European Venture Capital Report 2025

According to the Annual Pitchbook Report, European venture capital in 2025 wasn't a story of recovery or decline. It was a story of divergence, between those riding the AI wave and those watching from shore, between capital deployed and capital raised, between mega-rounds that captured headlines and the quieter struggle of everyday fundraising. The numbers tell a tale of an ecosystem pulled in multiple directions at once, where aggregate figures mask profound structural shifts beneath the surface.

The year closed with €66.2 billion deployed across European startups, representing modest 5% growth over 2024. On its face, this suggests stability, perhaps even resilience given the macroeconomic headwinds that defined the year. But this headline figure obscures the defining dynamic of 2025: European venture became a market of two speeds, with artificial intelligence acting as both accelerant and distorting force.

The AI Singularity

To understand European venture in 2025, you must first understand what happened with AI investment. The sector consumed €23.5 billion, fully 35.5% of all European venture capital deployed during the year. This wasn't just category leadership; it was market dominance of a kind rarely seen outside of bubble conditions. AI's share of European deal value has been climbing steadily since 2015, when it represented less than 10% of activity, but 2025 marked an inflection point where one technology vertical began to reshape the entire ecosystem.

The comparison to the United States is instructive and unsettling. While AI captured over 65% of US venture dollars in 2025, Europe's 35.5% share sits somewhere between rational enthusiasm and full capitulation to the trend. The gap suggests either European discipline or European disadvantage, depending on your perspective. What's clear is that European investors have gone all-in on AI at a scale that exceeds anything seen in previous technology cycles, including the fintech boom of the late 2010s or the crypto frenzy of 2021.

Mistral AI and Nscale each raised over €1 billion in single rounds. Helsing pulled in €600 million for defense AI. Even Brevo, a marketing technology company, secured €500 million by positioning itself within the AI narrative. These aren't just large rounds; they're the kind of capital concentrations that would have been unthinkable for European startups a decade ago. The ecosystem has learned to write big checks, but only for companies that can credibly claim to be building fundamental AI infrastructure or applications.

The provocative question buried in this data: what happens to European venture if you subtract AI from the equation? The report's analysis is sobering. Excluding AI, the underlying European venture market declined approximately 5.7% year-over-year, totaling €42.7 billion. This isn't a 2025 phenomenon alone, the same pattern held in 2024, where non-AI sectors showed low single-digit declines even as headline figures remained stable.

This creates a delicate dependency. European venture's apparent health rests on valuations and investment levels in a single sector that many observers, including the report's authors, openly question as potentially bubble-like. The ecosystem faces a scenario where any correction in AI sentiment could cascade through the broader market, exposing weakness in sectors that have barely begun to recover from the 2022-2023 downturn.

The Value-Over-Volume Regime

While AI captured attention, a quieter structural shift was reshaping how capital moved through the ecosystem. Deal count fell 20.6% in 2025, dropping to 10,206 transactions from the prior year's 10,674. This marks a continuation of the contraction that began after 2021's peak of over 15,000 deals, but the velocity of decline appears to be stabilizing.

What changed fundamentally was deal composition. Series D and later-stage rounds surged 45.2% in value, even as seed and Series C stages declined by double digits. The market became increasingly comfortable writing larger checks to fewer companies at later stages, while showing renewed skepticism about early-stage deployment. This isn't simply risk aversion, it reflects a maturation in European venture, where the largest funds now have the capacity and conviction to lead €100 million-plus rounds for companies with proven business models.

Revolut exemplified this dynamic, raising €2.6 billion in November through a secondary share sale, the largest European venture deal of the year and a transaction structure that would have been exotic in European markets just a few years ago. Ōura's €775 million raise for health-tracking wearables and Picnic's €430 million for online grocery delivery demonstrated that growth capital remains available for category leaders, even in non-AI sectors.

But the distribution of capital grew more concentrated, not less. The top ten deals of 2025 accounted for nearly 40% of total exit value, a pattern that suggests European venture increasingly operates on a hit-driven model where a handful of transactions determine outcomes for entire portfolios. This concentration dynamic plays out across the ecosystem: in deals, in exits, and, most critically, in fundraising.

