The Next Generation of European Tech Funding: Start Ups

Transcript

The Next Generation of European Tech Funding: Start Ups

MARIE: Over the past decade, we've seen an increasing growth of ideas, talents, brain and capital flowing into EU and that's a very, very good news.

NIKLAS:
Yes, European investors are more risk-averse than US investors. And this is more of a mentality issue, but that makes it harder.

BEN: There is trillions of dollars of AUM tied up in European pension funds. I think it's something crazy, like less than 0.01 % of that is allocated to European venture.

TOM: Hello, I'm Tom Parker, and welcome to the next five podcast brought to you by the FT partner studio. In this series, we ask industry experts about how their world will change in the next five years, and the impact it will have on our day to day. In the first episode of a 2 part special, we explore Europe's tech investment landscape, focusing particularly on start ups and the venture stage of capital, as well as what Europe needs to do to compete with the likes of the United States.
TOM:It is no surprise that for decades the US has reigned supreme when it comes to early stage tech dealmaking. Its risk appetite, coast to coast funding options, integrated market and policy support has created a perfect environment for would-be entrepreneurs to find funding and grow their companies into global tech titans. But, there is no shortage of investable tech firms in the EU. From 2019-2024 the continent generated more high tech startups than the US every year, yet America had four times more deal value in 2024, $209bn to Europe’s $62bn. Europe can create its own tech giants but to do so it needs to rebalance its venture funding environment to support the next generation of startups.

Marie:
I will say that in terms of dynamism, we've never seen an EU ecosystem that strong.

TOM: This is Marie-Gwenaelle Geffroy, Head of Growth, Capital & Solutions, Corporate and Institutional Banking at BNP Paribas

Marie: Over the past decade, we've seen an increasing growth of...IDs, talents, brain and capital flowing into EU and that's a very, very good news. So in terms of ecosystem, I think we are able to leverage an amazing playing field that can now revel and that will revel tomorrow with many other regions, including the US.

Europe is very, very good in the FinTech and climate tech space and is better than the US on that front in terms of bringing new ideas and executing those ideas. On the AI and tech front, we have clearly a bit of lag, but we're working on it. I would say that the big difference between EU and US is a very basic one.

is that when you are a founder, you have a new idea, you start to develop it, to develop a new product, a new solution, and in the US, you're facing one single market of 330 million customers. When you do the same in any of the European countries, you need to face a smaller market, you need to scale it in other countries, and you have 27 different regulations to face to be able to really target a 450 million customer market. So the challenge is very different. And that's one also of the weakness today of our European ecosystem is this fragmented market. We need that single market that we lose to scale as the US take our scaling. The second element of difference I think is the capital access. In the US, you access much more easily to funding and capital from private capital sources than you do in the EU. There are many reasons to explain that. The first one is that it's in the culture in the US. The VC and the capital risk investment started much earlier. It's also in the way markets are structured. Again, if we have a single capital market as well in Europe, it will allow financial flow to move and to deploy much more easily and we don't have it yet. And it's a question also of understanding of innovation and technology and a shift of mindset in a way we deploy the financial capital on the public side as well that we have access to.

TOM: According to Atomico’s European State of Tech 2024 report, there has been progress over the last decade; in 2015 there was only one VC with over $500m of capital at hand. In 2024 the top 10 largest funds in Europe have a combined value of $6.8bn. 7 of those 10 funds reside in London.

Ben: I think it's a really exciting time for European tech as we go into 2025.

TOM: This is Ben Blume, Investment Partner at Atomico, one of Europe’s leading venture capital firms.

Ben: And I think actually the sentiment across the board is extremely optimistic. We live in a world right now where AI is changing everything. And Europe has a great opportunity there. We have incredible AI talent in Europe. We have some of the world's leading academic institutions and some of the world's leading private research organizations like DeepMind, like Mistral. And so the talent bench we have with that kind critical AI skill set is significant and puts us in a really great position to make incredible advantage of that trend. Now, beyond that, you've seen a politically unstable and uncertain landscape in the US. And so the stability and the kind of welcoming environment that a lot of Europe has is really welcomed founders here. And I think what that translates to is a really attractive funding environment as well. So funding in 24 was $45 billion, 3x up from a decade ago.

