TITLE: European Startup Funding Stagnates Despite Optimism

Enthusiasm for the European startup ecosystem was evident at last month's Slush conference here, but investment data paints a more subdued picture of the region's venture capital landscape.

Through the third quarter of 2025, investors committed €43.7 billion ($52.3 billion) to European startups across 7,743 deals, according to PitchBook data. This pace suggests the full-year total will align with the €62.1 billion invested in 2024 and €62.3 billion in 2023, indicating no rebound from the global venture downturn of 2022 and 2023.

In contrast, U.S. venture deal volume in 2025 had already exceeded totals from 2022, 2023 and 2024 by the end of the third quarter, per the same data source.

Fundraising Challenges Persist

The most pressing issue for Europe's venture scene is not deal flow but the ability of VC firms to raise capital. European funds secured just €8.3 billion ($9.7 billion) through the first nine months of 2025, positioning the region for its lowest annual fundraising figure in a decade.

Navina Rajan, a senior analyst at PitchBook, described LP-to-GP capital flows as the weakest segment of the European market. "We're on track for a 50% to 60% decline in the first nine months of this year," she said. Much of the limited fundraising has come from emerging managers rather than established firms, with mega-funds from the previous year absent in 2025.

This shortfall limits the dry powder available for new investments, exacerbating the slowdown. Despite the conference buzz at Slush, Rajan noted a lack of matching fervor in the numbers but highlighted early indicators of improvement.

Signs of Turnaround Emerge

Positive developments include rising interest from U.S. investors, whose participation in European deals bottomed at 19% in 2023 before climbing steadily. By 2025, this figure has increased, driven by attractive valuations in Europe compared to the U.S., particularly in artificial intelligence and technology sectors.

"They seem pretty optimistic on the European market," Rajan said. "From an entry point of view, valuations in AI tech in the U.S. are impossible to get into now, whereas in Europe, multiples are lower, providing a better entry for new investors in similar tech."

Swedish startup Lovable exemplifies this trend. The vibe-coding company, which enables users to build software through natural language descriptions, recently closed a $330 million Series B round led by U.S. firms including Salesforce Ventures, CapitalG and Menlo Ventures. Vibe-coding has attracted significant U.S. capital, but Lovable's funding underscores cross-Atlantic appeal.

Similarly, French AI research lab Mistral AI secured a €1.7 billion ($2 billion) Series C in September, backed by U.S. heavyweights Andreessen Horowitz, Nvidia and Lightspeed Venture Partners. These deals signal growing confidence in Europe's AI innovation pipeline.

High-Profile Exits Boost Confidence

Klarna's public listing in September marks a milestone for the region. The Swedish fintech, which raised $6.2 billion over two decades in private funding, debuted on the New York Stock Exchange. This exit could recycle capital to European limited partners and restore faith in the exit environment.

Victor Englesson, a partner at Swedish investment firm EQT, views such successes as transformative. "Ambitious founders have seen what great looks like in companies like Spotify, Klarna and Revolut, and are now starting companies with that type of ambition," he said. Founders increasingly adopt a global mindset, aiming beyond regional dominance.

EQT's commitment reflects this optimism. The firm invested $120 billion in Europe over the past five years and plans to deploy $250 billion in the next five, signaling strong long-term backing.

Broader Market Context

While investment volumes lag, the focus on AI and deep tech is drawing attention from both local and international players. Homegrown AI startups are gaining traction, with lower entry valuations making Europe an appealing alternative to saturated U.S. markets.

Rajan pointed to these dynamics as harbingers of recovery, though she cautioned that full rebound may take time. The Slush conference, attended by thousands of founders, investors and executives, amplified the narrative of potential, even as data tempers expectations.

Europe's venture ecosystem faces structural hurdles, including fragmented markets and regulatory complexities, but recent exits and inbound U.S. capital suggest momentum building. As 2025 draws to a close, the region stands at a crossroads, with stagnation giving way to cautious optimism.