Q3’24 Venture Pulse Report – Europe

During Q3’24, interest in AI solutions in Europe took a noticeable shift away from away from capital intensive AI platforms and towards solutions focused on vertical integration and the adoption and application of specific AI offerings. In particular, AI-focused defense-tech companies attracted a significant amount of attention from VC investors — as evidenced by the Helsing raise.

While cleantech continued to attract VC investment in Europe, investment levels have waned considerably over the last few quarters. Given the uncertain market conditions, it has been more challenging for cleantech startups requiring longer lead times to develop solutions and products to attract funding — particularly later stage funding — as investors have increasingly focused on profitability and the ability of startups to prove their value quickly.

During Q3’24, health and biotech companies across Europe saw renewed interest from VC investors, possibly driven by the increasing application of AI to biotech; the space accounted for a solid number of $100 million+ megadeals during the quarter, including fertility tracker developer Flo Health ($200 million) and oncology treatment company Myricx Bio ($114 million) in the UK, cancer treatment company Catalym in Germany ($150 million), radioisotope producer PanTera in Belgium ($148 million) heart pump developer Magenta Medical in Israel ($105 million), and Alzeimer’s Disease treatment firm Asceneuron in Switzerland ($100 million).

VC investment in the UK experienced a lull in Q3’24 as VC investors remained risk averse, focusing their investments on later stage companies with proven business models, assets, and growth potential. Health and biotech saw increasing traction during the quarter, evidenced by Flo Heath raising $200 million, Exohood Labs raising $188 million, and Myricx Bio raising $114 million. The fintech sector also saw solid investment and activity during Q3’24, including a $220 million raise by payments platform Form3. During Q3’24, a number of UK-based fintechs announced that they had achieved profitability, including payments network company Zilch¹. Revolut also obtained a UK banking license during the quarter.²

While IPO activity remained soft in Q3’24, there was some hope that IPO activity could rebound over the next quarter or two now that the UK general election is over and a sense of stability is returning to the market — particularly compared to other jurisdictions in Europe.

VC investment in Germany was stronger in Q3’24, including Europe’s largest VC deal of the quarter — a $484 million raise by Helsing, followed by a $278 million raise by Isar Aerospace. Overall VC investment rose from $2 billion in Q2’24 to almost $2.5 billion in Q3’24. While AI continued to see strong investments during the quarter, some core AI focused startups have experienced difficulties — choosing to pivot to other AI value propositions in order to move forward. Despite challenging macroeconomic market conditions, health and biotech continued to see interest from VC investors; during the quarter, oncology focused Catalym raised $150 million.

The continued lack of exits has stifled the German VC market somewhat as VC investors have had to make hard decisions as to which companies to finance given the lack of liquidity. Although one emerging trend in Germany has been the increasing focus on sustainable investments, with a number of VC funds getting into the space. This could be an interesting area to watch heading into Q4’24 and Q1’25.

VC investment in the Nordics region was very quiet in Q3’24, falling from $1.2 billion in Q2’24 to only about $860 million this quarter. Despite the slowdown in investment activity, fundraising by VC firms in the region continued at a solid pace—already above 2023’s totals at the end of Q3’24; the higher level of fundraising was driven primarily by the capitalization of a small number of larger funds, in addition to healthy activity among early-stage funds in the region highlighting positive outlook for a longer horizon.

While deal value was soft in Q3’23, a number of sectors continued to garner interest in the Nordics region, including cleantech and AI. Defense-tech and dual-use technologies also increasingly attracted attention. With Finland and Sweden now in NATO, defense-tech and dual-use technologies seem to gain further traction as companies develop potential alliances.

VC investment in Europe is expected to remain subdued in Q4’24, although there is some hopefulness that should the exit environment improve, VC investment will bounce back. AI and defense-tech are likely to remain very hot sectors of VC investment, while health and biotech will likely continue to attract a diverse range of investments across the region.

A very hot area of VC investment at present, AI could be a key area to watch over the next few quarters as it could face some regulatory headwinds as regulators increasingly scrutinize how AI solutions are being developed and used, particularly from a data privacy and security perspective.