All of this to say that actually the opportunity in Europe right now, and if you compare it on one critical metric to the US, which is the number of companies that have raised the seed round, that go on to become a billion dollar company, that conversion rate is the same in Europe as the US. And so we've got the raw ingredients. We've got the same caliber and quality of companies you see in the US and elsewhere. And it just means it's a kind of phenomenal time for the ecosystem to really kind of take advantage and maximize the opportunity of that.

There's a great metric that at Atomico we like to look at that speaks to kind of early stage ecosystem health. And that's the total amount of funding raised in an ecosystem in a city or in a kind of area in rounds that less than $15 million. So that generally for us looks like a pre-C, the seed, maybe a small series A. And it's amazing to see that London now ranks second globally behind Silicon Valley in terms of that metric. And so in our mind, alongside Paris and Berlin, also in the top 10,it's a great sign that the most mature, the most advanced European tech hubs are delivering global early stage kind of investment opportunity and early stage startups. And so that's really encouraging. I think it's no secret that total capital deployed in Europe is lower than the US still. So there's still a gap there. But I think another exciting metric is that in terms of net new founders annually, are more new founders starting companies every year in Europe than the US. And so again, a great kind of early signal of opportunity to come.

TOM: There are indeed positives in the European VC funding landscape with two industries standing out. Q1 2025 saw European health tech and AI startups raise $13.9bn, with 40% of funding coming from international investors, showing a renewed global interest in European start ups. Healthtech dominated with $4.3 billion of funding, a 65% YOY increase and its fourth consecutive quarter as the top sector. One such health tech start-up, Nelly, founded in Germany, has been through a series of funding rounds since 2021.

Niklas:
So, Nelly is building the FinTech for the healthcare space and what we do is reducing admin work for medical practices and the healthcare system.

TOM: This is Niklas Radner, Co-Founder & CEO at Nelly

Niklas:
We have the strong conviction that fixing healthcare might not be a clinical challenge, but an operational challenge. 80 % of all medical professionals complain about too much admin work, too much bureaucracy. So everything that Nelly does needs to lead to reduced admin work.So we started with a 30k angel ticket from let's say family and friends. Pre-seed was 700k, seed was three and a half million, series A was 15.15, and then
We raised our series B in January 2025 and raised 50 million.

And you know, like 2021, we started in this phase where there was the startup hype in the middle of or slightly post-corona, there was an excitement in the market. We saw a lot of huge valuations. Luckily, Nelly raised their seat exactly at the time where the market went down. And I always say diamonds are made under pressure. It was actually a good thing for us because we had to be, let's say, very diligent, very conservative and very lean because it was not that in terms of valuation, cash was thrown at us.

Pre-seed was actually a very low valuation and this is also one learning. You want to have and show a great equity story. I saw many, many startups in the, let's say 2020, 2021 times that raised a hundred million pre-seed round without a product and let's say as a pre-seed round. To later on grow in such a valuation and show a great equity story is very hard.

And I mean, even if it's like, let's say 30 million in the seed, it's just not the right path. And we started at a 3 million pre-money valuation and then went really like up, up, up. And we're always able to increase our valuation, have, let's say, a healthy equity story, which definitely helped us. And also made sure that we don't raise too much money too early because this also can be more of a distraction than, let's say, an accelerator. So for now, our goal, one goal of us was, or one preference of us, especially because we are in the healthcare space, we deal with a lot of sensitive data, we have a very conservative, risk-averse customer group, and we're building in a highly regulated space, we focused on getting investors from Europe, which we managed to do until Series B now with Cathay, our latest great investor joining from France. And we still now see like after like, at a different stage like Series C plus, you have to consider also like international investors.

There is still the opportunity in Europe, but it's limited. So early stage is good for founders. think there's sufficient offerings and a sufficient network in the scale up and post-series C. It's getting thinner.

