A New Defence Reality
Europe is today underinvested in defence and is operating with processes suited to three decades of «deep peace».
The NATO alliance is under some pressure from the United States, while Russia is waging war in Ukraine and openly threatening Europe.
The war in Ukraine has triggered rapid development of new capabilities in areas such as drones, electronic warfare, artificial intelligence, 3D printing, cyber, and anti-drone technology. This progress is taking place at great speed in Ukraine – but also in Russia.
Renewed Geopolitical Focus On The Arctic
The northern regions are once again in geopolitical focus. Both because the US has expressed an interest in the region, but also because the nuclear arsenal of Russia and their 2nd strike capability is largely depending on strategic submarines operating out of the Kola Peninsula and in the Arctic.
We are likely entering an unsettled era, perhaps better described as a «Hybrid Peace» rather than a new Cold War.
We believe that our time is and will remain characterized by renewed geopolitical rivalry and a more aggressive Russia and China, while the United States is also applying pressure on Europe.
A central question is what will happen when the war in Ukraine one day reaches its resolution. Will Russia follow the developmental path of Germany after the First or Second World War?
Whatever the outcome, Europe, the Nordics and Norway must strengthen our own preparedness and update our capabilities and capacity.
NATO and its member states have already allocated significant resources towards defence, and more will come.
Established defence suppliers are now “sold out”, locked into ongoing programs and to a degree old paradigms, while their share prices have surged.
In parallel, standardization, joint procurement, and “commercial off-the-shelf” («COTS») concepts have gained new relevance, aiming to leverage existing, often civilian, technologies to reduce costs and increase speed.
The Innovation Gap In The Defence Sector
The defence sector faces a significant innovation and capacity gap.
This is driven by the rapid adoption of emerging technologies, the speed and breadth of innovation seen in Ukraine, the geopolitical shifts, and the fact that Western processes were built for the pre-2022 and pre-Trump 2.0 reality.
This creates major opportunities for smaller, more agile, and innovative actors, especially small and medium-sized enterprises («SMEs»), to fill this gap.
While defence organizations are simplifying and rewriting procurement rules, many Western defence processes remain deeply rooted in a «deep peace» mindset and culture.
New Threats Require New Solutions
There is growing international recognition that the innovative power of SMEs is essential for increasing speed, technology adoption, capability, and capacity.
Countries such as the United Kingdom and Sweden have already established “fast-track” and “rapid innovation” programs to accelerate new solutions into the defence sector. Such initiatives also generate market signals that private investors can relate to – and act upon.
Traditionally, the defence sector has been nationally oriented, closed, heavily regulated, and largely protectionist.
Much innovation also takes place in classified environments, making the sector difficult for private investors to access.
We believe that private funds and companies, accustomed to managing projects and risks, can play a vital role in partnership with public actors, particularly in the commercialization phase.
Success, however, depends on avoiding the so-called “Double Valley of Death”: In defence, this is the gap between a technology being “useful” and being «used at scale»; in finance, it is the gap between smaller financing rounds (up to USD 2-3 million) and larger rounds (over USD 10 million).
While other countries have created state-backed defence innovation funds such as the NATO Innovation Fund, EIF, and national funds in Estonia and Germany, Polarion is, to our knowledge, the first growth equity fund in the Nordic region to specialize in this field.
Fund Strategy And Positioning
The sector demands specific understanding; of export controls, of offset requirements, and of the particular dynamics of the defence industry.
As we see it, for a fund to succeed, its management team must be dedicated, close to the ecosystem, and regarded as both relevant and useful.
We believe in establishing a team fully focused on the sector, a team capable of bridging the gap between needs and suppliers, defence SMEs and investors (national and international), and offset players obligated to reinvest in Norway after major defence sales. NB – Such players can also gain multiplier effects on their offset credits by purchasing from SMEs.
Polarion will invest growth capital into SMEs that have secured initial defence contracts, helping them scale to win contracts across multiple NATO and allied markets.
The fund will invest in companies already under contract with defence clients, typically with revenues between USD 2 and USD 20 million at the time of investment.
Target companies would usually have low capital intensity and distinctive advantages that should support margin expansion and growth.
Portfolio companies should be able to build a leading position in their field across several countries, with strong leadership, sound co-owners, and a clear potential across the alliance.
This approach seeks to minimize technology and market risk.
The fund will retain flexibility in its choice of instruments and normally invest across multiple financing rounds to manage risk.
Polarion will act as an active, constructive owner, helping drive focus and catalyze growth, often through active board positions.
The portfolio will comprise 12–15 companies to balance risk.
