Europe’s venture capital (VC) ecosystem has spent the last few years cooling following its 2021 post-pandemic peak. But, as 2025 draws to a close, the environment has shown signs of a healthier recovery.
European startups now account for 20% of global VC funding, while the region raised $57 billion USD this year alone- a $3 billion USD increase from 2024.
Scale-up stage rounds, which raised above $250 million USD to date, accounted for almost half of total investment, dominating over early and breakout stage rounds.
Against this backdrop, the landscape is moving from careful to genuine optimism, according to Conor Moore, global head at KPMG.
“Companies that IPO’d earlier are performing well, and more recent listings have also delivered strong results. Overall, the outlook feels very positive,” he said.
What prompted this surge, and what is the outlook for 2026 in the European region?
VC momentum: hot sectors, new players, and the AI pull
According to financial data platform PitchBook’s Dealmaking Indicator, the VC ecosystem has shifted from investor-friendly to more neutral, favoring startups once again; throughout 2025, there were four times as many startups seeking investment as there were available deals.
Sector trends remain uneven, however, with cleantech, fintech and healthtech picking up steam. But, Europe’s biggest winners continue to be software-as-a-service (SaaS) and manufacturing.
While Saas startups have absorbed 45% of European VC funding over the past decade, manufacturing has steadily grown its share since 2023- a shift that could restore negotiation power for founders heading into 2026, as per Dealroom’s latest report on Europe.
Geographically, funding continues to cluster around major hubs. The UK remains the highest recipient of VC funds, set at $4B USD- and up by 8% from 2024-, with London-based startups alone accounting for 75% of investor backing.
Germany and France follow as top receivers, with $2B and $1B USD raised, respectively.
The three countries are home to numerous startups, fostering the entrepreneurial ecosystem in their capital cities.
And, while these traditional powerhouses have traditionally fostered the region’s entrepreneurial spirit, two unexpected players emerged this year: Malta and Ireland, recording a striking 1,230% and 600% surge in funding, respectively.
New funds in Malta- including Go Ventures and Seed Investment Initiative– in addition to incubators like Malta Enterprise and Malta Digital Innovation Hub and incentive-driven public frameworks are rapidly turning the country’s micro-markets into emerging EU contenders.
And thematically, while AI remained the central magnet for VC interest, attention centered on robotics, as talk of an AI bubble grows.
Funds including 360 Capital, C4 Ventures, and Capnamic have focused on early-stage robotics and deeptech startups, while Cambridge Innovation Capital and HV Capital have targeted growth-stage startups.
Such a reallocation suggests a maturing of the European bet on AI: less foundational models, and more systems that operate in real-world contexts, from factories to universities and hospitals.
Looking into a different side of VC, family offices are also on the move in Europe.
Whether driven by security concerns, the necessity for more spending in the Ukraine-Russia conflict, or as part of family heritage programs, numerous offices have focused their investments in the defense sector.
The amount of venture funding to defense startups has skyrocketed from $7B in 2024 to $19B in 2025, as per Pitchbook. The upward trend is expected to continue, due to heightened geopolitical tensions and the opportunity to capitalize on increased government defense spending.
Deal activity & sector highlights
This year has delivered a striking mix of mega-rounds, strategic acquisitions, and early-stage accelerator wins across mobility, cybersecurity, and digital infrastructure. A handful of companies stood out with deals that signal where investor conviction is consolidating, both globally and regionally.
At the global level, eSIM store startup Airalo raised $220 million USD in a funding round led by CVC Asia Fund VI, positioning it as the first eSIM provider unicorn worldwide.
The company plans to channel the capital into improving customer experience, expanding enterprise connectivity, and accelerating new product lines- moves that establish it as a dominant player in travel-tech scope.
Another strong deal came from the global fintech stack: Utila, an all-in-one digital asset operations platform for institutions, secured a $22 million USD Series A deal, backed by Red Dot Capital Partners.
Aligned with their vision to empower organizations to manage and build digital assets, this raise reflects growing interest in platforms that combine compliance with enterprise-level tools, and confirms that early-stage capital is still flowing into companies solving fundamental operational gaps in the crypto ecosystem.
Regionally, UK-based healthtech startup HealthKey secured £1.13 million in funding led by VC Aviva, with participation from Ascension, Oxford Capital, and Cur8 Capital. The company has already onboarded over 70 health providers and offers hundreds of wellbeing services to users.
The raise strengthens the company’s mission to transform how healthcare is accessed and paid for across the UK. HealthKey plans to deploy the capital to enhance its platform, expand its product suite, and grow its team, while accelerating the number of partners integrated into its marketplace.
In the visual commerce space, Zakeke, a platform for e-commerce brands to provide real-time 3D and augmented reality product customization, strengthened its international trajectory with a €2 million SAFE round led by private equity fund Berrier Capital.
The Italy-based company is leveraging this growth capital to scale its 3D product configuration and augmented-reality commerce tools for retailers worldwide, reinforcing its position in the rapidly evolving world of customizable digital shopping experiences.
This latest raise builds on earlier funding secured in 2020, when Zakeke brought in €1.2 million from CDP Venture Capital, along with a group of founders and angel investors.
This year’s deal flow thus responded to a highly selective market, sensitive to businesses addressing fundamental infrastructural challenges. The standout performers are those sitting at the crossroads of AI and operational efficiency, a pattern that is likely to intensify next year.
Structural forces redefining 2026
Irrespective of early-year volatility- characterized by geopolitical tensions and uncertainty from U.S. tariffs- optimistic expectations are now prevalent across the EU.
A survey by the European Investment Fund showed that four times as many respondents expect an improved fundraising environment; those looking optimistically at exiting the environment was sixfold, in contrast to 2024 figures.
Expectations of economic recovery, supported by lower interest rates and strong confidence in AI, drive the sentiment.
VC has funded the development of foundational infrastructure, and although it seems this next chapter is just beginning, it is setting the tone for a new era of real-world AI applications that turn investments into quantifiable utility.
The increasing interest in applied LLMs over foundational AI and deeptech could point to where capital consolidates next year.
Yet, beneath the general optimism of rising VC funds, liquidity challenges persist. Exits remain scarce due to startups staying private for longer and M&A activity is shifting to fewer but larger transactions.
To compensate, investors across the board are turning to the secondary market, selling stakes to buyers or back to startups for earlier liquidity without having to wait for traditional exit events.
Heading into 2026, a combination of renewed optimism and persistent liquidity pressure is the main driver of European venture activity.
Confidence fueled by lower rates and the accelerating shift toward real-world AI applications points to another year of strong fundraising and increased capital deployment into applied LLMs and AI-driven infrastructure.
But, with IPO windows still narrow and M&A concentrated in only a handful of large transactions, traditional exits will remain constrained, forcing investors and startups to rely even more heavily on the secondary market for liquidity.
In practical terms, 2026 will likely see higher fund activity, more AI-centric deals, and a structurally strategic use of secondaries, as VCs balance optimism about innovation with the reality of delayed exits.
Featured image: Getty Images via Unsplash+
Disclosure: This article mentions a client of an Espacio portfolio company.