TOM: While Europe can aspire to reach the levels of American venture funding, it must rely on another source of financial support. European banks. For tech start ups, gaining access to non-dilutive growth finance between equity funding rounds is crucial to remain liquid. This is where venture debt fills the gap and, over the last decade, where European banks have been stepping in. In 2024, €25bn of venture debt was allocated by European banks, up from €1bn in 2014.

Marie:
what Europe needs next is really much helping to finance the gap for late stage. So it's a bit later in the chain when companies have proven the concept of their product, when they start to commercialize it, when they increase the range of product, when they expand internationally.

That's what we call the scale-up. And the scale-up of that business mobile needs a lot of support and it's a different kind of risk and we have a big financing gap in Europe at the moment. To give you an example, at the moment there is 50 % chance for a European startup to find funding at the same stage of maturity than a US peer because of that funding gap.

So for me, the next public support needs to really focus on later stage financing and how we close that gap. And it can be done through many different ways. There is already a lot of action that has been taken. I think from a point of view and from a banker point of view, the way we manage to combine our capabilities to move capital and to be a multiplicator effect.

of the private capital that will be crowded into the economy is very key. For example, at the moment, on our venture debt solution, we're working together with the European Investment Fund, who is taking some part of our risk when we finance the startup to help us scale them, but also to help us deploy even more capital than what we could do by ourselves. So it's this kind of partnership that are very, very beneficial for the ecosystem and for the deployment of capital, private and public, into the economy. No competition, just teaming on achieving a common goal.

TOM: One underutilised pool of capital is pension funds; an area where the US, again, leaves Europe in the dust. In 2024, Europe’s pension funds allocated just 0.01% of assets towards VC’s, with the UK even lower at 0.007%. These are miserly numbers compared to the US’s 14%.

Ben: When you think about opportunities for improvement, and I think while Europe is doing very well, and I think there's been 10x more funding in the last decade than the previous one, private investment still trails the US significantly. There's no secret in that. There are a number of initiatives and things that, at Atomico, we care a lot about that Europe needs to do to improve that. think the first is to unlock institutional capital, and particularly pension funds. There is trillions of dollars.

of AUM tied up in European pension funds. I think it's something crazy, like less than 0.01 % of that is allocated to European venture. And so you don't have to shift the needle too much on multiple trillions to just unlock a significant flow into an asset class, which is a huge driver of GDP. I think the second thing is liquidity. A lot of the best European companies are looking to the US to list, looking to the US for acquirers.

That's not a bad thing in itself because that still drives liquidity in Europe. But it would also be great to have more performant local public markets. It would be great to have European corporates take a more active role in global &A of tech companies. And that would provide great benefit not just to the venture ecosystem, but also to the retail investors, the other parts of the financing ecosystem, and also to European corporates who would be able to compete better themselves on a global scale if they acquired and worked with more innovation.

I think also on that kind of corporate front, I think it's still true that European corporates or European companies in general are slower to purchase new technologies as customers than in the US. And so a lot of the companies we work with, they're selling in both markets, but their deals go faster in the US. Procurement's faster, are less hurdles, less red tape. And so I think, again, we need to see European software buyers or technology buyers more broadly.

thinking about how they can design programs and procurement processes that really give technology companies the best chance to prove their value. There's regulatory friction, option programs, company incorporation, the often quoted German notary system where you have to sit for 15 hours listening to a legal document being read out. All those things, while not, often not kind of terminals to startups.

They just get in the way of growth and innovation. And I think that that's something that needs to be worked on. I think there's great initiatives like the EU Inc. initiative that are starting to try and establish regulatory frameworks that are both pan-European and startup friendly. And then we need to keep attracting and retaining global talent. We need to make sure the best people want to build companies here, want to either move here or stay here as they build those companies, and then want to, once they exit their companies, want to stay in Europe and take their expertise and take their capital and invest that back into the next generation.

This is where policy might play a part. According to economist J. Scott Marcus, the reason Silicon Valley exists today is due to the ESIRA change in US pension regulation back in 1974. If a European ‘Silicon Valley’ is ever to exist, reallocating the €4tn of public pension assets to venture capital is paramount.

