European Venture Capital Investment Reaches €66bn in 2025, Driven by AI and Defence Tech
European venture capital investment experienced a notable rebound in 2025, climbing to €66bn (£57bn), according to recent data from PitchBook. This represents a five per cent increase year on year, marking a post-pandemic high for the region. However, this growth is not indicative of a broad-based recovery but rather reflects a narrowing of investor focus towards specific high-potential sectors.
AI and Defence Sectors Attract Major Funding
The surge in investment is largely attributed to substantial funding flowing into artificial intelligence and defence technology. Large late-stage rounds in these areas accounted for a growing share of total deal value, with several European start-ups in discussions to raise capital at significantly higher valuations.
Investors are increasingly backing businesses perceived as strategically important to Europe's economic competitiveness. Recent notable deals include London-based AI avatar company Synthesia, which secured $200m at a $4bn valuation, and audio AI group ElevenLabs, which achieved an $11bn valuation after a $500m funding round led by Sequoia Capital.
Additionally, Swedish legal AI start-up Legora is reportedly in talks to raise new funding at a valuation of around $4bn, more than double its valuation from the previous year.
Defence Tech Emerges as a Key Investment Area
In the defence technology sector, Munich-based satellite launcher Isar Aerospace, valued at approximately $1bn, is exploring a new fundraising round. German drone makers Helsing and Quantum-Systems collectively raised close to €1bn in 2024, highlighting the growing investor interest in this field.
Aaron Archer, partner at law firm Cooley, commented, "Defence and AI are two of the hottest sectors so it isn't surprising that they attract many of the mega-rounds taking place. We're seeing a huge amount of investment that's taking place on both sides of the Atlantic and expect that to accelerate."
Shifting Investor Attitudes Post-Ukraine Invasion
This shift in investment patterns reflects a broader change in investor attitudes, largely influenced by Russia's invasion of Ukraine and growing concerns over Europe's technological dependence on the United States. Defence technology, once considered a taboo investment area, is now gaining mainstream acceptance.
Ben Prade, partner at Bullhound Capital, noted, "Two years ago, defence technology was like pornography or gambling. Now it's almost taking up the 'S' of ESG." He added that capital is increasingly flowing into "dual-use" technologies, which have both civilian and military applications, as investors seek commercial viability alongside government demand.
AI Dominates Venture Capital Landscape
AI-related deals accounted for more than 35 per cent of all European venture capital investment in 2025, totalling €23.5bn, up from €17.7bn the previous year, according to PitchBook data. This underscores the sector's pivotal role in driving the region's VC rebound.
The funding surge comes ahead of the Munich Security Conference, where European rearmament and private-sector investment in defence technology are expected to be central themes, further emphasising the strategic importance of these sectors.
