The anticipated pick-up in European VC dealmaking failed to materialize in 2024, but investors are expecting a return to growth this year, spurred by the rising tide of AI startups.
In total, €58.7 billion (about $61.2 billion) was invested in the region across 8,968 deals, according to PitchBook data, representing declines of 4.4% and 21.5%, respectively, from 2023. Although both value and count were down, the extent of the fall was lesser than from 2022.
Looking ahead, the consensus is that the worst is behind us, with both dealmaking and exits likely to outperform 2024. According to investors, here are key themes that will characterize Europe’s VC market.
Dealmaking returns to Europe
With interest rates decreasing and LPs increasing their allocations to VC again, Europe is poised for a rise in dealmaking that is expected to surpass last year’s totals. Activity is unlikely to return to the same levels seen at 2021’s peak as investors mostly retain the discipline that was instilled during the downturn.
“We are bullish on Europe and expect VC dealmaking to show steady growth in 2025,” said Jeannette zu Fürstenberg, managing director at General Catalyst. “Europe is at a pivotal moment: Its deep technical talent, rich industrial heritage, and global leadership in applied AI create the perfect conditions for transformative innovation.”
Early stages will benefit more from the uptick in dealmaking. Late- and growth-stage investments are still lagging behind counterparts in the US. According to Atomico, US tech startups are 40% more likely to have raised VC funding after five years than their European counterparts.
“Europe must address two key areas: improving late-stage funding infrastructure and scaling innovation across borders,” Fürstenberg added. “Europe’s success will depend on structural reforms that incentivize innovation, harmonize policies and encourage risk capital.”
Evolution in AI investments
The AI gold rush will extend into 2025, with PitchBook’s 2025 EMEA Private Capital Outlook projecting that new funding records will be set this year.
VC investments are expected to evolve beyond infrastructure and large language models to focus more on real-world applications.
“2025 should be a year of AI adoption at scale,” said Shmuel Chafets, founder and partner at Target Global. “We’ll see AI integrated more deeply into day-to-day business operations and consumer life.”
B2B will be a key focus, and with a large industrial base, European startups focusing on integrating AI have a competitive edge in areas such as defense, manufacturing and supply chain optimization.
However, there are concerns over the speed and size of AI investments in Europe. Foundamental partner Patric Hellermann warns that the sector’s “frothiness is reminiscent of 2021, if not worse.”
Going forward, investors may become more discerning with AI investments as startups seek to capitalize on the funding boom.
“Even though the AI bubble is inflating quickly, don’t underestimate how important it is to have actual traction—meaning paying, returning users,” Antler partner Tobias Bengtsdahl said. “Too many founders think they can put AI in their pitch deck and raise a round, but investors are still risk-averse after the downturn and want to see real numbers.”
Bigger and but maybe not better valuations
Increased dealmaking and the continuing surge of AI investments should translate into higher valuations. According to Chafets, top-tier early- and mid-stage startups are already seeing their price tags approach 2021 levels.
Valuations already began their recovery in 2024, with almost all stages seeing increases aside from angel and pre-seed. Late-stage only saw a modest rise in the median price tag, but improving macroeconomic conditions are expected to accelerate growth.
“A buoyant public market and high dry powder in venture means there is likely to be an even greater divide between public and private valuations, with the latter at times defying gravity,” Dawn Capital general partner Evgenia Plotnikova said. “While the jury is still out on whether those high valuations are justified and just how much AI can eat into the global knowledge work economy, we are unlikely to see a trough of disillusionment in 2025.”
A crack in the IPO window
Since Swedish buy now, pay later company Klarna’s US IPO filing in November, expectations for European company listings have swelled.
“All of our discussions with investment banks across the US, APAC and Europe have a broad consensus that the next months will bring a flurry of IPOs,” Hellermann said.
PitchBook’s EMEA private capital senior analyst Navina Rajan predicts a concentrated recovery in VC-backed IPOs and that high-profile listings such as Klarna will provide others with the confidence to take the plunge themselves.
According to Hiro Capital managing general partner Luke Alvarez, the key question is how many of those IPOs will occur on European stock exchanges. Lacking a centralized, tech-focused exchange, the region has already lost out on high-profile listings such as Arm’s, and more could follow suit in 2025.
Featured image by Anna Efetova/Getty Images
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