Marie: It's a huge one indeed and as you said we are very late because it's a cultural maturity stage as well we are in as a society the US was there 10-15 years ago and passed that bridge we are just in the middle of that so you need education you need to make people understand what it is to invest in tech you need I think to ensure that we have the right re-regulation around pension funds to allow them to invest in venture capital with the right incentives. So I'm even more for the carrots than the stick. The stick is important to frame it, but in Europe we have a lot of stick already. So the carrot is very important in my view. How do we incentivize and how do we see the positive for them to invest? And it's about making sure that those pension funds work with the right partners as well.

You're not going to go through the cycle of the Canadian pension fund model, if I may say, where you will have direct investment of pension funds at the scale and the pace that we need into tech. They need to trust the right asset managers that are used to investing in venture capital, the right banking partners, so we can help them deploy capital. The pace and the challenge ahead of us won't let us grow that expertise organically.

We need that ecosystem on the capital side to really be stronger and build faster in order for that capital to be deployed. The public can set the basis, but the public money is not what's going to finance the tech. That's really the levers that we're going to put in place for those savings to be deployed in the right way with confidence taking into consideration the risk of venture capital but also trying to mitigate it by really focusing on the right player to deploy it into the right companies.

TOM: But what does this all mean for start-up founders in Europe?

Niklas: Yes, European investors are more risk-averse than US investors. And this is more of a mentality issue, but that makes it harder. That can be a good thing to a certain degree, but I mean, venture capital is a high-risk asset class, so to say. So I think that's something that is also not it's not only the capital. It's also Let's say a mentality topic which makes it harder. There's also a third perspective and aspect which is governmental subsidies We as a startup have basically I have always this anecdote there are offerings in Germany for instance, and I assume they are also now like with the new, let's say with the new party that is more focused on economics and improvements of economics. There are offerings. However, to get these subsidies that can actually help you grow, the burden to get there is so bureaucratic that if you apply for it, you probably have to wait one to two years. And in the startup world,where you have to move fast and you have to grow fast. This is zero help, right? Because in the end, you have to do a round before. So for instance, we applied for a subsidy from the government, which we were eligible for, but it took so long that we outgrew the stage until we are eligible for it. And it was basically in the end, just an admin overhead and more of a distraction and this kind of access to support startups and innovation is limited. And this definitely varies from European countries to European country, but at least for Germany and what I understand also from other countries like Italy and Spain, et cetera, it can be a bit tougher. France, I've heard has some great programs and were supportive, ust like what I've heard cannot really 100 % validated. But yeah, that's basically my assessment if you ask me.

TOM: It’s not just about money however, creating the correct environment to harbour talent and innovation is crucial. Dealroom’s Global Tech Ecosystem Index 2025 analysed tech talent, investment and innovation of startup ecosystems in 288 cities across 69 countries. While US cities took the top 3 spots, Paris came in 4th, 3 ahead of London in 7th. Cambridge, Munich, Stockholm and Grenoble were the only other European cities to make it to the global top 20.

Building innovation hubs across Europe isn’t easy, collaboration between research, science and industry requires collective action.

The time is certainly now. With the Trump administration’s recent spate of funding cuts to Universities and research institutions across the US, a reverse brain drain could occur. European institutions are urgently trying to entice the very best tech talent back to its shores, where it will hope to keep them for the foreseeable.

Ben:
I think when you think about talent and keeping and growing the best talent in Europe, maybe if you start with growing the best talent, we have world-leading academic institutions here training the best technologists. And that continues. And every year, you get a great graduating class of people who have great fresh skills and are eager to go into the workforce. And actually, when you look at some of these crazy stories you've seen recently of Meta and others, you know offering crazy, crazy salaries to try and attract some of the top AI talent. Those people aren't necessarily people who've got two decades of experience in AI. They're the 25-year-olds who were working on the latest cutting edge model that those companies need. And so actually, just having that kind of new talent coming through every year is a huge driver of building a strong talent workforce.

