelp describes GaltTec as still in the “prototyping phase.” Its invention relies on the ceramic material zirconium dioxide, packed into hollow tubes, that acts as the electrolyte inside a fuel cell, sparking electricity via a chemical reaction. Ultimately, Kelp imagines the device will be as small as a phone battery and up to ten times lighter than current hydrogen fuel cells, allowing it to slot easily into satellites or drones.  

The startups DIANA backed seem well-equipped to provide aid to power grids, yet don’t meet the gravity of the security threats NATO has said climate change poses, everything from overheating military aircrafts to sparking resource wars, says Richard Milburn, a researcher at the School of Security Studies at King’s College London. He imagines the alliance calling for companies to generate cheap, zero-emissions power in contained settings, then taking those inventions to the commercial sector, like the military did with GPS. “NATO could be doing something quite profound,” he says. “This is a good stepping stone. But it’s still not at the level to align with the rhetoric.” 

Unlike most accelerators that back unproven tech, DIANA isn’t taking any equity in companies. Instead, the program is trying to steer startups towards its military members. Halfway through the yearlong accelerator, which started this January, Chana says his staff will introduce companies seeking defense contracts to interested agencies, although he didn’t offer specifics. “You can think of DIANA as a brokering program,” he says. 

Some participants have begun to brainstorm defense applications, yet the companies in DIANA say that the program isn’t pushing them to work with militaries. And the program’s leaders stress that their program is for businesses with both commercial and government customers. “They recognize that working with the defense sector is a lot of pain in the ass,” says Daniel McGuire of McGuire Aero Propulsion Solutions, a Canadian turbine developer in DIANA.

With startup investing, the alliance is also opening itself to scrutiny for using public money to back startups, enterprises with high rates of failure. 

Another risk is that startups servicing the military will find fewer avenues for capital later on. Frédéric de Mévius, the chairman of Planet First Partners, a €450 million European climate tech venture fund, finds the DIANA program “quite exciting” for its potential to back “blue-sky tech.” Yet he’s restricted from investing into companies that sell to militaries because his fund’s backers rule the category out, part of blanket bans on financing alcohol, gaming or guns. “A number of investors don’t want that,” he says.

Adrian Dan, DIANA’s chief commercial officer, says the broad mandate of the program means most of the startups won’t face these military restrictions later on. NATO created its own venture arm, in part, to compensate for the reticence to finance defense applications. And Chana sees the NATO fund backing some startups that graduate from the DIANA program, although he says the fund isn’t compelled to do so.  NATO's fund hasn't backed any startups directly yet.

Chana’s budget for DIANA is in the “tens of millions” but he says it will increase in the coming years. For the next batches, he imagines inviting energy startups working on smart grids or nuclear fusion; Cynthia Shaw, a senior challenge manager for DIANA and a fuel cell expert, mentions sustainable aviation fuel and artificial intelligence for discovering new materials. They may have to win more converts as well. Shaw recalls meeting an energy company in Warsaw, during DIANA’s recruiting drive, that was dubious of military partnerships — she wouldn’t name the company, only that it’s from a nation not in NATO. “Well, we also have the same energy challenges,” she told them. “This is not all about throwing missiles at people.” 

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