The Fundraising Crisis

If there's a single number that should concern European venture stakeholders, it's €12 billion, the total capital raised by European venture funds in 2025. This represents not just a decline but a collapse, falling nearly 50% from 2024's already-subdued €23.5 billion and sitting well below even 2015 levels when the ecosystem was a fraction of its current size.

Only 148 funds closed in 2025, the lowest count on record. No fund exceeded €1 billion in size. Just three surpassed €500 million: Sofinnova Capital's €650 million vehicle, Medicxi's €500 million fund, and Cherry Ventures' €500 million raise. The megafunds that characterized 2024, and provided the sector's fundraising stability, simply didn't materialize.

This wasn't a crisis of emerging managers being crowded out by established players. Quite the opposite: emerging managers captured 44.7% of capital raised, up from 40.3% in 2024, even as their share of fund count held steady at 67.6%. The shift toward smaller vehicles was systematic across experience levels. Median fund size fell 16.3% year-over-year, indicating that even experienced managers faced pressure to right-size their fundraising ambitions.

The regional dynamics added another layer of complexity. For the first time in the dataset's history, the UK and Ireland lost their position as Europe's fundraising leader, capturing just 22.5% of capital raised, the lowest share on record for a region that has traditionally commanded 35-40% of European venture fundraising. Germany, Austria, and Switzerland (DACH) claimed the top spot at 26.9%, driven by closes from Hitachi Ventures, Project A Ventures, and Picus Capital.

This represents more than a cyclical rotation. London's position as Europe's venture capital center has rested partly on its ability to attract fund formation and LP capital. If DACH's fundraising leadership persists, it could signal a structural rebalancing of where European venture power concentrates, with implications for talent flows, ecosystem development, and political attention.

The root cause of fundraising weakness isn't mysterious: distributions remain anemic. Limited partners simply aren't getting money back at rates that justify new allocations. The report notes that capital deployed in European startups now stands at 6.3 times the capital raised by European funds, up from 3.2x in 2024. This ratio captures the fundamental imbalance, GPs are investing out of existing funds faster than they can raise new ones, creating a capital consumption dynamic that must eventually resolve through either improved exits or reduced deployment.

The Exit Environment: Headline Resilience, Underlying Fragility

Exit value came in at €67.8 billion for 2025 when including Klarna's landmark IPO, representing a flat year versus 2024's €65.5 billion. This apparent stability masks significant composition effects and ongoing challenges in liquidity generation.

Two IPOs, Klarna and eToro, accounted for €16.2 billion of exit value, or roughly a quarter of the total. Klarna alone contributed €12.7 billion, making it the defining liquidity event of the European venture calendar. Public listings as an exit channel captured approximately 25% of total value, the highest share since 2021. For fintech as a sector, these listings drove a ranking jump from fifth to third place in exit value terms.

Outside of public markets, M&A and buyout activity showed unexpected resilience. The Nexthink buyout at €2.6 billion represented the largest non-IPO exit of the year, while several M&A transactions exceeded €1 billion, a rarity in European venture. Buyouts increased their share of exit value to 28.1%, narrowing the gap with outright acquisitions at 46.4%. This shift reflects private equity firms' willingness to acquire venture-backed companies at later stages, providing an alternative liquidity path as public market access remains constrained.

But exit count remained deeply problematic. Only 19 VC-backed IPOs occurred in 2025, a record low that underscores how public market access for venture-backed companies has functionally collapsed relative to historical norms. Even excluding the 2021-2022 peak, this represents a material decline from the 181 European IPOs in 2024. The companies that did go public demonstrated strong profitability: nearly 90% of IPOs year-to-date showed positive EBITDA, up from 66.4% in 2024.

This quality-over-quantity dynamic in IPOs mirrors the broader pattern across European venture, fewer transactions, higher bars for capital, increased concentration in winners. For founders, the message is clear: if you're not building a category-defining company with strong unit economics, public markets offer no near-term exit path.