I think beyond that and outside of pure technical talent, as the ecosystem develops and more companies reach scale, you get more people who've been trained up in those organizations. And so they may have come in as a junior sales rep and ended up as a sales leader, or they may have come in as a kind of product manager and ended up leading a whole product organization. And so again, we're just developing more and more experienced talent across all relevant areas for startups. that, so the bench is growing. In terms of retaining people and keeping things competitive, I think we're getting to a world where in lots of European ecosystems, you have to get closer to salary parity with the US, or at least purchase power weighted salary parity. And so that does mean that European companies have had to raise more money than they had to do previously, because the biggest use of funds is talent. And if talent is getting more expensive every year, you've got to move up to meet that. You've got to have people really understand the value of options, and you've got to have options regimes that are attractive.

That still varies wildly across Europe in terms of how attractive options programs can be. And I think there's lots of work we need to do on continuing to move that in the right direction. And I think one of the other things right now is we are seeing certain kinds of talent, whether that's European founders who have been in the US moving back or people for whom the current environment in the US isn't one they want to live in or build companies in. And so again, that kind of attractiveness of people who are European and who care about it and want to come back here and really make Europe as good as possible, or people who see it as a good refuge from what's going on in the US, is also another kind of pull factor.

TOM: This all certainly sets us up for a very interesting, make or break, next five years for European venture tech funding. First up BNP Paribas’ Marie Gwaenelle

Marie:
So I think it's going to be five years of tremendous change and acceleration. I think we're going to see the five years of transformation of the tech European ecosystem because we now have all the elements. We have the largest concentration of talent and brain when it comes to tech across our different universities and the different programs, including Horizon that have been put in place to support that. The capital is not where we would like to be yet, but it's been growing and steadily over the last decade and it's going to continue to grow. And we have now more than ever facing an urgency of being more sovereign with our tech, which is going to help accelerate a lot that. We have the brain, we have great businesses, we have amazing entrepreneurs. We need to have a simplified process for that.

We need to have a simplified market on both capital and consumers. But this is also in motion and it has been in motion at a faster pace over the past months than over the past five years after all the geopolitical and difficulties that we've seen on the international scene. So I think that the next five years are going to be amazing. They're going to be fast.

They're going to show more changes that we've seen in the past century. And that's really a tipping point globally for tech, but notably for Europe to really strive and become one of the leaders in tech innovation. Make it easier, it simple, make it a place where you can build great businesses and make money out of it. It's something that is obvious in the US but very very difficult in Europe. Again I think that it's not that difficult to unlock one single market. If you are a founder you can access a single consumer market, it makes a big difference. If you can have facilitated administration, capital access and regulation understanding that's also key levers that are going to help us. We've seen a lot of brands leaving for the US but you can see and I don't know if you feel the same than me but I can feel and through my network as well a number of very talented and senior brands coming back to Europe because I think it's also the time where they see things moving. They see that governments, banks, financial ecosystem as a whole are really here and asking them to come back and to support them. So the partnership is taking place also in accelerating through those and new migration of US brands towards Europe, European brands that had moved to the US and are now coming back to Europe. And I think also that research is something that has not been

that applied everywhere in Europe over the past years. Today we've seen much more engagement of the corporate world and the private world into supporting those research programs as an enabler of concrete economical advancement. So for example, in France, researchers were not always valued at the level of impact that they were bringing.

Over the past years you've seen a tremendous acceleration of that with public and private support and implication, partnership, sponsoring that we've never seen in the past. So I'm pretty sure that the trend is going to accelerate and we will see more inflow of talents into Europe in the next years.

TOM: Nelly Co-founder & CEO, Niklas

Niklas: In the next five years, the outlook for European tech funding will be a good one. I see that it depends on the sector. It depends on obviously some initiatives from the government to reducing admin burns and make it more attractive for investors to deploy. It also has an economic situation where I feel like this kind of raising interest rates is something that will basically not go to the 2020-2021 times, but will also, let's say, balance in a healthy way. And we see also VCs with still a lot of dry powder. We saw many VCs still raising great funds, and they are hungry and excited to find the right companies.

