Is This the End of European Venture Capital as We Know It?

European venture capital (VC) is under scrutiny.

Recent data shows a steep decline in activity, with the number of active VCs dropping by 30% over the past two years, and fundraising falling from €34 billion in 2022 to just €21 billion in 2024. For some, these figures confirm a long-feared decline. But others argue that European VC is not in decline but evolving, driven by structural shifts and unique strengths. So, which narrative holds true?

Non!

The numbers paint a challenging picture.

European VC fundraising has struggled, exits are scarce, and Limited Partners (LPs) are growing restless waiting for returns. Reports of "zombie funds"—firms managing portfolios without actively deploying new capital—have raised concerns about the ecosystem's sustainability.

Structural issues exacerbate these challenges. Government-backed LPs dominate the funding landscape, leading critics to argue that this crowds out private investment and sustains underperforming VCs. Market watchers warn that the reliance on public funding creates inefficiencies and discourages private capital. Ohers highlight the struggle of mid-sized funds, which often lack the brand strength of major players or the niche focus of specialized firms.

The result?

A bifurcated market, with large, institutional-backed funds and agile niche players thriving while mid-sized VCs face extinction. For skeptics, this signals more than a cyclical downturn—it’s a symptom of deeper systemic flaws.

Ooh la la.

Yet, not everyone agrees with the doomsayers.

Proponents of European VC see the ecosystem as evolving, not faltering. Emerging talent and a lower cost base are driving optimism, while sustainability-focused investing positions Europe as a global leader in climate tech.

Europe’s talent pool is incredible, the proponents argue, pointing to a surge in new fund launches in 2025, driven by exited founders and experienced operators. And while government funding has its critics, supporters argue it fills critical gaps in underserved regions and emerging sectors. Programs like Bpifrance and the European Investment Fund (EIF) ensure consistent investment in innovation.

Cost efficiency also gives Europe a competitive edge. Building and scaling a startup in Europe remains significantly cheaper than in the U.S., making the region attractive for founders and investors alike. Meanwhile, sustainability investing—an area where Europe leads globally—continues to grow, reinforcing the region’s unique strengths.

Je ne sais quoi

Both sides agree that European VC is at an inflection point, but their interpretations diverge. Critics point to falling numbers and structural inefficiencies, while optimists see resilience and opportunities in Europe’s unique strengths.

Critics argue that government dominance in LP funding distorts the market, leading to inefficiencies and prolonging the survival of underperforming funds. Meanwhile, advocates believe public funding is essential to catalyzing innovation and addressing market gaps, especially as Europe’s private LP base remains underdeveloped.

The truth lies somewhere in between.

European VC faces undeniable challenges, but it also possesses significant opportunities for growth. Addressing systemic issues, like improving private capital attraction and reducing reliance on government funding, will be key.

At the same time, leveraging strengths such as cost efficiency, sustainability leadership, and a deep talent pool could secure Europe’s position as a global innovation hub.

The future of European VC will depend on striking a balance between these competing narratives.