From demonstration to delivery: two years of Leonardo’s SME Collaboration Programme

This month saw the programme’s second anniversary marked at the SME Collaboration Showcase in London, where defence customers, investors and our SME collaborators reviewed what the programme has delivered and planned where it goes next.

The problem it solves

The UK’s defence SME base does not lack ideas, and increasingly it does not lack capital either. Investor appetite for defence technology has grown markedly since 2022, and government policy now actively encourages it. The bigger challenge is getting from a promising technology to a fielded capability. That requires sight of what customers will need and when, a route to platform integration, and a partner able to carry the programme and qualification risk that a small company cannot.

That is the role Leonardo plays. “As a prime, we see the demand signal from government end users earlier and more clearly than most SMEs can,” explains Simon Harwood, UK Capability Director at Leonardo. “That lets us help partners shape their offer to upcoming requirements, with realistic timescales, which is exactly what investors need to see before they commit.”

This is a strategic initiative that brings together the UK’s most innovative defence and security SMEs with Leonardo’s experience, expertise and market access to deliver transformative defence and security capabilities.

Moving beyond a traditional supply chain structure to mutually beneficial partnerships between Leonardo and the SME partners, the collaboration programme is a step change in the way that primes can work with their SME partners to deliver best-in-class, disruptive technologies to the MOD at pace.

The new financing paradigm

For companies operating in the defence sector, however, accessing finance can be difficult. 

The traditional methods of financing for businesses involve asking a bank for lines of credit to support investment, or cash loans for production equipment and materials. This can come with conditions that can make it difficult for businesses to be profitable. Rising interest rates and inflation can push the cost of borrowing to levels that may make institutional financing unaffordable.

In addition, the drive for more socially responsible investments has created a greater focus on the environmental, social and governance (ESG) status of investments by retail banks and large institutional funds. 

As the defence and security sector falls outside of this investment ethos, large lenders that have the capacity to facilitate large loans eschew any funding to SMEs involved in the industry.

This is where organisations like Form1 Partners, a UK commercialisation specialist that leads the SME Collaboration Partner Programme alongside Leonardo, helps link SMEs with prime contractors.

“The collaboration between Form1 and Leonardo is designed to find the best-in-class technology developers for the projects that Leonardo is working on and ensure that funding is available from multiple sources to invest in the long-term success of SMEs,” says Harwood.

To find the best technology partners and investment possibilities, Form1 is helping Leonardo to discover companies developing the latest in frontier technology. In addition, the organisation works with private equity and venture capital firms to find the funding to support the next steps in scaling up.

In the two years since the SME Collaboration Partner Programme was established, several significant milestones have been met. One of its most notable achievements has been Sovereign Hunter, a demonstration of swarming autonomous systems led by Leonardo and delivered alongside SME partners including Faculty AI, Applied AGI and Volander. 

Bringing together expertise in artificial intelligence, advanced manufacturing, propulsion and autonomous platforms, the project successfully demonstrated multiple autonomous systems completing a single operator-defined mission using a UK sovereign technology stack, winning two National Technology Awards.

The recent showcase event provided an opportunity to reflect on the success of the partnership, while highlighting the role SMEs play in supporting defence innovation. Attendees heard from leaders across the defence and technology sectors, as well as businesses participating in the programme, sharing insights into the opportunities and challenges associated with scaling new technologies and bringing them into service. 

Reflecting on the progress made during the past two years, Harwood says: “Since we kicked off the SME Collaboration Partnership Programme we have been blown away by the technology delivered by our SME partners, and this is only the start. We want to roll this out further to include new partners and are excited to see what the next cohort of UK SMEs has to offer.”

Matt Bunn, Form1’s CEO, adds: “After two years of running the programme with Leonardo, we have seen huge value to the SME community and Leonardo from the strategic relationships that have been formed. We look forward to seeing how the partnership can continue to develop and the increasing number of SMEs that it is able to support.”