From Seed to Stuck: Europe’s Venture Capital Paradox
I’ve been osmotically absorbing the state of venture capital in Europe lately, and honestly — the picture is a bit messed up. On one hand, we’ve got great founders, amazing tech, serious ambition. On the other hand, we’re still far behind when it comes to the capital and structure to scale that ambition. So if you’re investing (or thinking of), you need to see clearly what’s broken — and where the opportunity lies.
The handy numbers (so you don’t zone out)
In Q1 2025, European startups raised about $12.6 billion, essentially flat from the same quarter last year. That makes Europe’s share of global VC funding roughly 11%, down from ~16% a year earlier.
Meanwhile, global VC investment in Q1 2025 hit ~$126 billion - so Europe is getting the crumbs. Also, funding is skewing: fewer deals, more mega-rounds. Europe’s deal count is down, while value is held up - because a few big rounds dominate.
And VC fundraising is under pressure: LPs are more cautious in committing to European funds unless they offer strong track records.
So - good to know: Europe’s not collapsing, but neither is it surfing a wave. More like wobbling on one.
The gap between “we can build it” and “we can scale it”
Europe has talent. Universities, engineers, founders - check, check, check. But when it comes to scaling companies, raising the serious late rounds, exiting at big multiples, launching global winners - we’re missing steps.
Why?
Late-stage capital is thin. You might find seed and Series A deals, but come Series C/D and scaling, the pool shrinks.
Exit ecosystems are weak. Without strong IPOs or big acquisitions, investors and founders alike feel stuck.
LP behaviour matters. When pension funds and insurers don’t commit capital to VC, the whole chain weakens.
Fragmentation. Europe isn’t one market - it’s dozens. That slows scaling, adds regulatory friction, and raises risk.
In short: we can start well, but going global? That’s harder.
Where the pain is showing up
Capital concentration: The few companies already with traction - especially in “hot” sectors like AI or deep tech - are doing fine; everyone else struggles.
Regional imbalance: In Central & Eastern Europe, VC funding in Q1 2025 was about €700 million — but one single €170 million round skews the picture. Remove it, and the region actually declined ~17% YoY
Deal counts down: While value holds, deal numbers dropped across Q1 2025.
Sector bias: AI, deep tech, SaaS lead the race. European AI startups raised over $13B in 2024, up 22% despite fewer deals.
Fundraising pressure: LPs now expect clearer governance, return proof, and a move away from “spray and pray” strategies.
Why this matters for you (as an investor)
For investors, these gaps shape both risk and opportunity:
Higher risk - higher upside. Europe isn’t as saturated as the US. With the right sector pick and timing, upside can be real.
Dig smarter. Prioritise teams prepared for cross-border scale and regulatory complexity.
Underrated late-stage potential. Because many avoid it, late-stage Europe may now offer better entry pricing.
Geographic conviction matters. Beyond the UK-France-Germany axis, fund sizes and follow-on capital shrink.
Expect slower liquidity. Exits take longer in Europe.
What Europe needs
More institutional money. Europe’s global VC share of ~11% is a red flag.
Cross-border scaling discipline. Founders should plan for pan-European and global markets from day one.
Stronger exits. Bigger IPOs and M&A create the “proof loops” for future investors.
Support new fund managers. Backing emerging managers and underfunded regions can generate asymmetric returns.
Balanced diversification. Beyond AI, Europe has edge in climate tech, industrial automation, and materials innovation.
Patience. European cycles are slower and deeper - longer hold periods require endurance and conviction.
My take
To be blunt: Europe is at a crossroads. We’ve got the ingredients and the people. But what we’re missing is the capital and the scale system. Copying the U.S. model won’t work - we need our own.
As an investor, you can either:
Wait for Europe to mature (and pay premium valuations), or
Act now, identify structural gaps, take smaller yet conviction-led bets, and think long-term.
Personally, I lean into now. Hesitation itself creates opportunity.
Final thought & call to action
If this resonates:
Share this post. Awareness precedes structural change.
Talk to one founder outside your usual network - ask, “Who funds your scale-up stage?”
Co-invest or fundraise where the gaps are widest - deep tech, emerging markets, scale-up rounds.
Europe isn’t broken. It’s underserved. And that means if you see the gap, you’re already ahead.
✅ If this hit home, forward it to your network. The more investors aware of Europe’s capital gap, the faster we fix it - and the stronger the next generation of European winners becomes.
It’s time for a POLL
(👉 Vote now — we’ll share the results in next week’s issue. All votes are anonymous)😀
Europe’s VC ecosystem raised $12.6B in Q1 — flat year‑on‑year and just ~11% of global VC flow. So here’s the uncomfortable question: what’s really holding us back?
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Vasily Alekseenko
Founder
@ Rare Founders
Rare Founders - building the bridge between founders and investors via regular in-person and online events, meetups, conferences.