With defense budgets rising in Western countries, major contractors like Germany’s Rheinmetall are in for growing sales. But smaller companies, too, could get a piece of the war pie.

Munich-based dual-use startup ARX Robotics is one of these. Its technology helps convert traditional military equipment like trucks and tanks into unmanned, autonomous vehicles. This allows for safer reconnaissance, logistics, and combat in high-risk areas like Ukraine’s front line.

“We cannot wait for the replacement because, for example, the runtime for a tank is 30 to 50 years. And this means you cannot afford to replace them with new modern digitized or AI-capable systems unless you wait for decades,” said its co-founder and CEO, Marc Wietfeld.

This is where ARX comes in with Mithra OS, an AI-based operating system it claims can transform legacy military vehicles into autonomous units. “It saves costs — more than 95 percent — and also time,” Wietfeld claimed. “It takes us only a few weeks […] to digitize the system.”

Wietfeld was inspired by his experience in the German army, where he served for 14 years, but saw “outdated” equipment. As a self-described “European resilience builder,” this left him concerned, as did recent developments. “I think that the biggest problem is that we are outnumbered and outpaced by our adversaries.”

FINANCE LEAD, MAXIMILIAN WIED (L), CEO AND CO-FOUNDER, MARC WIETFELD AND COO AND CO-FOUNDER, STEFAN ROEBEL:

ARX wants to produce unmanned ground systems at scale, and recently opened a new production facility in Munich to do so, but it won’t do it on its own. Instead, it partnered with fellow German startup Quantum Systems and with several major defense contractors, known as ‘primes’. For instance, it teamed up with Thales to integrate and enhance its ground radar in what Wietfeld describes as “a win-win-win” for ARX and the armed forces, which saved money, but also had a good outcome for ARX and Thales.

Compared to primes, ARX can iterate much more quickly. It doesn’t have all the answers, but it can correct the course fast. When it launched in Ukraine last year, ARX’s system failed dramatically on the battlefield. Four months of work followed “to adapt the system to the requirements of reality instead of the requirements of the procurement office of a NATO force.”

This worked, and ARX was awarded a major contract. It also secured €9 million in seed funding from investors, including the NATO Innovation Fund, and is now in talks to raise a Series A round of investment. But it also keeps on iterating. “We change our software stack every two to three weeks because this is the speed of adapting needed to be successful on the battlefield.”

This is also a differential compared to the larger primes, Wietfeld said. “Investors ask me one thing: Why are you successful and why is Rheinmetall not doing the same and killing your business? And my answer is, it’s a structural advantage a lean and fast startup has. We are building software-defined systems so it’s easy for us to do that because the core of the system is software, not hardware.”

Another advantage is iteration speed, which Wietfeld sees as directly tied to ARX’s business model. “We are not waiting for the processes of the procurement office telling us what to do,” he said. Like all European defense companies, it still has to deal with a much more fragmented market than the U.S. But rather than fighting it, ARX is embracing it in its expansion strategy.

“We are building small entities all over Europe because [each of them needs] to be adapted to its customer and to its supply chain,” Wietfeld stated, “but also [because] by being small and adaptive they are much faster than having one big HQ managing the whole world from Munich.”

Staying lean and fast is a strong advantage; but according to former CIA senior operations officer James Acuna, this might come at the expense of proper support for end users. “Miltech startups, especially those that have explosive growth, fail to adequately prepare or address customer service concerns or follow up,” Acuna cautioned.

“Too often it’s up to you to fix your own unmanned systems or get your drone out of customs if there’s an issue. Conversely, Lockheed Martin with a market capitalization of $117 billion has probably 10 percent of the company allocated to [customer service], including a 24/7 hot desk,” said Acuna, now a security consultant.

Not excelling at unscalable customer support isn’t unique to defense startups; good luck getting Meta on the phone if your Instagram account gets hacked. But when lives are on the line, this gives primes an advantage. “If the little startups are ever going to compete with the big guys, they need to offer the same services including long-term financing etc,” Acuna observed.

Instead of doing that, some might be tempted to become an additional offering on top of what primes already do. With tech IPOs far and few between as is, this makes M&As a plausible option if incumbents want to move faster while providing newcomers with the customer service layer they lack.

However, Wietfeld hopes some defense tech startups will go public instead. “As a founder, of course, I would like to see a defense IPO in Europe.” It is too early to say which path ARX will pursue, but its ambition is clear: “We are on the way to becoming a new defense prime for the land domain,” Wietfeld said.