The 2025 balance of the European technological innovation ecosystem offers a double reading on European Venture Capital in 2025: startups continue to raise capital… but Venture Capital funds have less financial muscle than in previous years.
This is reflected in the Euro Tech VC Funds report, accessed by Startup Valencia, which shows that the €13.6 billion raised by venture capital funds in 2025 represents a 26% decrease compared to 2024, and remains far below the figures reached in 2021 and 2022, the strongest years of the last decade. In addition, 2025 was the only year in the past five in which no megafund (€1B+) was announced.
However, the paradox of this slowdown is that there are more reasons for optimism than for concern.
Europe and the U.S. never play in the same league
If we compare European figures with those of North America, the Old Continent always comes out behind… regardless of the year. Therefore, the key question is not whether Europe invests less than the United States, but whether European data alone compromises its ability to create large technology companies.
The traditional functioning of venture capital has historically been based on a clear premise: assuming that most investments in each fund would not generate returns, but that one or two extraordinary deals would more than compensate for the rest of the portfolio.
In the age of AI, that logic is beginning to crack. Artificial intelligence is not only transforming startup business models, but also the implicit rules of venture capital. The rise of AI companies closing large rounds at very early stages, driven by narratives of disruption and technological leadership, has pushed valuations to historically high levels, even when many of these projects show immature business models, low commercial traction and returns that are still difficult to anticipate.
This mismatch between expectation and reality introduces greater uncertainty into fund management, complicates the construction of balanced portfolios and increases perceived risk in future follow-on rounds. The result is greater decision-making paralysis: less conviction, more caution and longer investment processes. In Europe, where capital is structurally more conservative and funds are smaller, this context helps explain a certain investment standstill.
In the United States, VC is oriented towards growth at all costs and deep capital markets. In contrast, the European model has historically been more prudent, more industrial and more closely linked to technological and business fundamentals.
Is this precisely the approach needed in the current context? That may be the great strength of European Venture Capital in maximising returns going forward.
Rounds vs Funds: understanding the difference matters
To properly analyse the state of European Venture Capital, it is important to separate two metrics that are often confused:
– Funding round activity: capital invested in startups, number of deals, stages and sectors.
– Fund fundraising activity: new capital raised by VC managers from their institutional investors (LPs).
As noted at the outset, 2025 data for venture capital in Europe show a certain disconnect between the two.
According to data from PitchBook and TechCrunch, investment in European technology startups has remained relatively stable compared to 2023 and 2024, with tens of billions deployed and thousands of deals closed. At the same time, VC fundraising has fallen to its lowest levels in a decade, with several quarters below €10 billion raised.
This means that many funds continue to invest, but are doing so with capital raised in previous cycles.
Is this a sign of weakness? Not necessarily.
5 reasons for optimism in European VC (despite fewer resources)
The fact that Europe is raising fewer funds does not mean its technology ecosystem is weaker. On the contrary, several factors suggest that the current adjustment may strengthen, rather than erode, its ability to create relevant technology companies in the long term.
1. Greater selectivity and investment discipline.
Far from disappearing, capital has become more demanding. There are fewer generalist funds and more vehicles specialised in AI, Deep Tech, health, climate, energy or defence. This raises the average quality of funded projects, reduces capital dispersion and supports clearer, more coherent investment theses from the outset.
2. Geographic reallocation of international capital.
An increasing number of global investors are turning to Europe, attracted by more rational valuations, highly qualified talent and technologies with strong scientific foundations. In a context of overheating in other markets, Europe is consolidating its position as a credible long-term investment alternative.
3. Startup investment continues.
Europe closed 2025 with more than €40 billion invested in technology startups, according to estimates from PitchBook and Crunchbase, maintaining its position as the world’s third-largest Venture Capital ecosystem. There is no entrepreneurial slowdown, but rather a more careful reallocation of capital.
4. Focus on future technologies.
Sectors such as Artificial Intelligence, Deep Tech, digital health, energy, semiconductors and defence have increased their relative weight, even surpassing traditional verticals like fintech or SaaS in some quarters. This positions Europe not as a trend-driven ecosystem, but as a hub of deep innovation aligned with long-term industrial, geopolitical and social challenges.
5. A quality-of-life model that continues to attract talent.
European standards of quality of life and welfare models, despite differences between EU member states, remain a strong pull factor for foreign talent choosing to establish and develop entrepreneurial activity in Europe.
Europe is not slower, it moves at its own pace
Lower fund activity in 2025 does not signal a collapse of European Venture Capital in 2025, but rather a cycle of adjustment and maturation: less speculative capital, more investment discipline and a stronger focus on companies with real fundamentals.
While it is worth remembering recommendations to close the gap with the United States, Europe does not need to replicate the US model to succeed… it needs to consolidate its own identity. Its competitive advantage lies elsewhere: scientific talent, universities, industry, advanced regulation and technologies with structural impact.
