Venture capital investments in Europe declined between the second and third quarter. This development is in line with the global trend and is due to various market uncertainties. These were caused by the ongoing geopolitical conflicts, the upcoming elections in the USA and the lack of exit activities in various regions, among other things.

Interest rate cuts could reverse the trend

The most recent interest rate cuts by the Bank of Canada and the European Central Bank in the second quarter and by the Bank of England and the US Federal Reserve in the third quarter did not yet have any significant impact on investment levels in the months from July to September. However, they do give rise to a certain optimism that the market could be heading for a turnaround in 2025.

Selected figures for the third quarter for Europe at a glance:

  • The European VC markets recorded ten megadeals with a value of over USD 150 million. The largest VC deal in Europe this quarter was made by the German-based defence technology company Helsing with 484 million US dollars. The German aerospace company Isar Aerospace is also among the top ten with a capital increase of 279 million US dollars. Total VC investments in the third quarter totalled just under 2.5 billion US dollars.
  • When investing in artificial intelligence (AI), investor interest shifted from capital-intensive AI platforms to solutions that focus on vertical integration and the application of specific offerings. AI-focused defence technology companies in particular attracted the attention of VC investors, as the capital increase at Helsing shows.
  • The level of investment in cleantech companies has declined significantly. As investors have increasingly focussed on profitability and rapid value creation, it has been more difficult for cleantech start-ups, which require longer lead times for the development of solutions and products, to obtain funding.
  • However, VC investors' interest in healthcare and biotech companies across Europe continues. One reason for this is presumably the increasing use of AI in biotechnology. One success story from this sector: Catalym, a German company specialising in oncology, raised 150 million US dollars during the quarter.
  • Fintech companies also saw solid investment and activity, including a USD 220 million capital raise by payment platform Form3. Several UK fintechs announced that they had reached profitability, including payment network Zilch. Neobank Revolut received a UK banking licence this quarter.

Conclusion and outlook

The continuing lack of exits is slowing down the German venture capital market somewhat. The lack of liquidity means that investors are financing fewer companies overall. One trend that is currently emerging in Germany is an increasing focus on sustainable investments. A number of venture capital funds have already entered this area. This could be an interesting development to keep an eye on in the coming quarters.

You can download the latest Venture Pulse Report with the global and regional venture capital trends for the third quarter now.

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