Funding rounds in Europe: bigger, but fewer startups secure them

What happened?

According to a Sifted analysis based on Dealroom data, funding rounds in Europe have seen a significant increase in average size, while the number of companies closing them has decreased. Specifically, the average seed round size rose from €1.2 million in 2021 to €1.8 million in 2024, while the number of seed rounds fell by 40% over the same period. In Series A, the average ticket grew from €5.2 million to €7.5 million, but the number of deals dropped by 35%. This trend suggests a concentration of capital in more mature startups with proven business models, at the expense of early stages. The pattern is observed across seed, Series A, and Series B rounds, though it is more pronounced in later stages: in Series B, the average size increased by 50% to €15 million, while the number of rounds fell by 30%.

This pattern is not entirely new: during the dot-com boom, there was also a concentration of capital in established companies before the crash. However, the current context is different, with a more mature ecosystem and a greater diversity of sectors such as AI, climate, and health. The pandemic initially spurred a funding boom in 2021, but since then the market has adjusted downward, with investors more cautious due to rising interest rates and geopolitical uncertainty.

Why is it important?

This shift reflects a maturing European startup ecosystem, but also poses risks. Reduced opportunities for early-stage startups can limit the diversity of ideas and lower the rate of innovation. Additionally, capital concentration in a few companies could create bubbles and increase dependence on large players. For investors, it means greater competition for the best deals and the need to be more selective. Sifted data shows that 70% of capital in 2024 went to late-stage startups (Series B and beyond), compared to 55% in 2021. This leaves seed and pre-seed startups with more restricted access to funding, which could stifle the creation of new disruptive companies.

Historically, similar cycles of concentration have preceded waves of consolidation, as seen in the SaaS sector after the 2008 crisis. Back then, surviving startups became leaders, but many others disappeared. Europe risks losing its innovation edge if this imbalance is not corrected. Countries like France and Germany have implemented public funds to stimulate early-stage investment, but no strong results have been seen yet.

What will be the consequences?

In the short term, established startups will be able to scale faster, but new companies will face more difficulties in raising capital. This could lead to a higher failure rate in early stages and market consolidation. According to Atomico data, the number of startups closing at seed stage has increased by 25% in 2024 compared to 2022. In the long term, if early-stage funding is not encouraged, Europe could lose its ability to generate disruptive unicorns. Currently, only 15% of European unicorns were created in the last three years, compared to 30% in the United States.

Governments and public funds will need to consider policies to balance the ecosystem, such as tax incentives for angel investors or co-investment programs. For example, the German EXIST program has proven effective in supporting early-stage tech startups. Without intervention, the gap between Europe and the US in early-stage innovation could widen, as venture capital in the US continues to flow more toward early stages.

What should readers know?

Entrepreneurs should prepare for a more competitive environment, with more demanding investors and longer rounds. It is crucial to build solid traction before seeking funding: investors now prioritize recurring revenue and efficiency metrics over growth at all costs. Investors, for their part, should diversify their portfolios and explore opportunities in emerging sectors like applied AI, biotech, or clean energy, where early-stage funding still has room. For analysts, this phenomenon is an indicator of ecosystem health: excessive concentration can be a sign of maturity, but also of rigidity. The key will be whether Europe can maintain a steady flow of new innovative startups despite the contraction in early-stage capital.

In summary, the current trend reflects a natural correction after the excess of 2021, but if prolonged, it could have negative structural effects. Sifted data shows that the number of funding rounds in Europe fell by 20% year-on-year in the first half of 2024, while total capital invested remained stable, confirming the concentration. For readers, it is important to understand that this is not an isolated phenomenon, but part of a broader cycle that requires adaptation from all ecosystem players.