Varangians is a Swedish fund that invests in defence technology proven at the front in Ukraine. Co-founder Jonas Rydin only takes on technology that has worked in combat, and prefers to look one step back in the value chain, at the components and subsystems that many platforms are built on.
Nordic Defence Sector's trip to DALO Industry Days is sponsored by BAE Systems Bofors.
Nordic Defence Sector's editor-in-chief Jacob Wollheim meets Jonas Rydin in the press room at DALO Industry Days (the Danish Defence Acquisition and Logistics Organisation's industry event). Rydin has, for over twenty years, moved between all sides of the defence sector: as an entrepreneur, investor, supplier and soldier. He invests through his and his wife's investment company Cajory Defence, is co-founder and board member of W5 Solutions, and co-owner and chairman of the board of Snigel. In addition, he has founded Terminal Tactical Group and the initiative Quartermaster for Ukraine. Alongside this, he serves with the 204th Amphibious Rifle Company.
"I've been the one buying, the one selling, the one using, and the one investing. These are four completely different ways of looking at the same technology, and it's only once you've had all four perspectives that you see what will actually work," he explains.
He runs the fund together with Andreas Flodström, co-founder of the Swedish-Ukrainian tech company Beetroot and board member of Brave1, Pär Lager from the Swedish Defence University, and Alexandra Severin, with experience from private equity and the fund world. The name Varangians is the English name for the Nordic peoples who, during the Viking Age, travelled eastward along the rivers through present-day Ukraine, helped found the Kievan Rus and served as the emperor's bodyguard in Constantinople.
A Swedish family company provided the seed capital, and when the fund subsequently opened up to more investors, things moved quickly. Who would be allowed to take part was a question in itself. Since the money is going into Ukraine, every investor is vetted: the origin of the capital must be traceable, and no one with a Russian connection is admitted. The investors also share the fund's thesis, which Rydin describes as three pillars: the technology should help Ukraine win the war, it should strengthen defence here at home, and that is precisely why it generates returns.
"What works at the front and what the NATO (North Atlantic Treaty Organization) countries need, that gets bought. If we get the first two things right, the third follows on its own," he summarises.
Rydin is less interested in the drone itself than in what is sold to many of those building it.
"The logic is simple," says Rydin. "Drone models at the front can be quickly swapped out as the adversary adapts, but the component that makes them, for example, jam-resistant or accurate carries over into the next generation. Being a supplier to a large number of platforms reduces the risk for us as investors."
"We're simply looking for what is hard to make and easy to resell," he adds.
A large part of the work involves connecting Varangians' portfolio companies with customers, industry partners and door-openers in the Nordic region and the rest of NATO, and vice versa.
"Someone called me 'defence Tinder'," he says, laughing.
What determines whether Varangians goes ahead with a company is, according to Rydin, whether the technology has actually worked in reality. He describes a hierarchy of terms circulating in the industry. Tested in Ukraine can mean that someone flew a drone across the border and back again, while battlefield tested means someone has flown it at the front, but perhaps without results.
"What's decisive is battle proven, that it has actually worked in the capability it's meant to deliver," he emphasises. "And that's where our companies stand."
The technology must always be verified at the front before the fund invests. When the team finds something promising, it is checked against the units in Ukraine at several levels, from brigade staff to the soldiers who have had the system in their hands: has it been used, in what capacity, and how has it held up as the adversary adapted.
"It's hard to copy what we have. We're present in Ukraine, at the front and inside the system at the same time, on the board of Brave1, with connections to the Ukrainian Ministry of Defence, to the Swedish Defence University and the Swedish Armed Forces, and to the Swedish defence industry. And we ourselves have built and sold defence companies, served in units, procured and invested," says Rydin.
Rydin believes this gives the fund an edge at every stage. Companies are found by the team hearing directly from those using the technology which solutions actually work. After the investment, the fund opens doors to industry and authorities in the Nordic region and the rest of NATO, and can convey what buyers outside Ukraine are demanding.
One of the explanations for why Ukrainian companies are ahead lies, according to Rydin, in the country's history. During the Soviet occupation, much of the Soviet Union's technological development was based in Ukraine, from space to aviation programmes, and that legacy lives on. But the most important explanation is who is fighting. When the full-scale invasion came in 2022, it was not only career soldiers who filled the units but civilians, many of them highly educated engineers who had never worn a uniform. They quickly saw that things could be done differently, and they had the knowledge to do it themselves.
"These are engineers who take their academic knowledge and apply it directly on the battlefield. That's why innovation moves so extremely fast, and that's why innovation is happening that we might not have seen if those people hadn't been drawn into the war," he says.
Battle proven is one criterion. The other concerns the buyer. He borrows a phrase from Chief of Defence Staff Carl-Johan Edström.
"We don't buy gadgets, we buy capability," he says.
The biggest shortcoming among many companies entering the defence sector, in his view, is that they start from their product rather than from the task it is meant to solve, the capability required, and what it means to be part of a system. He also speaks from his own military service and uses his own unit as an example. The task is to land on islands, that's why you need a boat, not because the boat itself is interesting. A large part of Varangians' work after investing is to bring in the customer's perspective early, so that technology that has worked at the front also becomes a capability that NATO countries want to buy.
Interest in defence tech has grown sharply in recent years, and in parts of the sector valuations have risen quickly. Varangians pays for proven capability, not for promises.
"We invest in companies that have already shown the technology works. Then the valuation becomes a question of what the company actually delivers," he says.
He sees it as natural that many companies are currently out raising capital, in a sector that is growing fast.
"In some areas, prices have run ahead of what has actually been proven. We only go in where the valuation is proportionate to that," he points out.
Going forward, Varangians wants to launch more and significantly larger funds, with a broader focus on defence and security in the EU (European Union), NATO and continued focus on Ukraine.
"Ukraine is big, but we mustn't become fixated on it alone," says Jonas Rydin. "There are many interesting companies outside Ukraine too.