VC Funding Declines Across Europe: What It Means for Startups and Scaleups

For the third consecutive year, Europe’s venture capital (VC) funding landscape has contracted. By the end of 2024, tech startups are expected to secure $45 billion in funding—down slightly from $47 billion in 2023 (source: Atomico). While the decline may seem modest, it reflects a significant shift in how venture capital is deployed across Europe.

Investors are prioritizing scaleups—growth-stage companies with proven business models—over earlier-stage startups. This trend is reshaping the VC landscape, raising important questions about who benefits most from VC funding and how startups can adapt.

VC’s Changing Role: Supporting Scaleups Over Startups

Venture capital has traditionally been seen as the fuel for early-stage startups—the companies that transform big ideas into disruptive innovations. But now, the focus has shifted toward scaleups: companies that have already validated their business models and are scaling operations.

This shift comes down to risk mitigation. Early-stage startups often face significant hurdles, from building a customer base to achieving product-market fit. Scaleups, on the other hand, are seen as safer bets. They have traction, revenue, and often international ambitions. These factors appeal to VCs in an environment where economic uncertainty is driving more cautious investment decisions.

How This Impacts Startups

For startups, this means the bar for securing VC funding has risen. Investors are no longer as willing to back speculative ideas without clear metrics, such as revenue growth or customer retention. Founders must now articulate their path to profitability earlier and consider alternative funding sources, such as angel investors, grants, or even bootstrapping.

Why Scaleups Are Benefiting

In contrast, scaleups are benefiting from larger funding rounds, particularly in Series A to D. These companies represent opportunities for rapid growth, and VCs are eager to back businesses with the potential to dominate their markets. In 2024, the average size of later-stage funding rounds rebounded after previous declines.

Sector Spotlights: The Winners and Losers

The downturn in funding hasn’t hit all sectors equally. Some industries are thriving, while others are struggling to attract investment:

1. Winners: AI and Climate Tech

   • Artificial intelligence continues to attract robust funding, with global AI investments reaching nearly $40 billion in 2023.

   • Climate tech and sustainability-focused startups are also drawing strong interest, reflecting investors’ alignment with global priorities such as carbon reduction and renewable energy.

2. Losers: Consumer Tech and Discretionary Industries

   • Sectors tied to consumer spending, such as lifestyle and entertainment tech, have faced sharper cuts. This reflects economic uncertainty and investors’ reduced appetite for risk.

Why VC Funding Is Declining

The decline in VC funding isn’t solely a reflection of investor caution—it also signals a market correction. Between 2020 and 2022, the VC market experienced explosive growth, fueled by low interest rates and abundant capital. But as economic conditions have tightened, the market is normalizing.

Broader Implications for Innovation

While the shift toward scaleups reflects a maturing ecosystem, it also raises concerns about innovation bottlenecks. If early-stage startups struggle to secure funding, the pipeline for future breakthroughs could narrow. This is particularly concerning for industries like biotech and cleantech, where long timelines and high initial costs make early funding critical.

However, there’s a silver lining: the focus on sustainable growth and profitability could lead to stronger, more resilient businesses in the long term.

How Founders Can Adapt

Here are strategies founders can use to navigate this evolving landscape:

• Startups: Explore alternative funding sources such as accelerators, crowdfunding, or government grants. Focus on metrics that demonstrate market traction early.

• Scaleups: Leverage the increased availability of later-stage funding, but maintain a clear growth strategy to meet investor expectations.

• All Founders: Align with sectors that are drawing VC interest, such as AI or climate tech. Investors are looking for companies that can solve real-world problems.

The Road Ahead

As Europe’s VC market stabilizes, founders must adapt to a new reality where funding isn’t guaranteed but is still available to those who can demonstrate value and growth potential. While the market contraction has created challenges, it also reflects a shift toward smarter, more sustainable investment practices.

For startups and scaleups alike, the key will be to understand these shifts—and innovate not just in their products, but in how they attract and manage investment.

New Stardom is a leading online magazine focused on the Future of Work, delivering the latest news on AI, remote work, and emerging workplace trends.