European startup market shows signs of a potential turnaround

The European startup market has not yet recovered from the global venture capital reset of 2022 and 2023, though data suggests it is on the cusp of a turnaround. While investor optimism was high at the annual Slush conference in Helsinki, PitchBook data shows a more complex reality. Investors poured €43.7 billion ($52.3 billion) into European startups across 7,743 deals through the third quarter of 2025, putting the year on pace to match, rather than exceed, previous totals:

• 2025 (projected): On pace to match previous annual totals
• 2024: €62.1 billion invested
• 2023: €62.3 billion invested

The primary bottleneck is fundraising from LP to GP—the flow of capital from Limited Partners (institutional investors) to General Partners (venture capital firms). “Fundraising, LP to GP, is definitely the weakest area within Europe,” said Navina Rajan, a senior analyst at PitchBook. European venture capital firms raised a mere €8.3 billion ($9.7 billion) through the third quarter of 2025, putting the region on track for its lowest annual fundraising total in a decade. Rajan noted this represents around 50% to 60% decline in the first nine months of the year, largely because mega funds—very large venture capital funds—have not repeated their previous fundraising cycles.

However, U.S. investor participation in European startup deals is on the rise. After dipping to a low in 2023, when U.S.-based venture capitalists participated in just 19% of European deals, American firms are returning, drawn by lower entry valuations. For instance, Lovable, a Swedish vibe-coding startup—a term for a specific style of software development—recently announced a $330 million Series B round led and joined by U.S. investors, including Salesforce Ventures, CapitalG, and Menlo Ventures. Similarly, French AI research lab Mistral raised a €1.7 billion Series C round in September, backed by Andreessen Horowitz, Nvidia, and Lightspeed.

Optimism is also supported by high-profile exits. Swedish fintech company Klarna went public in September after raising $6.2 billion over two decades in the private market. Victor Englesson, a partner at Swedish investment firm EQT, noted that success stories like Spotify, Klarna, and Revolut have inspired founders to build with a global mindset rather than just aiming to win in Europe or Germany. This outlook has kept investment firms highly committed; EQT, which invested $120 billion in Europe over the last five years, plans to invest $250 billion in Europe over the next five years.

Why it matters

The European startup ecosystem is navigating a slow recovery from the 2022-2023 venture reset, with U.S. capital and global-minded founders serving as the primary catalysts for a potential turnaround.