VC investment in Europe rose from $15.1 billion in Q4’23 to $17.9 billion in Q1'24, buoyed by a large $5.2 billion raise by H2 Green Steel in Sweden. With few exceptions, VC investors in Europe continued to show caution given the challenging geopolitical and macroeconomic environment, including the high interest rate environment; while interest rates have smoothed, there is little sign that they will decline to a significant degree in the near future.

Deal sizes remain healthy even as number of VC deals plummets

The number of VC deals dropped considerably in Europe, falling from 2,419 deals in Q4’23 to 1,798 deals in Q1’24. This decline was particularly noticeable at later deal stages, with the number of Series D+ deals in the region dropping to just eleven. While deal volume was very subdued, deal sizes remained quite healthy as VC investors focused their funds on the most promising startups. The geographic diversity of VC investments also held strong during the quarter, with eight jurisdictions in the region attracting at least one $100 million+ funding round in Q1’24, including Sweden, the Netherlands, France, Germany, the UK, Spain, Israel, and Italy.

Cleantech biggest winner in Europe

While AI attracted the largest share of investment globally, cleantech investment accounted for many of Europe’s largest deals in Q1’23, including raises by Sweden-based H2 Green Steel ($5.2 billion) and Alternative Energy Equipment ($159 million), Germany-based Sunfire ($233 million), France-based Electra ($334 million), and Germany-based Ineratec ($129 million). ESG more broadly also has continued to attract attention from VC investors, driven in part by regulatory pressures. During Q1’24, a majority of EU member states agreed to the Corporate Sustainability Due Diligence Directive (CSDDD). Once fully passed, the directive will require large companies operating in the EU to audit their supply chains for ESG related concerns, including adherence to human rights and environmental protection requirements.

UK sees VC investment fall to lowest level in over five years

VC investment in the UK got off to an incredibly slow start in Q1’24, with just $3 billion raised across 519 deals — the lowest amount seen in twenty-two quarters. The largest raises came from neobank Monzo ($431 million) and drug discovery company Apollo Therapeutics ($260 million). VC investors in the UK showed a lot of skepticism this quarter, increasingly focusing their capital on the best startups, particularly those with excellent unit economics, a strong top line gross margin, a robust profitability methodology, and a clear path for growth. B2B businesses faced particular challenges as companies across sectors felt pressure to tighten their pocketbooks and improve their internal efficiencies. This slowdown could affect the interest of VC investors heading into Q2’24, although B2B startups with embedded technology solutions will likely prove more resilient than those with additive technology offerings.

On the fundraising side, Q1’24 saw some larger VC funds in the UK showing interest in acquiring the portfolios of smaller funds; during the quarter, for example, Molten Ventures completed its acquisition of Forward Partners for $52 million. Another trend seen recently in the UK has been the focus on investment corridors; this has been particularly true in the fintech sector, where a number of UK fintechs are working to connect to the fintech ecosystems emerging in the Middle East.

Slight dip in VC investment in Germany amid ongoing macroeconomic uncertainty

VC investment in Germany dipped slightly, from $1.9 billion in Q4’23 to $1.8 billion in Q1’24, as macroeconomic uncertainties continued to challenge both startups and corporates. While inflation dropped and interest rates stabilized, high energy costs, concerns about global competitiveness, strengthening geopolitical uncertainties, and the lack of exit opportunities led many VC investors in Germany to keep holding back.

With many of Germany’s largest companies, particularly OEMs, struggling in the current business environment, corporate investment was soft during Q1’24. A number of B2B startups also faced growing challenges as their business targets worked to reduce spend. The next couple of quarters could see startups in Germany unable to make their business economics work consolidating or going out of business entirely, particularly in areas like last mile delivery and mobility.

Positive signs for the VC market in Austria

The VC market in Austria continued to evolve in Q1’24, with a growing number of VC deals and increasing deal sizes compared to Q4’23. The increase in deal size was particularly noticeable for Series A companies; for example, during the quarter, Silotech raised a $20 million Series A round — which was seen as quite a significant deal in Austria. Startups in cleantech and AI attracted the most attention during the quarter in Austria, although VC investors also showed interest in startups able to show profitability. While VC investors in Austria remain very cautious, there is hope that VC market conditions, including the level of VC investment, will continue to improve and grow over the next several quarters.

Ireland sees VC investment and deal volume dry up considerably in Q1’24

VC investment in Ireland experienced an incredibly slow start to the year, attracting just $35.1 million across 26 deals during Q1’24 compared to $207 million across 133 deals in Q4’23 as international investors held back from making major deals given the uncertain macroeconomic environment. Interest in Ireland’s technology companies remained positive, however; during the quarter.

Trends to watch for in Q2’24

Heading into Q2’24, VC investors in Europe are expected to remain very cautious as they continue to assess how ongoing macroeconomic challenges and geopolitical issues could unfold, including uncertainties related to upcoming elections in the US and Europe. VC investment in cleantech and ESG reporting is expected to remain strong given the increasing regulatory requirements in the space. Defense technologies are also expected to continue to grow on the radar of VC investors in the region. Interest in crypto has also started to rebound, which could result in an uptick in investment over the next quarter.

VC investors in Europe will likely be watching the US IPO market very closely in Q2’24 to see whether it opens up; if it does, it could have a follow-on effect on IPO and VC investment activity in Europe.

venture financing in europe

Looking back, it’s easy to see that 2021-2022 was an outlier period — a time where startups were looking to grow at all costs, especially in the DTC space. Then, the macroeconomic environment changed dramatically. The cost of borrowing is up. Political uncertainty is up. There are key elections on the horizon. We need to recognize that we’ve resettled, found a new norm. Now, it’s about moving forward from here. And right now, investors here in the UK are focusing on companies prioritizing routes to profitability and that are creating sustainable growth to succeed in the environment that we’re in.

Nicole Lowe
UK Head of Emerging Giants
KPMG in the UK

  • Investment reaches $17.9 billion invested on 1798 deals

  • Median deal size rises at all levels

  • Fundraising remains sluggish – reaching only $5 billion in Q1’24

  • UK sees slow start to the year

  • Down-rounds decrease

  • Top 10 deals spread among 7 countries

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