Europe’s startup ecosystems hold ground, competition intensifies

Europe's startup ecosystems are standing firm but increasingly feel the heat of global competition, according to the newly released Global Startup Ecosystem Report 2025 (GSER 2025) by Startup Genome. Although eight European cities remain in the world’s Top 40 ecosystems, only two managed to improve their positions in this year’s ranking: Paris and Madrid. The rest either held their ground or lost momentum as Asia and North America continue to outpace much of Europe in growth and late-stage funding.

London: Europe’s leader under pressure

London remains Europe’s undisputed frontrunner, ranking #3 globally behind Silicon Valley and New York. Yet, for the first time since 2019, the British capital has slipped one position, no longer sharing second place with New York. This subtle but significant shift reflects mounting pressure from increasingly aggressive ecosystems, particularly across Asia.

The report indicates that global capital flows are shifting towards AI, Big Data, and deep tech sectors, where Asia and the U.S. are the dominant players. While London still boasts deep capital markets, a thriving financial industry, and world-class talent, the city now faces growing challenges in defending its lead in the next technological wave, particularly in AI, where much of the funding is increasingly concentrated outside Europe.

Paris: Quietly climbing through consistency

Paris emerges as Europe’s strongest performer in 2025, moving up two places to secure the #12 global ranking. The French capital’s rise is fueled by consistent deal-making and a 7% increase in exits over $50 million, including BeReal’s $542 million acquisition in 2024. Paris was one of the very few global ecosystems to avoid a decrease in ecosystem value this year; a remarkable result in a year when many peers saw substantial drops.

France’s long-standing public-private support system, including the French Tech Visa, substantial R&D tax incentives, and targeted investment programs, continues to drive growth. The report highlights that Paris has also seen strong momentum in AI-native startups, a critical area for future competitiveness.

Madrid: From 'emerging' to Top 40 in a single leap

Perhaps the biggest European surprise in GSER 2025 is Madrid’s breakthrough. The Spanish capital jumped from the Top 100 Emerging Ecosystems in 2024 to enter the Top 40 for the first time, now tied with Mumbai at #40 globally. This leap was powered in part by the blockbuster $6.3 billion exit of eSports company Movistar Riders.

Madrid's sharp rise highlights how lower operational costs, growing pools of tech talent, and improved access to capital are enabling emerging European cities to carve out a space on the global stage. The town also benefits from increasing specialization in digital entertainment and gaming, further diversifying Europe’s startup strengths.

Elsewhere in Europe: Widespread stagnation or decline

While Paris and Madrid advanced, other European hubs struggled to keep up. Berlin, Stockholm, Amsterdam, and Zurich all lost at least one position in the Top 40. Europe as a whole saw its aggregate ecosystem value decline by 24% year-over-year, faring worse than North America (-18%) and Asia (-17%), but better than Latin America (-45%).

This decline reflects two persistent issues: Europe’s ongoing difficulty in scaling startups into global unicorns, and weaker late-stage investment rounds compared to North America and Asia. The international trend of shrinking large exits, with a 31% drop globally in exits exceeding $50 million, has particularly impacted European ecosystems.

Emerging ecosystems: Istanbul and Birmingham on the rise

Outside the Top 40, Istanbul and Birmingham posted significant progress. Istanbul climbed 10 spots to become the world’s #3 Emerging Startup Ecosystem, largely thanks to a surge in exits over $50 million. Meanwhile, Birmingham broke into the #21–30 tier of the Emerging Ecosystems ranking, propelled by stronger performance metrics related to startup valuation and exit activity.

Both cities demonstrate that Europe’s growth is no longer confined to its long-standing capitals. Istanbul, in particular, is positioning itself as a serious contender within both European and global emerging markets, increasingly attracting international venture capital and entrepreneurial talent.

Europe’s balancing act

The GSER 2025 paints a nuanced picture of Europe’s startup economy: mature, diverse, and still globally relevant but under rising pressure to stay competitive. “Europe has built a world-class startup infrastructure over the past decade. The next decade will determine whether it can turn this foundation into long-term global leadership,” the report warns.

With AI investment heavily concentrated in the U.S. and China - capturing 90% of global funding in AI-native startups - Europe’s ability to adapt its policy frameworks, mobilize capital, and foster cross-border collaboration will be critical in determining its future standing in the global startup economy.