The rise of secondaries as an alternative liquidity mechanism has accelerated in response. The report estimates the European institutional VC direct secondaries market at $47.5 billion in its base case, equivalent to 7% of the aggregate market cap of companies in the dataset. This represents genuine market infrastructure development, with secondaries moving from niche strategy to necessary liquidity tool. Investor-led and founder-led secondary sales have grown from accommodation transactions to core portfolio management techniques.

Geography: Core vs. Periphery

Deal value by region produced surprising patterns in 2025. Southern Europe achieved its highest-ever share at 10% of European deal value, driven by transactions from Portuguese drone company TEKEVER and Greek automotive marketplace Spotawheel. Israel saw the largest year-over-year growth in absolute terms, reaching €5.8 billion in investment, with half of that total flowing to AI companies, confirming Israel's position as Europe's most AI-concentrated ecosystem.

Meanwhile, traditional powerhouses showed weakness. France and Benelux merely maintained their share, while DACH lagged despite its fundraising strength. The UK and Ireland experienced flat growth at €22.7 billion in deal value, hardly a collapse, but a clear break from the outsized growth that characterized the region through most of the 2010s.

These shifts raise strategic questions about European venture's geographic evolution. Is deal value diffusing to peripheral markets because capital is seeking better valuations and less competition? Or because core markets have matured to the point where deployment opportunities have narrowed? The answer likely varies by sector, AI talent concentrations still favor London, Paris, and Berlin, while sectors like climate tech and deep tech may find better infrastructure support in Nordic and Southern European markets.

Sector Divergence Beyond AI

While AI dominated the narrative, sector performance showed sharp differentiation beyond the headline category. Fintech staged a meaningful recovery, reaching €13.4 billion in investment, up 29.3% year-over-year even when excluding Revolut's mega-round. The sector's resilience suggests that AI integration is providing a second wind for financial technology companies, many of which are deploying machine learning for fraud detection, underwriting, and personalization.

Life sciences declined 6.2% to €8.4 billion, underperforming both the headline market and the non-AI baseline. For a sector that seemed poised to benefit from post-pandemic health awareness and regulatory momentum around digital therapeutics, this represents a disappointing trajectory. The decline may reflect capital rotation away from longer-cycle businesses toward software models with faster feedback loops.

Climate tech and clean tech both lost ranking position, with climate tech falling from seventh to eleventh place in the sector rankings. This represents perhaps the most concerning trend for stakeholders focused on European industrial policy and sustainability transitions. Despite enormous regulatory support through mechanisms like the EU Green Deal and continued political rhetoric around climate leadership, venture capital is flowing away from climate solutions at an accelerating rate. Clean tech dropped from fourth to sixth place, continuing a multi-year slide that suggests investors remain skeptical of capital intensity and return profiles in these sectors.

The Venture Debt Story

An overlooked bright spot emerged in venture debt, which posted €19.2 billion in deal value, down from 2024's record €26.9 billion but still historically robust. Deal count fell sharply to 506 transactions (down 35.8%), but median deal sizes increased significantly, indicating that larger, later-stage companies accounted for a growing share of debt financing activity.

Venture growth stage companies now represent 37.2% of debt deals, up from just 16.3% five years ago. This shift reflects ecosystem maturation, European venture now includes enough scaled companies to support a substantial debt market. Deals exceeding €1 billion from United Petfood, Flix, and FINN demonstrated that venture debt has evolved from a bridge financing tool to a core component of growth-stage capital structures.

The venture debt market's resilience despite an improving IPO window suggests structural demand rather than purely cyclical dynamics. As interest rates began declining through 2025, with the European Central Bank making four rate cuts during the year, debt refinancing activity should increase further, providing an alternative capital source for companies not yet ready or willing to pursue equity financing.

