Venture capital investment in European startups surpassed $52 billion last year, indicating the market’s long-term growth trajectory and gradual stabilization following the significant peaks of 2021-2022, which were largely fueled by the COVID-19 pandemic, as well as the comparative downturn of 2023, according to a new report.
Despite the political and regulatory challenges observed in 2024, Europe’s talent pool of startups continues to expand, although funding shortages were noted the previous year, as outlined in the “Dealflow” report by global law firm Orrick for 2024.
An examination of more than 375 VC and growth equity investments in Europe last year has highlighted several key points. Compared to previous years, the European startup market has stabilized, with a moderate rebalancing of investment terms relative to the extreme highs and lows experienced during the pandemic and the subsequent slowdown.
Additionally, there was an increased adoption of the British Venture Capital Association’s new model form documents in European transactions, aligning more closely with U.S. practices. This emerging default standard is expected to facilitate future deal-making as parties become more familiar with the structured approach.
European companies also appeared to be expanding option pools, with over 70% of equity financings including a top-up. This trend underscores the strengthening European talent pool and a focus on scaling companies rather than opting for early sales.
The report also indicated signs of improvement in deal volume and size, with the average size of deals conducted by Orrick with investor clients increasing by 66%, while deals initiated by startups experienced a slight decline, although company-side deals still constituted the majority.
However, it was also noted that Europe remains limited in the number and magnitude of growth-stage funding deals. While the early-stage funding landscape is well-developed, later-stage and growth-stage funding remains scarce.
Equity-based deals demonstrated more strength than debt-based deals, with companies showing a preference for extension rounds over debt rounds. The two most prevalent types of equity-based deals observed were Advanced Subscription Agreements (ASAs) and Simple Agreements for Future Equity (SAFE).
Approximately 30% of rounds were either standalone secondary financings or rounds that included a secondary component. Founders typically accessed secondary transactions earlier in the funding phase, with some occurring as early as Series A.
Regarding industry sectors, startups with a SaaS or platform-based business model accounted for 21% of financings. DeepTech increased to 23%, deals involving AI and machine learning components made up 33%, and FinTech represented 16% of European deals.
