Venture investments in Europe lagged last year, although economic bright spots and a rise in exits provide hope for 2025.
The total amount of money invested into European businesses by venture capital (VC) firms fell last year, according to an annual report from PitchBook.
The value of individual deals grew, although the total number of deals fell from 11,408 to 9,600 in the year, resulting in a lower overall level of investment.
The mood last year was nonetheless one of “cautious optimism”, suggested PitchBook, as it appeared that market conditions were starting to improve.
GDP growth in the eurozone remained lacklustre, although the ECB delivered four interest rate cuts last year – a response to slowing inflation.
A further lowering of borrowing costs is expected in 2025, although GDP growth is set to be modest.
In the UK, meanwhile, the Bank of England eased fiscal conditions by lowering its key rate twice last year.
Artificial intelligence boom
In terms of deal value, UK-based AI firm GreenScale secured the largest win in the final quarter and the whole of 2024, closing an investment worth around €1.198 billion.
AI firms Poolside and Lighthouse, based in France and the UK respectively, arrived in second and third place in the last quarter. They sealed deals worth €450 million and €344.7m.
“It was of little surprise that six of the top 10 deals in Europe in 2024 were from AI companies”, noted PitchBook.
“The rise of AI is not something seen since the rise of the internet, with the whole technology industry hyperfocused on one category.”
The UK is home to the largest number of VC companies catering to AI projects – with France and Germany trailing behind.
AI investment in the continent sat at €14.6bn in 2024, representing a quarter of European deal value.
Thursday’s report also highlighted the growth of verticals such as life sciences, oncology, mobility tech, and foodtech.
Year-on-year deal value in cleantech and fintech declined 26.5% and 19.8% respectively, although both verticals were still among the top five sectors with the highest total deal value for the year.
Fundraising in Europe
In terms of the amount of money going into European VC funds, capital raised in 2024 didn’t change much year-on-year, coming in at €20.5bn.
According to PitchBook, this total was supported by an increase in large funds, although the amount of individual closes decreased.
The median fund size in Europe was recorded at €71.3m, an all-time high.
Top fundraising closes included the UK’s Index Ventures Growth VII fund at €1.4bn, followed by the Netherland’s Forbion Ventures Fund VII at €890m.
In terms of total capital raised, the UK came out on top of the fundraising leaderboard – followed by France and the DACH region (Germany, Austria, and Switzerland).
Southern Europe also grew its share with large fundraising closes seen in Spain.
Looking ahead to 2025, PitchBook forecasted that capital raised will remain lacklustre, as megafunds that raised in 2024 are unlikely to do so again in the near future.
Optimism around exits
On a more positive note, analysts noted that “2024 was the year of the exit comeback” as investors sold stakes in companies either through IPOs (stock market listings) or acquisitions.
That is a positive sign for the market as the ability to offload investments boosts confidence and offers more funding opportunities.
While a few exits could be seen at the end of 2023, those sales were made at reduced prices.
The second and third quarters of 2024 showed an increase in momentum, supported by IPOs from Spanish firm Puig and the UK’s EyeBio.
The rise of venture debt
Venture debt was a major trend seen in 2024, said PitchBook, with annual deal value rising 27.3% year-on-year to €17.2bn.
Venture debt involves companies taking on loans to finance operations – without giving up much equity in the company.
A VC deal, on the other hand, usually involves money being exchanged for shares in the firm.
Compared with previous years, venture debt was used by a higher proportion of venture growth stage companies – meaning more mature companies.
PitchBook predicted a more muted outlook for this type of funding in 2025, although venture debt is likely to remain important.
“The key driver of our view is the expected absence of the large megadeals seen in 2024, as these companies are unlikely to come back to the cap table in a year”, said the group.
