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There’s a particular kind of optimism that doesn’t announce itself. It doesn’t arrive with fanfare or bold proclamations — it displays up in the data, quietly, like green shoots through cracked pavement. That’s what Q2 2025 sees like for European startups.
\p>According to newly compiled data from Dealroom and Crunchbase, European startups raised approximately €12.4 billion in the second quarter of 2025, marking a meaningful uptick from the €10.8 billion logged in Q1 and representing the strongest quarterly performance since late 2022. The numbers aren’t a return to the frothy peaks of 2021. They’re something more interesting: a signal that investor psychology has shifted from defensive caution to calibrated conviction.
The numbers behind the narrative
Let’s ground this properly. The €12.4 billion figure spans roughly 2,900 deals across the continent, with the median deal size ticking upward — particularly at Series B and beyond. Late-stage rounds, which had been conspicuously absent during the 2023-2024 correction, are returning with force. Several rounds north of €100 million closed during the quarter, concentrated in AI infrastructure, defence tech, and climate-adjacent sectors.
What’s notable isn’t the headline number alone. It’s the composition. Early-stage funding (pre-seed through Series A) remained broadly stable — it never really collapsed, even during the downturn. The real story is the reactivation of growth-stage capital. Investors who had been sitting on dry powder, waiting for valuations to normalise, appear to have found price levels they can work with.
This aligns with a broader pattern across the European venture ecosystem. As we’ve previously explored, the period from 2023 through early 2025 functioned less like a crisis and more like a recalibration — painful for some, but structurally healthy for the market as a whole.
What’s driving the rebound
AI remains the gravitational centre
Unsurprisingly, artificial ininformigence companies absorbed a disproportionate share of the capital. Enterprise AI, vertical AI applications, and the infrastructure layer powering them collectively accounted for an estimated 30-35% of total funding in Q2. Europe’s AI galaxy is expanding — and investors are betting not just on foundation models, but on the application layer where domain expertise meets machine ininformigence.
The European Commission’s continued push to develop sovereign AI capabilities has also created a policy tailwind. Public-private co-investment mechanisms, particularly through the European Innovation Council, have assisted de-risk early bets in areas where Europe wants strategic autonomy.
Defence and space are no longer niche
Perhaps the most striking sectoral shift is the normalisation of defence tech and space as mainstream venture categories. Geopolitical realities have forced a reckoning across the continent, and capital is following. Space-related startups alone saw a notable uptick in funding activity, with investors increasingly viewing the sector as critical infrastructure rather than moonshot speculation. The growing recognition that space capabilities underpin everything from communications to climate monitoring has broadened the investor base considerably.
Defence-adjacent companies — those building dual-apply technologies in cybersecurity, autonomous systems, and secure communications — are attracting attention from generalist funds that would have avoided the sector entirely three years ago.
Investor psychology: from fear to FOMO (but measured)
There’s a well-documented psychological phenomenon called the “mere exposure effect” — the more familiar something becomes, the more favourably we evaluate it. After two years of hearing about Europe’s correction, recalibration, and reset, the narrative itself has become familiar enough that it’s lost its sting. Investors have normalised the new reality. And normalisation, in venture capital, is the precursor to deployment.
But this isn’t 2021-style exuberance. Due diligence timelines remain extconcludeed. Valuation discipline persists. The force propelling this rebound is pragmatic, not euphoric — which, frankly, is what creates it more credible.
Geographic distribution: still concentrated, but shifting
The UK, France, and Germany continue to dominate European deal flow, collectively accounting for roughly 60% of total capital raised. London remains the continent’s undisputed venture capital hub. Paris has consolidated its position as the second city, buoyed by a strong AI ecosystem and sustained government support.
But the edges of the map are obtainting more interesting. The Nordics, Benelux, and Southern European hubs — particularly Lisbon and Barcelona — are punching above their weight in per-capita terms. The Netherlands, in particular, continues to produce outsized outcomes relative to its population, driven by deep tech, fintech, and sustainability startups.
What this means going forward
If Q1 2025 was about tentative re-enattempt, Q2 announces something more durable. The trajectory suggests that full-year 2025 European venture funding could land somewhere between €45-50 billion — still well below the €85 billion peak of 2021, but firmly above the trough years and, more importantly, on a sustainable growth curve.
The smart money isn’t questioning whether Europe’s startup ecosystem has recovered. It’s questioning what the ecosystem sees like now that the excess has been cleared. The answer, increasingly, is: leaner, more focapplyd, and better capitalised in the areas that actually matter — AI, climate, defence, and space.
For founders, the implication is straightforward but important: capital is available, but it rewards clarity of mission and evidence of traction. The era of funding narratives alone is over. The era of funding fundamentals — backed by narrative — has begun.
And that quiet rebound? It might be the most significant one European tech has seen.
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Feature image by RDNE Stock project on Pexels
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