The European tech ecosystem is thriving, but the funding gap is a pain point

European tech’s ecosystem is growing as talent, capital, and ambition are thriving. However the slowdown in investments and a wide funding gap are threatening growth. 

In the past ten years, the most significant gains were made in the United Kingdom, Germany, and France, where most money was raised, most billion-dollar companies were created, and the number of people working in tech soared the most. The Netherlands comes right after for the number of companies worth over $1 billion and the number of people working in tec

That is the main message conveyed by Venture capital (VC) firm Atomico’s State of European Tech Report 2024. Widely recognized as one of the best overviews of the Old Continent’s tech sector, this year marks the paper’s tenth edition, which highlights the trends of the past decade. 

Funding

According to the report, $426 billion has been invested since 2015, a tenfold increase. In 2024 alone, more money was raised than in the decade leading up to 2014. Venture funding in European tech has tripled since 2015, when $15 billion was raised– forecasts for 2024 suggest a slightly lower amount than the $47 billion raised in 2023. With investments leveling up over the past years, remarkable peaks have been reached in 2021 and 2022. 

As shown in the column chart above, funding is slowing. Despite declining levels, the Netherlands saw the highest absolute funding increase in 2024, raising $2.5 billion compared to $1.8 billion in 2023. As a result, it has climbed the rankings, positioning itself right after the top three countries– the UK, France, and Germany. 

Overall, the paper notes how funding is spreading. Although the UK has attracted more funding in the past decade, other nations are growing, too. In the past decade, 21 European countries invested over $1 billion, whereas in the previous decade, only 7 did so. The European average compound aggregate growth rate (CAGR) for the past decade is 13%. Smaller countries are significantly outpacing this rate, with Croatia registering a 75% and Czechia a 42% growth rate. The Netherlands is also on a positive trend, with a growth rate of almost 20%. 

A deep funding gap

Despite general growth, the report exposes a significant funding gap between Europe and the United States. The Atomico analysis shows how European and American companies are now growing at similar rates, yet US ones are raising larger rounds. Specifically, only 4.1% of European tech companies founded in 2015 raised rounds worth $15 million and over. In the US this share doubles to 8.3%.

Since 2015, around $300 billion in growth-stage rounds has been raised in Europe. As per the report, this number would have been double if companies had the same access to capital as international peers. On top of that, European investors are relying on US investors to bridge a further $75 billion. Thus, the total European growth-stage funding gap is worth $375 billion. 

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Where is the money going? 

Three figures sum up the investment trends of the past decade. In 2024, 21% of the money invested went to companies tackling sustainability, 31 AI and machine learning (ML) companies passed a $1 billion valuation, and 23% of the sub $5 million funding went to AI and ML. 

Over the past decade, fintech has emerged as Europe’s power, spearheaded by companies like Revolut, Stripe, and Klarna. In the past 5 years, this sector has been behind 24% of the new companies that have reached over $1 billion in valuation. 

Europe is investing a larger share of capital in sustainability ventures than the US – 21% vs 11%. 95% of this funding is financing technologies to mitigate climate change rather than climate adaptation or preparation ones. Driven by large deals, 2023 reached a 27% peak. Despite the intense investments, sustainability companies are only 5% of the firms that passed the $1 billion threshold between 2020 and 2024.

Challenges and opportunities 

In the past decade, the total value of the European tech ecosystem grew fivefold, passing the $3 trillion mark in 2021. Besides the funding gap, another worrying insight that comes out of the report is that a sixth of the value created by European startups is lost due to US relocation. Headquarters relocation has an impact on talent, knowledge, capital, and economic output. 85% of the companies founded between 2000 and 2014 that relocated as of 2021 moved to the US, where companies worth billions are more likely to list. 

Although deeptech investments have gained more importance in the past few years, the funding scale is lagging behind that of the US and Asia. Since 2015, American deeptech startups have attracted over $310 billion, Asian ones $123, and European $94 billion. The Old Continent's lower availability of growth capital is also hindering its expansion. 

Nevertheless, the long-term outlook is positive. Billion-dollar companies emerged across 30 countries. The number of exits—when a third party buys a startup company—is growing, and the ecosystem to support them is maturing. As a possible solution to the growth concerns, the report suggests that a higher involvement of pension funds would be of great help. All the elements are there, but it is time for Europe to scale its ambitions to stay competitive and remain at the edge of innovation.