Implications for Founders and Investors

The 2025 data creates a challenging environment for founders outside the AI winner's circle. Capital exists and is being deployed, but increasingly through a value-over-volume filter that demands clear paths to profitability, strong unit economics, and category leadership positions. The seed and Series C compression, both down double digits in value, suggests investors are either making early bets or backing proven growth companies, with less appetite for the traditional Series B/C scale-up phase where business models get stress-tested.

For investors, the fundraising crisis demands strategic choices. Emerging managers captured share but raised smaller funds, creating a question of whether €50-100 million vehicles can generate partnership economics at scale. Established funds that missed 2024-2025 fundraising windows face extended deployment timelines or portfolio concentration risk. The gap between capital deployed and capital raised must close through either improved exits, driving distributions that enable new fundraising, or reduced deployment that extends existing fund lives.

The geographic dispersion of deals alongside the concentration of fundraising in DACH and Paris/London creates arbitrage opportunities. If Southern Europe and Israel can capture deal flow while UK fundraising lags, valuations in those markets may offer better risk-adjusted returns. But this assumes exit environments develop proportionally across regions, a questionable assumption given the historical dominance of London and US markets for European exits.

Looking Forward: What 2026 Might Hold

The report's authors pose the central question bluntly: Is there an AI bubble, and if so, when will it burst? European venture's dependence on AI for market stability means any correction in AI valuations would expose underlying weakness across the broader ecosystem. The prediction that AI will reach 50% of European deal value by end of 2026, up from 35.5% in 2025, suggests the concentration will intensify before it moderates.

The IPO window analysis offers measured optimism. Valuations and volatility remained favorable through 2025, and forecasts suggest conditions should support increased listing activity in 2026. But the report notes that only 115 IPOs occurred across all of European markets in 2025, compared to 181 in 2024, and the vast majority came from non-VC-backed companies. For venture-backed firms, the IPO path remains extraordinarily narrow, limited to category winners with strong profitability metrics.

Fundraising recovery depends entirely on distribution improvement. The €14.9 billion in capital across the top 20 open venture funds provides a floor for 2026 fundraising if those vehicles close, but absent meaningful LP distributions, the structural imbalance will persist. European venture has grown dramatically in assets under management and deployment capacity over the past decade, but the capital recycling mechanism through exits and fundraising has broken down.

The geographic rebalancing, DACH's fundraising leadership, Southern Europe's deal flow growth, UK's relative weakness, could either represent healthy diversification or problematic fragmentation. A more distributed ecosystem creates resilience against single-market shocks, but it may also reduce the network effects and talent concentration that drive outsized outcomes.

Conclusion: An Ecosystem at Inflection

European venture in 2025 existed in a state of managed tension. Capital deployed increased modestly while capital raised collapsed. AI surged while nearly everything else stagnated or declined. Exits delivered headline value through a handful of transactions while broader liquidity remained frozen. Traditional geographic leaders stumbled while peripheral markets gained share.

These aren't contradictions so much as symptoms of an ecosystem in transition. European venture has reached a scale where it can support billion-euro rounds and meaningful IPOs, but it hasn't yet developed the exit velocity and capital recycling mechanisms to sustain that scale without external capital injections. The next phase of development requires either a fundamental improvement in outcomes, exits that return capital to LPs at rates that justify continued allocation, or a right-sizing of the ecosystem to match sustainable capital flows.

The AI concentration represents both opportunity and existential risk. If European AI companies deliver on their valuations and generate meaningful returns, the ecosystem will have successfully bet on the right technological transition at the right time. If AI valuations correct before exits materialize, European venture faces a period of reckoning where the underlying weakness in non-AI sectors becomes impossible to ignore.

For founders building in 2026, the lesson is brutal clarity: capital exists for category-defining companies solving hard problems with AI or strong unit economics in proven markets. Everything else faces a significantly higher bar. For investors, the lesson is equally clear: distributions must improve, or fundraising will continue to decline regardless of how many megadeals appear in quarterly reports. European venture's next chapter will be written not by deployment figures but by how effectively today's investments convert into tomorrow's liquidity events.