PARIS — France has launched a €50 million (U.S. $59 million) equity fund investing in small and medium enterprises (SME) specializing in advanced defense technology, Armed Forces Minister Florence Parly announced.

“I am very happy to tell you that in a few minutes, a few meters from here at Brienne House, I will launch Definvest, the first investment fund for defense SMEs,” Parly told a conference, “Financing Defense: What solutions for what requirements.”

Definvest is a €50 million fund that will draw on the “expertise and know-how” of the Direction Générale de l’Armement procurement office and Bpifrance, a state-owned bank, she said.

The concept for a French, state-backed source to buy shares in startups and SMEs in the defense sector came from former DGA head Laurent Collet-Billon, who was concerned over the entry of foreign investors looking to acquire sensitive military technology.

Meanwhile, two former senior French officers are backing the concept for creating a retail investment fund to finance arms procurement, according to website La Tribune.

Former Air Force Chief of Staff Jean-Paul Palomeros and former head of the Navy Pierre-François Forissier endorsed a project pitched by Fabrice Wolf, a former Navy pilot, for a defense savings plan. The retail savings plan is intended to be a “booster,” Palomeros said at the conference.

“We need to recapitalize defense, with defense as the stock of capital,” he said. An increase of €1.8 billion next year was welcome but fell far short of the €7 billion or €8 billion of funding shortfall of the last two years, he added.

The plan would offer retail investors 1.5 percent above annual retail inflation, or 2.8 percent for 2016, the report said. The plan would finance research and development as well as the local production of major arms programs, and allow for the ownership of the weapons, which would be leased to the services and later sold secondhand into export markets.

There is a target of an annual budget of €3.1 billion for feasibility studies, compared to €770 million from DGA, with €5.2 billion to finance arms exports, the report said. Tax breaks are offered, with the plan offered as an alternative to the life assurance plans commonly used as tax-effective savings plans.

There is a large number of French startups in the aerospace industry, with 21 small firms looking to raise equity investment between 2015 and 2017, but the average amount of financing raised is small, business magazine Challenges reported.

The average amount raised by those 21 firms was $2.6 million compared to $62.7 million in the United States, $40.2 million in Singapore and $37.8 million in Israel, according to figures from Starburst, a French business incubator, the report said. “There is both weaker ambition among French startups and a venture capital ecosystem less wealthy and less inclined toward industrial startups,” said François Chopard, founder of Starburst.

Bpifrance is a unit of state-owned bank Caisse des Depots.

The defense equity fund complements two DGA funds, Astrid and Rapid, which help fund SMEs developing dual civil and military technology.

Parly gave the closing speech for the financing defense conference, an annual event held by Defense Economy, an academic research office, backed by the Armed Forces Ministry and industry, namely MBDA, Naval Group, Renault Trucks Defense, Safran and Thales.

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