European Venture Capital Market in 2024: A Year of Contrasts
The European venture capital (VC) landscape in 2024 presented a mixed bag of challenges and opportunities. While the overall amount invested in European businesses declined, the year was punctuated by significant individual deals, particularly in the burgeoning artificial intelligence (AI) sector, and a resurgence in exits, offering a glimmer of hope for 2025. The prevailing mood was one of cautious optimism, as market conditions showed signs of improvement, albeit tentative, against a backdrop of modest economic growth and easing monetary policy.
The decline in overall investment was primarily driven by a decrease in the total number of deals, from 11,408 in 2023 to 9,600 in 2024, despite a rise in the average deal size. This contraction occurred within a broader economic context marked by lackluster GDP growth in the eurozone, although the European Central Bank’s four interest rate cuts in response to slowing inflation offered some relief. The Bank of England also contributed to easing financial conditions in the UK with two rate cuts. These measures are expected to continue into 2025, although significant economic acceleration remains uncertain.
The AI Boom and Sectoral Shifts
A defining feature of the 2024 VC landscape was the explosive growth of AI. UK-based GreenScale secured the largest European VC deal of the year, a testament to the sector’s burgeoning potential. Other AI companies, such as Poolside (France) and Lighthouse (UK), also attracted substantial investments, highlighting the widespread interest in this transformative technology. PitchBook underscored the significance of AI, comparing its impact to the rise of the internet, with the entire technology industry focusing intently on its development and applications. The UK emerged as the leading hub for AI-focused VC activity, followed by France and Germany. AI investments accounted for a substantial €14.6 billion, representing a quarter of the total European deal value in 2024.
Beyond AI, other sectors experienced notable growth, including life sciences, oncology, mobility tech, and foodtech. However, some established sectors experienced a decline in investment. Cleantech and fintech, though remaining among the top five sectors by total deal value, saw year-on-year decreases of 26.5% and 19.8%, respectively, suggesting a potential shift in investor priorities.
Fundraising and the Rise of Megafunds
The amount of capital raised by European VC funds in 2024 remained relatively stagnant at €20.5 billion, comparable to the previous year. This stability was largely attributed to the emergence of large "megafunds," offsetting a decline in the number of individual fundraising closures. The median fund size reached a record high of €71.3 million, reflecting this trend towards larger funds. Index Ventures Growth VII (UK) and Forbion Ventures Fund VII (Netherlands) were among the top fundraising closures, highlighting the concentration of capital in larger funds. The UK led the fundraising leaderboard, followed by France and the DACH region (Germany, Austria, and Switzerland). Southern Europe also experienced growth, with significant fundraising closures in Spain. Looking ahead to 2025, PitchBook anticipates continued modest fundraising activity, as the megafunds that closed in 2024 are unlikely to seek further capital in the near term.
Exit Revival: A Boost to Market Confidence
A significant positive development in 2024 was the resurgence of exits, providing a much-needed boost to investor confidence. The ability for investors to successfully exit their investments, either through initial public offerings (IPOs) or acquisitions, is a crucial element of a healthy VC ecosystem. This renewed activity followed a period of subdued exits at the end of 2023, often at discounted valuations. The second and third quarters of 2024 saw increased momentum, driven by IPOs from companies like Puig (Spain) and EyeBio (UK). This revival in exits is a welcome sign, as it unlocks capital for reinvestment and strengthens confidence in the market.
Venture Debt: A Growing Trend
Venture debt emerged as a prominent trend in 2024, with annual deal value increasing by 27.3% year-on-year to €17.2 billion. Unlike traditional VC deals where equity is exchanged for capital, venture debt allows companies to secure loans for operational financing without significantly diluting their ownership. Notably, a larger proportion of venture debt was utilized by later-stage, more mature companies in 2024 compared to previous years. While PitchBook anticipates a more moderate outlook for venture debt in 2025, primarily due to the expected absence of the large megadeals seen in 2024, it is likely to remain an important financing option for growing companies.
Looking Ahead to 2025: Cautious Optimism with Pockets of Growth
The European VC market in 2025 is expected to be characterized by continued caution, particularly in overall fundraising and venture debt activity. However, the strong performance of specific sectors, notably AI, and the revival of exits offer grounds for optimism. The continued easing of monetary policy by central banks may also provide some support to the market. While challenges remain, the underlying innovation and entrepreneurial spirit within the European ecosystem suggest that opportunities for growth and investment will persist. The focus on strategic sectors like AI, coupled with a renewed emphasis on successful exits, could pave the way for a more dynamic and resilient VC market in the years to come.
