Corporate buyers and government initiatives point to a maturing European VC market

Uncertainty caused by ongoing geopolitical tensions and US trade tariffs is leading venture capital investors to remain cautious as they wait to see the extent to which these challenges impact the global economy. This is reflected in the fact that through the first half of 2025, Europe’s share of global venture capital fell to 13%; down from 19% in 1H24 according to Pitchbook.

Geographically, the Americas recorded GBP71.4 billion in VC investments through June this year, with the US making up GBP69 billion of this total, while in Europe, GBP13 billion in VC investment was raised in 1,883 deals.

According to the latest KPMG Private Enterprise Venture Pulse report the UK proved to be the most active market through the first quarter of 2025, with GBP4.1 billion raised. The UK secured four of the top 10 deals; most notably the GBP453 million ($600 million) raised by Isomorphic Labs in its first external funding round. In Q2, Germany took the UK’s mantle, recording $2.7 billion with one of the largest deals being Proxima Fusion’s EUR250 million Series A round for its clean energy technology.

AI, deep tech, climate technologies, and life sciences are attracting increased investment due to their fundamental problem-solving potential. A quick look at North American early-stage funding totals underlines how important these sectors are becoming. Residential battery provider Base Power raised $200 million in a Series B round, while green steel producer Electra raised $186 million in a Series A round.

Corporate buyers step up to the plate

Guillaume Vitrich is a partner at White & Case. From his vantage point, 2025 has been interesting from an early-stage funding perspective, as well as from an M&A transaction perspective. “The market is still pretty busy and active, mostly in Series A rounds. We’ve seen a decrease of around 20% in the number of large Series B and Series C rounds. I’ve probably spent more than 50% of my time working on M&A transactions,” says Vitrich.

Large corporate platforms are becoming active purchasers of VC-backed companies, with Vitrich confirming that one of the transactions White & Case is about to close is in relation to a Chinese corporate acquiring a French tech company.

He notes that corporate buyers are exploring opportunities in the defence and cyber sectors, both of which are hot sectors right now, given where the world is heading.

Hana Prochaska is Executive Director, Business Development, Europe at Gen II, one of the world’s leading private equity administrators with over $1 trillion of assets under administration.

From Luxembourg, Prochaska says the team can see firsthand how managers are rethinking their fund structures, reporting, and investor communications in response to regulatory changes and heightened LP expectations.

“The current market dynamics – slower exits, evolving fundraising routes and the rise of corporate-backed venture strategies – mean managers and investors alike are paying closer attention to how these partnerships are structured and supported,” says Prochaska.

One of the key benefits that corporates bring to the venture space, in Prochaska’s view, is how their connection to industrial groups “creates both strategic and financial advantages and why this matters now for third-party investors. As partnerships between corporates and VCs expand, the ability to align governance, transparency and investor trust will be key to unlocking the full potential of this model,” she says.

Aside from cyber and defence, Europe has also seen some significant deals in the broader technology sector.

In a recent article, JP Morgan referenced three significant deals in Q2 2025. These included: Wiz, an Israeli company acquired by Google for $32 billion; Dream Games, a Turkish company acquired by CVC Capital Partners, and Metaphysic, a UK company acquired for $1.4 billion by DNEG/Brahma.

VC companies operating in these sectors are proving attractive to both corporate platforms and PE sponsors, not least because they have strong revenue growth trajectories. Even though the prevailing global macro backdrop remains challenging, the fact that M&A transactions are slowly picking up in Europe is a source of encouragement for VC managers, who are all too keen to return capital to investors.

Valuations adjust as LBO interest rises

Vitrich confirms that the firm is seeing the LBO exit route opening up to mature start-ups who are either at breakeven point or cash flow positive:

“This has been very interesting in the sense that finally we're seeing some liquidity for investors, which has been a bit of a concern for the past few years as a result of extremely high valuations in 2021/2022. We are discussing with some of our clients getting themselves ready for potential exits with PE investors.”

As well some signs of improvement in Europe’s M&A landscape, the point Vitrich makes about valuations could also be a potentially important tailwind in the coming years. Entrepreneurs and VC managers are ready to accept valuations that either triggers, or leads to a negotiation of the liquidation preference.

Policy Tailwinds: Governments Fuel AI and Cleantech

A third tailwind worth considering is the growing support that European governments are offering to drive innovation in AI, clean tech, and digital infrastructure, in a bid to make the continent rekindle its competitive spirit.

The German government's announcement of a EUR500 billion Defense and Infrastructure Fund, part of which will be dedicated to energy transition, is expected to stimulate future cleantech investments.

In France, meanwhile, President Macron wants the country to become an “AI Powerhouse”. More than EUR109 billion in investments for AI infrastructure projects were announced during the AI Action Summit in February 2025.

Since 2021, the number of AI-focused startups in France has doubled, now exceeding 1,000 companies. In 2024, these startups raised EUR1.9 billion, led by Mistral AI (EUR1.2 billion), Poolside (EUR526 million), H (EUR250 million) and Photoroom (EUR62 million).

Novel initiatives, such as the introduction of AI cafes by the National Digital Council, which aim to foster a better understanding of AI’s opportunities and challenges among the general public, underscore how seriously leading European nations are taking this dynamic technology shift.

“There is political momentum. We realise as Europeans that we need to be as independent as possible in various sectors; pharmaceuticals, defence, AI chip production. I'm generally optimistic. Europe has a strong, mature VC ecosystem in at least four or five jurisdictions,” says Vitrich.

Growing interest among corporates and PE groups to acquire mature start-ups, more realistic valuations and a commitment among some European governments to support innovation, should enable Europe’s VC market to continue moving in a positive direction. Although plenty of turbulence will be expected along the way.