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Driven by the geopolitical situation, Europe’s defense/security tech sector is experiencing a historic investment boom. In 2025 alone, around USD 5.2 billion in venture capital flowed into European defense technology, with Germany growing the fastest. But equity capital is “expensive” and does not always serve the strategic development of the cap table. Electronic securities in accordance with the Electronic Securities Act (eWpG) offer an alternative: fast, flexible and structured debt financing close to the capital market. At the same time, they give investors regulated access to a sector that was previously difficult to invest in and, conversely, give young companies access to investors who were previously unable to invest for formal reasons. In addition, particularly relevant in the defense/security sector, depending on the structure, there may be relief with regard to foreign trade requirements and other specific defense topics such as long-term secret protection and similar. Law Corner von Christopher Goertz, Lawyer and partnerand Alexander Hübner LL.M., Lawyer and Associate, HEUKING
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Framework conditions
Since 2021, the eWpG has allowed bearer bonds to be issued purely electronically. The paper certificate is replaced by an entry in a crypto securities register that is based on blockchain technology and operated by a BaFin-licensed registrar. Electronic securitization only changes the form, not the substance: prospectus requirements continue to apply unchanged. Initial issues with a total equivalent value of up to EUR 8 million over twelve months do not require a prospectus.
The public offer is then made on the basis of a securities information sheet (WIB), which requires approval from BaFin. Depending on the design of a variable interest component, the offer may also be made on the basis of a basic information sheet (BIB) in accordance with the PRIIPs Regulation, which does not require BaFin approval but simply needs to be published.
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The EU Listing Act gives member states the opportunity to increase this threshold to up to EUR 12 million from June 5, 2026. The German legislature has recently made use of this with the Location Promotion Act announced in the Federal Law Gazette on February 9, 2026. At the same time, by deleting Section 6 of the WpPG, the Location Promotion Act has abolished the previous individual investment thresholds (EUR 1,000, EUR 10,000 or EUR 25,000 depending on the investor’s self-disclosure). The obligation to distribute prospectus-free WIB offers exclusively through an investment services company by way of investment advice or investment brokerage also no longer applies. This makes self-distribution of securities based on a WIB practical for the first time. This is a significant boost, especially for smaller emissions.
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Why the defense sector particularly benefits
Innovation in the defense sector is increasingly emerging in start-ups with high capital requirements for which traditional bank financing is hardly accessible. At the same time, private investors have not yet had regulated access to the sector apart from large defense stocks or ETFs. The tacct platform recently showed how both come together with the Donaustahl Bond No. 1: Over 1,100 private investors subscribed to bonds with a volume of almost EUR 3 million, completely digitally via app as an electronic security in accordance with the eWpG. Further defense emissions are already in preparation. Start-ups gain access to the capital market at comparatively low costs. Investors receive a regulated security with attractive conditions.
Structuring with a sense of proportion
The conditions can be tailored precisely to the business model and investor group. In addition to a fixed coupon, variable components are possible where reaching certain milestones or certain sales figures or other key figures from the company can trigger an interest step-up. At Donaustahl, for example, the base interest rate of 5.9% increases by 1.5 percentage points when sales double and by a further 2.5 percentage points when they triple, so that the coupon increases to up to 8.4%. Such an interest rate step-up has a practical advantage, especially for permanent issues: investors can use published sales figures to see during the term whether the threshold that triggers the next step-up has been reached. It is important to carefully design the bond conditions, which must also provide for the issuer’s reporting obligations with regard to the relevant key figures.
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Pre-IPO convertible bonds as a bridge to the IPO
Pre-IPO convertible bonds offer attractive interim financing, especially for defense start-ups that are aiming for an IPO. Investors secure the opportunity to participate in the equity later at a conversion price based on the IPO price, usually with a market discount. Unlike a capital increase, the valuation does not have to be determined at the time of subscription. For companies, convertible bonds represent a liquidity-preserving option to keep the debt structure lean and maintain flexibility when it comes to the timing of the IPO. Whether conversion right, conversion obligation or conditional conversion: the legal structure is extremely flexible. Convertible bonds can also be issued as electronic securities in accordance with the eWpG. The authors have already done this several times, including the first public offering of an electronic security under the eWpG in the form of a convertible bond.
Christopher Görtz (left) & Alexander Hübner, RAs, HEUKING
Conclusion
Electronic securities in accordance with the eWpG offer defense start-ups a financing instrument that can be flexibly structured taking into account the issuer’s individual needs and has a BaFin-regulated registry, which can even be made accessible to private investors on an app basis. If you want to take advantage of the opportunities, you should design the issue structure with specialized lawyers as early as possible and select the registrar and sales partner. Especially in a sector that is developing so dynamically, the right positioning determines market access.
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