For much of the past half-decade, Europe’s startups have been navigating stormy waters. Pandemic-era disruptions collided with regulatory scrutiny and geopolitical tensions, leaving many founders braced for leaner times. Across the ecosystem, a sense of caution set in: was the continent destined to lag behind the US and Asia in attracting the world’s biggest pools of capital?
Yet beneath the surface gloom, momentum has been building. By the first half of 2025, UK companies had raised over $8bn in venture capital — a 3% uptick compared to the end of 2024, according to a report by HSBC Innovation Banking and Dealroom. A record 30% of that money went to AI startups, suggesting investors aren’t just spending, but betting big on transformative technologies.
Mike Turner, emerging companies partner at Latham & Watkins, has seen the shift firsthand. “Investment activity is strong right across the value chain, from pre-seed right the way through to later stage financing,” he says. “The IPO market is bubbling up again.”
M&A, too, is making a comeback. Sifted data shows 94 fintech M&A deals this year so far, up from 76 for the same time period in 2024.
A transatlantic spark
One reason for this renewed optimism is a fresh wave of interest from across the Atlantic. “Talking to investors in the States, they are very bullish on European tech,” says Turner.
US confidence in the market has already led to substantial commitments. Earlier this year, Microsoft pledged £22bn of UK investment as part of a wider £31bn “Tech Prosperity Deal” with the government — joined by fellow US giants Google and Nvidia. For founders, these megadeals help signal long-term confidence in Europe as a hub for talent and innovation.
Talking to investors in the States, they are very bullish on European tech.
Shing Lo, also a partner at Latham & Watkins, notes that resilience has become one of Europe’s calling cards. “Investors were saying, ‘we’ve got to go back to the fundamentals,’ and a lot of startups have been doing that. Companies are focusing on sustainable growth, the need to generate more healthy revenue and hitting profitability.”
The challenge, of course, is Europe’s patchwork geography. “If there's one challenge for investors, particularly from the US, it's finding the good companies,” Turner says. “But ultimately, the potential rewards make the effort worthwhile.”
Betting on strengths
However, Europe’s diversity has been a strength, helping it carve out competitive edges in certain sectors. Defence technology is one. Since 2022, companies in the field have raised €2.4bn, with €1.4bn secured in just the first seven months of this year, according to Pitchbook. Europe now counts three defence unicorns: drone makers Helsing, Quantum Systems and Tekever.
Crypto and blockchain are also regaining traction, buoyed by new policy initiatives like the UK–US Transatlantic Taskforce for Markets of the Future, which aims to smooth cross-border fundraising and regulate digital assets in tandem.
Earlier stage companies in AI are raising hundreds of millions of dollars in a Series A and B.
But the biggest magnet for capital, by far, is artificial intelligence. “Anything in the AI world is occupying a significant amount of our time,” says Turner. And for good reason: Europe’s AI market is forecast to reach €51.2bn in 2025 and swell nearly fivefold by 2031. The EU is stepping in with scale: a €20bn “InvestAI” fund to build five AI gigafactories capable of training next-generation models.
A growing number of investors are also funnelling money into startups working to make training and running AI models cheaper and more efficient. Capital to startups in the AI hardware, data centre, semiconductor and photonics sectors has already doubled this year compared to last, according to Sifted data; so far they’ve raised €4.8bn across 120 deals.
That surge is reshaping what’s possible at the deal table. “Earlier stage companies in AI are raising hundreds of millions of dollars in a Series A and B,” says Turner. “That is driving M&A, where startups are buying startups for over a billion dollars. We’ve never, ever seen that before.”
Founders at the core
For investors, the story isn’t just about capital, it’s about people. As Europe’s ecosystem matures, a new generation of entrepreneurs is spinning out of successful scaleups, creating a cycle of talent and ambition.
“We're seeing a lot of great founders spinning out of some great startups,” says Turner. “The competition for funding is strong — but that’s why the funds are so focused on the opportunities.”
Still, many founders remain gripped by fear. After years of headlines about “tough markets,” it’s no wonder some hesitate before raising. Turner thinks that caution is misplaced.
I’ve seen examples where companies raise pre-seed and stay in stealth until they start generating some revenue.
“It's not as hard a fundraising market as the market likes to think,” he says. “Spend the next quarter building what you're building, and then go to market.”
Lo agrees but adds that it doesn’t hurt to generate some intrigue around your business.
“It’s okay to be in stealth mode,” she says. “I’ve seen examples where companies raise pre-seed and stay in stealth until they start generating some revenue — this can pique investor’s interest — they heard a bit about the company but haven’t managed to find any information.”
A comeback in motion?
After years of defensive play, Europe’s startups are beginning to look outward again. US investors are circling, policy momentum is building and whole sectors — from defence to AI — are drawing unprecedented flows of capital.
Go and create that story, build a great company and the funding will follow.
If there’s a lesson, perhaps it’s that fundraising in Europe is less about fighting against the market and more about telling the right story at the right time. Or, as Turner puts it: “Go and create that story, build a great company and the funding will follow.”
