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Article by Jean-Daniel Zandona, Chief Commercial Officer at Arendt Investor Services, as published in Insight/Out magazine #33.
After a challenging 2024 for the European VC community, 2025 shows encouraging signs of recovery, with notable sectorial disparities.
Last year reported a significant decrease in European deal-making, with €58.7bn invested across 8,968 deals (down respectively 23.3% and 7.9% vs. 2023).[1] Capital-raising remained stable in the region, with increased concentration on larger funds, and fewer first-time funds.
On the exit front, European exits bounced back somewhat in 2024 after 2023’s annus horribilis, led by Puig’s high-profile IPO on the Madrid stock exchange, topping the European listings last year.
So, what now? With interest rates cooling down, still relatively high levels of dry powder and valuations picking up, 2025 is set to deliver a long-awaited uptick in VC dealmaking. However, not everybody will benefit…
Macro-Economic Fundamentals
Going into 2025, with inflation now set at 2.7% for December 2024,[2] the consensus is that interest rates will remain at more acceptable levels compared to the past 3 years, therefore improving startups performance and valuations and favoring exit strategies.
GDP growth in the Eurozone is generally anticipated at 1% (1.6% for the UK),[3] in positive territory but far behind the US projections of 2.7% for 2025, and with the notable exception of Germany, expected to stall at 0.3% for 2025.
Exits: IPOs or Secondaries?
With fewer exits throughout 2024, less capital has been mathematically returned to LPs and therefore redeployed back into the asset class via new funds. Secondaries transactions are now growing in importance for delivering liquidity to investors (and GPs), as the recent mega fundraising by Ardian illustrates (one of the largest secondaries funds in European history[4] with €30bn raised). As exit conditions haven’t been favorable in recent years/months, residual capital has remained on hold in older vintages, now desperately looking for exit/secondaries options.
High-profile upcoming IPOs such as Sweden’s Klarna (targeting US IPO in April 2025, with an anticipated valuation of $15bn to $20bn) are expected to shed more light on listing conditions this year, while bets are on for Revolut, another stand-out European tech startup also potentially looking to go public… in the US.[5]
And this is where it hurts: the lack of a central tech or VC stock exchange in Europe (vs. the Nasdaq in the US), fragmented liquidity and unharmonized tax/stamp duty regimes across the European exchanges are fueling an exodus over the Atlantic. In other words, more favorable exit conditions, but again, not everybody will benefit.
And the Winner is…
Spoiler alert: AI will raise capital. AI coding startups have already announced massive funding rounds (e.g. Poolside closing a $500m Series B round in late 2024, Magic raising $320m in September 2024), making AI the hottest VC destination in the second half of 2024. The recent announcements by the US president ($500bn to be routed into the AI ecosystem) and the French president (€109bn) are taking the numbers to new heights and will further fuel growth in this space. By extension, chip manufacturing, calculating technology, automation, predictive analytics, and cloud computing are also set to attract record amounts of funding. Building and scaling infrastructure will be key, before further real-life applications emerge and get funded to penetrate day-to-day habits. How far this funding boom will inflate the tech bubble remains a highly debated topic in the industry: most VC investors want to capitalize on the market momentum to grow tomorrow’s champions, while demystifying the numbers they see in the pitch decks.
Beyond the AI vampire, fintech and decentralized finance (DeFi) are also set to attract inflow in the course of 2025, on the back of growing acceptance of disintermediated financial flows, especially amongst younger generations (e.g. peer-to-peer lending, digital/crypto wallets). After a wave of scams and crashes in the crypto platforms space, some makeovers occurred last year (e.g. new regulations in both the US and Europe), with crypto even making its way onto (some) central banks’ agendas, fueling more enthusiasm for the sector and slowly but surely making the asset class more mainstream.
Significant breakthroughs in space exploration and tourism are also expected to trigger interest in satellite activities such as networks and logistics, while life science[6] continues to leverage the post-pandemic biotech boom, attracting financing into personalized medicine, digital health monitoring, and genomics (e.g. the latest €250m series B raised by Sweden’s Neko Health, announced late January 2025).[7]
Unexplored Territory
The European VC ecosystem is nanoscopic compared to its US and Asian peers, especially the latter. Europe still struggles to rival the US and China at funding/scaling innovative startups.
Over the past decade, annual VC investments in the EU averaged 0.2% of GDP vs. 0.7% in the US, further widening the funding gap between the two continents.[8] Many of Europe’s most promising startups look abroad for capital, often leading to their eventual relocation to places offering a more risk-taking investment culture, less burdensome regulations or better exit options.
Seeing the glass as half full, this significant upside represents a truly unique opportunity to route further capital and debt into the asset class, leveraging both public/private money (e.g. EIF, LHoFT) and investors such as family offices, typically more inclined to take the venture risk.
The key question remains whether we Europeans, investors, entrepreneurs, and policymakers will heed the US election’s wake-up call and act, recognizing that we have a solid financial ecosystem, some of the smartest minds and universities in the world, and above all, brilliant entrepreneurs.
I am deeply convinced that Luxembourg has a key role to play in bringing together these people, capital, and projects.
Copyright: D.R.
[1] PitchBook 2024 European Venture Report
[2] Eurostat, 7 January 2025
[3] IMF Real GDP Growth Forecast 2025, 17 January 2025
[4] Ardian press release, 25 January 2025
[5] The Twenty Minute VC (20VC), 4 December 2024 (Interview with Nik Storonsky)
[6] The Successful Founder, Venture Capital Trends in 2025: Sectors and Markets Investors Are Betting On, 31 December 2024
[7] Tech.eu, 23 January 2025
[8] IMF Blog, 15 July 2024
