Despite a vibrant startup scene and optimistic displays at recent conferences, the European venture capital market is still navigating a challenging period. Data through the third quarter of 2025 reveals investment levels remain below those of 2023 and 2024, indicating a slow recovery from the global venture capital downturn. However, emerging trends, particularly in artificial intelligence and fintech, suggest a potential shift in momentum.
The State of European Venture Capital in 2025
Investors committed €43.7 billion ($52.3 billion) to European startups across 7,743 deals during the first three quarters of 2025, according to PitchBook. This pace of investment is currently tracking to match, but not surpass, the €62.1 billion invested in 2024 and the €62.3 billion from 2023. The slowdown is a stark contrast to the United States, where venture deal volume has already exceeded totals from the previous three years.
The most significant hurdle for the European market isn’t deal flow, but rather the ability of venture capital firms to raise new funds. Through Q3 2025, European VC firms have only secured €8.3 billion ($9.7 billion) in fundraising, putting the region on track for its lowest annual total in a decade. This scarcity of capital is impacting the overall ecosystem.
Fundraising Challenges and Limited Partner Behavior
Navina Rajan, a senior analyst at PitchBook, highlighted the difficulties in fundraising, stating that limited partner (LP) commitments to European general partners (GPs) are down roughly 50% to 60% in the first nine months of the year. A significant portion of the funds being raised are going to emerging managers, rather than established firms, and the large fundraises seen in 2024 haven’t been repeated.
This trend suggests a cautious approach from LPs, who may be reevaluating their allocations to European funds. The global economic climate and geopolitical uncertainties are likely contributing factors to this hesitancy.
Signs of a Potential Turnaround
Despite the overall sluggishness, there are indicators that the European startup market may be poised for a recovery. Increased interest from U.S. investors is a key development. After dipping to 19% in 2023, U.S. participation in European venture deals has been steadily rising.
Rajan suggests that lower valuations in Europe, particularly within the artificial intelligence sector, are making European startups more attractive to U.S. investors seeking entry points. The relative affordability compared to the highly competitive U.S. market is a compelling advantage.
Notable Investments and Exits
Swedish vibe-coding startup Lovable recently closed a $330 million Series B round led by U.S.-based venture capital firms like Salesforce Ventures, CapitalG, and Menlo Ventures. This investment demonstrates the appetite for innovative European companies, even in emerging fields.
French AI research lab Mistral also attracted substantial investment from U.S. firms, securing a €1.7 billion Series C round with participation from Andreessen Horowitz, Nvidia, and Lightspeed. These deals highlight the growing recognition of European AI capabilities.
The public listing of Swedish fintech giant Klarna in September 2025 is another positive sign. Having raised $6.2 billion privately, Klarna’s exit potentially unlocks capital for reinvestment by European LPs and provides a successful case study for other companies considering an IPO. This exit could also boost confidence in the European tech landscape.
Shifting Founder Ambitions
Victor Englesson, a partner at EQT, noted a change in mindset among European founders. They are increasingly aiming for global dominance, rather than simply regional success, inspired by companies like Spotify, Klarna, and Revolut. This ambition is attracting further investment and driving innovation.
EQT itself is demonstrating a strong commitment to Europe, having invested $120 billion over the last five years and planning to invest another $250 billion in the next five. This substantial commitment underscores the firm’s belief in the long-term potential of the region.
Looking ahead, the European venture capital market will likely continue to face headwinds in the short term. The ability of European VC firms to secure new funding will be crucial for sustaining growth. The performance of recent investments, particularly in AI and fintech, and the broader macroeconomic environment will be key factors to watch in the coming quarters. Further data on fundraising totals for the full year 2025, expected in early 2026, will provide a clearer picture of the market’s trajectory.