The fund targets a 3–5x multiple on invested capital, taking calculated risk and actively mitigating it throughout our investment, value adding and exit phases.
Polarion plans to raise around USD 100 million from professional investors.
The fund is AIF-registered and initially targets professional investors, with an EuVECA registration in process.
The High North And The Arctic
It is often said that equipment that performs in the north performs everywhere, though not always vice versa.
A focus on systems and technologies suited for Arctic conditions is a distinct niche that differentiates Polarion from other emerging European funds.
We believe that Norway and the Nordics offer particular strengths in software, electronics, maritime technologies, communications, components, and sensor systems.
We are close to Russia, understand and have experienced the particular northern challenges, have cost-efficient engineers, and are a trusted founding NATO ally.
Investment Targets And Universe
The current investable universe consists of roughly 800 Nordic “defence-first” companies – and several thousand dual-use companies, firms serving both civilian and defence markets.
Polarion will seek investment opportunities that have strong dual-use potential, as this offers risk reduction through access to larger civilian markets.
We currently track around 140-150 Nordic DefenceTech and Dual Use companies, focus on 30-35 companies – and could make four investments immediately.
Team
Polarion was initiated by Thomas Falck, Peter Due, and Oslo Family Office, represented by Andreas Holmen.
The team brings a strong investment trackrecord, significant commercial and defence-sector expertise, with deep national and international networks – and access to complementary skills and capacity.
Backgrounds include executive roles at Visma, Verdane Capital, Cognite, Q-Free, Kongsberg Maritime, Yara Birkeland, Yeti Move, Fondsfinans, the Sønsteby Foundation, and Oslo Family Office, – along with experience in the Armed Forces, finance, dual-use innovation, and diplomacy.
Verdane Private Equity, led by Falck, delivered a 5.5x cash return (90+% gross IRR) and ranked among the global top three funds of its vintage out of 273 funds.
We are finalizing the recruitment of an additional senior partner with a complementary profile and may aslo add an analyst when the fund has closed.
Advisory Board
To further strengthen Polarion’s management in navigating a complex and specialized sector, an active advisory board with deep sector competence is being established.
Its members include:
- Gjermund Eide, former military advisor to NATO Secretary-General Jens Stoltenberg (2014–2024)
- Saira Basit, Dean of the Norwegian Defence University College
- Henning-Andre Frantzen, former General and Director for Defence Policy and Long-Term Planning, Ministry of Defence (2021–2025)
- Sofie Nystrøm, former Director of the Norwegian National Security Authority (NSM), EVP for Information Security at DNB, and Head of Group Security at Telenor
- Tom Rykken, former officer and senior Ministry of Defence official with extensive experience, including 11 years as Deputy Director of the Norwegian Intelligence Service
The advisory board will help Polarion identify key trends shaping the next 10–15 years, the possible post-Ukraine scenarios, and domains and technology areas where the Nordics are seen to hold comparative advantages within the alliance.
They also possess deep networks across the alliance.
With insight, including classified contexts, they will guide the fund and its portfolio companies toward real opportunities while avoiding areas already dominated by other actors or nations.
This should help ensuring wise allocation of resources and talent.
Launch And Fundraising Status
The initiative has received a very positive response from key defence-sector stakeholders, media, and investors, – both in Norway and internationally.
We have held around 70 investor meetings to date.
Investinor, the Norwegian sovereign fund-of-funds organisation, has led due diligence and term negotiations and has secured board approval to participate in the fund.
Once the new senior partner is onboard, we expect to proceed with formal subscriptions and aim for a first close in the first half of this year.
Several institutional investors are also reviewing their mandates, drafted before the full-scale invasion of Ukraine, when defence-related investments were often excluded.
International fund-of-funds have also expressed interest, suggesting strong potential for a second close with institutional investors.
Long-Term Ambition
Over time, Polarion aims to establish itself as a leading Nordic growth equity investor, with strong ties to relevant European funds, procurement actors, defence stakeholders, and SME ecosystems.
Together with our portfolio companies, we will succeed in creating growth through investing into companies providing useful products and services across NATO and allied countries.
We aim to generate substantial value, strengthen defence and industry development – and deliver attractive returns to our investors.
Such success will also earn us the right to raise new funds.
For more information:
www.polarion.capital
https://polarion.capital/the-evolving-dynamics-of-the-arctic-strategic-landscape/
https://polarion.capital/private-capital-as-a-catalyst-for-security-innovation/
Contact:
Thomas Falck,
Managing Partner, Polarion
thomas@polarion.capital