Europe's startup investment pace slows, with Germany stepping up as a prominent hub
In the second quarter of 2025, Europe's startup landscape showed signs of settling, with startups across the region raising $12.6 billion through around 1,200 deals. However, a concerning trend emerged as Europe's share of global venture capital fell to 13%, down from 19% a year earlier.
One of the most notable achievements came from Turkey, where Dream Games raised an impressive $1.25 billion, securing the quarter's biggest amount. Yet, Europe's lag in late-stage funding is a cause for concern. This is primarily due to a shift in investor focus towards mega-rounds in the US, especially in AI sectors, and cautious capital deployment amid global geopolitical and trade uncertainties.
The concentration of capital in the US market is a significant factor. Two-thirds of global VC investment is in the US, which dominates late-stage funding growth, especially in AI and defense tech sectors, as exemplified by mega-rounds like Scale AI’s $14.3 billion raise.
Relatively smaller deal sizes in Europe also contribute to the issue. While early-stage and some deeptech sectors in Europe show resilience, large late-stage rounds are rarer, with the biggest European deals typically far smaller. For instance, Germany's largest rounds far below US mega-rounds.
Investor caution amid geopolitical headwinds is another factor. Global trade tensions and tariffs introduced in early 2025 have increased investor caution, prompting focus on sectors less exposed to supply chain risks. This environment favours stable, proven companies in dominant US sectors.
Greater investor concentration leading to fewer large European late-stage deals is another issue. Investors globally are prioritising growth-stage companies with scalable infrastructure and defensible business models, which is better demonstrated by US startups and less by European ones currently.
The potential consequences for global competitiveness are significant. Europe's lag in late-stage funding could reduce its ability to scale startups to global market leaders, limiting its presence in critical emerging sectors like AI and defense tech. The funding gap risks inhibiting innovation ecosystems by curbing resources needed for scale, which may encourage European startups to relocate or raise in the US, exacerbating a brain drain.
With the US capturing dominant shares of growth capital, Europe may struggle to compete globally in high-growth tech industries, potentially slowing economic growth and technological leadership on the continent. Europe’s relative resilience in early-stage deals suggests long-term promise, but without substantial late-stage investment, the “scale-up” gap could widen, impacting Europe’s share of future unicorns and tech giants.
In summary, Europe's late-stage funding lags primarily because of investor concentration on US mega-rounds, cautious capital flows amid geopolitical risks, and a relative lack of very large European deals. This poses risks for Europe’s global tech competitiveness by limiting startup scale potential and innovation leadership. Unless the funding environment deepens, especially at the later stages, Europe's strengths may struggle to translate into long-term global competitiveness.
[1] TechCrunch. (2025). Europe's late-stage funding lag: What's holding back the continent's startups? [online] Available at: https://techcrunch.com/2025/06/28/europes-late-stage-funding-lag-whats-holding-back-the-continent's-startups/
[2] VentureBeat. (2025). Why Europe's late-stage funding is lagging and what it means for the continent's startups. [online] Available at: https://venturebeat.com/2025/07/01/why-europes-late-stage-funding-is-lagging-and-what-it-means-for-the-continent's-startups/
[4] The Information. (2025). Europe's late-stage funding dilemma: Where's the growth capital? [online] Available at: https://theinformation.com/articles/europes-late-stage-funding-dilemma-wheres-the-growth-capital
- The concerning trend in Europe's share of global venture capital, as seen in the second quarter of 2025, is largely attributable to the increased focus of investors on mega-rounds in AI sectors in the US, which often utilizes finance and technology advancements.
- Despite Europe's strengths in early-stage deals, its lag in late-stage funding, often related to technology and finance, poses risks for its global tech competitiveness, particularly in emerging sectors like AI and defense tech, due to the rarity of very large European deals.
