Defence and AI drive Europe’s venture capital rebound
European venture capital (VC) investment rose to €66bn (£57bn) in 2025, up five per cent year on year, as funding flowed into AI and defence tech, according to PitchBook data.
The increase marks a post-pandemic high for the region, but reflects a narrowing of investor focus rather than a broad-based recovery.
Large late-stage rounds in AI, security and defence accounted for a growing share of total deal value.
Several European AI- and defence-focused start-ups are in discussions to raise capital at higher valuations, as investors back businesses they see as strategically important to Europe’s economic competitiveness.
Recent deals include London-based AI avatar company Synthesia, which raised $200m at a $4bn valuation, and audio AI group ElevenLabs, which reached an $11bn valuation after a $500m funding round led by Sequoia Capital.
Meanwhile, Swedish legal AI start-up Legora is also in talks to raise new funding at a valuation of around $4bn, more than double its valuation last year, the Financial Times reported.
In defence tech, Munich-based satellite launcher Isar Aerospace, valued at around $1bn, is exploring a new fundraising round, while German drone makers Helsing and Quantum-Systems raised close to €1bn between them in 2024.
“Defence and AI are two of the hottest sectors so it isn’t surprising that they attract many of the mega-rounds taking place,” said Aaron Archer, partner at law firm Cooley.
“We’re seeing a huge amount of investment that’s taking place on both sides of the Atlantic and expect that to accelerate.”
Shedding taboo status
The shift reflects a broader change in investor attitudes following Russia’s invasion of Ukraine and growing concern over Europe’s tech dependence on the US.
“Two years ago, defence technology was like pornography or gambling,” said Ben Prade, partner at Bullhound Capital. “Now it’s almost taking up the ‘S’ of ESG.”
Prade said capital is increasingly flowing into “dual-use” technologies, which hold both civilian and military applications, as investors seek commercial viability alongside government demand.
AI-related deals accounted for more than 35 per cent of all European venture capital investment in 2025, worth €23.5bn, up from €17.7bn the previous year, PitchBook data shows.
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.