European Startup Ecosystem Struggles for Momentum Despite Positive Signs
The European startup market is showing signs of stagnation, even as optimism filled the air at last month’s Slush conference in Helsinki. Recent data indicates that the region has yet to rebound from the venture capital pullback experienced in 2022 and 2023, although emerging trends suggest a potential resurgence, propelled by high-profile exits and growing interest in local AI ventures.
According to PitchBook, investors allocated €43.7 billion (approximately $52.3 billion) to European startups in 2025 through 7,743 transactions by the third quarter. This amount keeps the annual investment trajectory in line with the €62.1 billion seen in 2024 and €62.3 billion in 2023, lacking the anticipated growth. In stark contrast, U.S. venture capital activity has surged past these figures, showcasing a robust recovery since the downturn.
While deal volume remains a challenge, the more pressing issue for European firms is fundraising. In the first three quarters of 2025, European VC funds raised only €8.3 billion ($9.7 billion), positioning the region for its weakest fundraising year in a decade.
Despite these hurdles, there are emerging signs of hope. U.S. investor participation in European startups is on the rise, having dipped to only 19% of deals in 2023. Investor confidence appears to be bolstered by favorable valuations in Europe compared to the more inflated U.S. market, particularly in the AI sector.
Examples of this trend include Lovable, a Swedish vibe-coding startup, which has attracted significant funding from U.S. venture capitalists, securing a $330 million Series B round with backing from Salesforce Ventures, CapitalG, and Menlo Ventures. Similarly, French AI research lab Mistral also saw strong interest, landing a €1.7 billion Series C funding led by top firms like Andreessen Horowitz and Nvidia.
The recent public debut of Klarna, a Swedish fintech giant that raised $6.2 billion in two decades of private funding, has also rejuvenated confidence among investors, indicating a potentially shifting landscape for exits in Europe.
EQT partner Victor Englesson reflects growing optimism within the investment community, noting that EQT has committed $120 billion to European ventures over the past five years and plans to increase that investment to $250 billion in the next five years. The success of recent European ventures, like Klarna, is reshaping founders’ approaches to scaling their companies, laying the groundwork for potential future growth in the European startup ecosystem.
