Dealroom: European VC deals are set to rise 3-4% YoY in 2025 to $57B, about the same as in 2023, driven by rising startup valuations in AI, fintech, and defense
Interest in AI and defence tech start-ups has boosted investor activity after a prolonged slowdown
Context & Ripple Effects
After a prolonged VC slowdown, European defense technology had already become a distinct capital destination: US investors supplied a sharply larger share of funding for European defense startups in 2024, while EU defense-tech investment rose year over year.
The forecast frames a modest market recovery led by valuation-sensitive sectors rather than a broad return to prior activity. Subsequent coverage showed AI taking more than a third of 2025 European VC investment, reinforcing the concentration behind the rebound.
First-order effects
- European AI, fintech, and defense startups gain a stronger fundraising backdrop as higher valuations lift the projected value of completed rounds.
- VCs with exposure to those categories can deploy into a recovering market, while founders outside them face a less clearly improved funding environment.
Second-order effects
- Competition for the most sought-after AI and defense companies is likely to intensify, particularly as US capital has become a major source of European defense funding.
- A valuation-led recovery can widen the gap between headline deal value and the number of companies able to raise, concentrating investor attention on sectors with the clearest demand narratives.
Third-order effects
- If capital continues to cluster in AI and defense, European venture markets may become more dependent on a small set of strategic technology categories and on cross-border capital sources.
- The pattern points to a more selective recovery: aggregate funding can improve without restoring financing conditions evenly across the broader startup market.
The trend: European VC is shifting from a broad post-downturn recovery toward a selective, valuation-driven market centered on AI and strategic technology.