I would say it's not excellent, but I also wouldn't say it's bad and might be also as a founder I have to be an optimist, right? But I see it more optimistic than pessimistic.

I would say you can still raise very good rounds, but, the cash will go to fewer excellent companies. So five years ago, there was a bit of a spray and pray and we had this, I would even say like we saw this in AI also cup, let's say two, three years ago.

Yes, you do something in an icon like we spend prey. Now I see a shift on this kind of AI fantasy revenues and this kind of this is also over, right? Like we see and investors and also founders understood that you need to have product market fit. need to show that the retention is there, that churn is low and to prove that you're building a sustainable product and you're actually solving problems. And you have this usually like S curve of innovation right in the beginning you saw a lot of AI adoption which needed also to many investments and quick tickets because people were on customers with exploring it's like when when iOS The app store was launched right everyone downloaded an app and tried things out and now we're coming to we're getting into the phase where the winners stay and the ones that are basically useless or not solving a clear problem or have a clear ROI are fading out and moving towards also a user experience phase where it's not also about core foundational models, it's about specific verticals and specific use cases. So a few winners will get the majority and they will still have great access to the market. The ones that cannot show clear growth, clear product market fit won't get cash as easy as five years ago.

Tom: And Finally Ben at Atomico

Ben: I'm really excited about the next five years in European tech. I think tech is already contributing significantly to European GDP. And I think that over five years, we could see multiple trillions more GDP added into the European economy from the tech ecosystem. I think job creation is also a key thing. think maybe 5 million new jobs in the European tech sector as the ecosystem grows, both technical jobs, but also in many other areas that takes to build a tech company.

I think we'll continue to see global leadership in AI, but also in fintech and sustainability and building a better planet. And then I would hope that in five years, we might see a European trillion dollar tech company to compete with the best of the best. Maybe that'll take 10, but let's set an ambitious target for ourselves of five. But more critical than all of that, I think, is attitude. Attitude is what's going to make it all happen.

We've got the raw components. We've got capital. We've got talent. We've got the same quality of companies you see anywhere else in the world, if not higher. What we need to maintain is really strong ambition and a really clear growth mindset. And I think if we do that, that's what's going to make Europe continue to grow, continue to succeed over the next five years and well beyond.

I think that hopefully over five years we'll see some good kind of changes in the regulatory regime and continuing to kind of chip away at that in a way that will sort of remove regulatory barriers from scaling companies. I think every year we will see more growth stage capital going into the European ecosystem and that will sort of close the funding gap and allow more companies or kind of more of the great companies that make it through to series A to raise a successful series B and C and beyond. What I hope is that also, you know, every year more deep tech companies raise money, more investors get used to the idea and comfortable with the idea of funding, you know, great breakthrough technology and science innovation. And so some of those companies that have often been the ones who needed a lot of capital to realize wildly ambitious visions and maybe have struggled a little bit more at the later stages to raise the, you know, the 500 million, the billion, the $2 billion round in Europe. hope that those companies will also have more and more success as we see more and more case studies of that kind of innovation creating kind of
wildly outsized economic value.

TOM:
We are, well and truly, in the fourth industrial revolution. Unlike its predecessors, laying the digital train tracks and powering full steam ahead needs a collaborative engineering investment at a speed and size like no other. Nations, like the US, already left the station years ago, packed to the brim with capital and building a new frontier. While there has been significant advancement in the last decade, Europe, in comparison, still needs
to catch up.

However, the performance is already there. European venture capital yielded 20.77% net Internal Rate of Return over 10 years, and 16.57% net IRR over 15 years, eclipsing the performance of their North American peer group over the same time periods, demonstrating the strength of active funds investing in innovative European start-ups.
And as we’ve learnt today, there’s a lot of dry powder in Europe’s VCs and Pension funds waiting to be deployed towards the best tech entrepreneurs and talent.
Europe therefore needs to build on these investment positives and plug the gaps. It must create an alternative, savvy and strong innovation and investment environment, backed by supportive policies if it is to become the global tech leader it deserves to be.