Venture Capital Mid‑Year Review: Europe's Capital Comeback, Minus the IPOs, Plus Defense Tech | 0100 Weekly Brief
Hello there!
We hope you’re enjoying the summer and finding some time to recharge. As we passed the midpoint of 2026, it’s the perfect moment to step back and look at how the European venture ecosystem has evolved over the first six months of the year.
The first half of 2026 shows that capital continues to concentrate behind companies with proven technologies and global ambitions, while investors are expanding beyond traditional software into sectors such as defense technology, robotics, climate innovation, life sciences, and advanced manufacturing.
At the same time, fundraising conditions are gradually improving after reaching historic lows last year, suggesting confidence is slowly returning despite ongoing geopolitical uncertainty. Let’s dive in!
The Evolution of European Venture
European venture investment accelerated meaningfully during the first half of the year. According to PitchBook, companies raised €44 billion by the end of June, putting the market on pace for a 27% year-over-year increase if current activity continues throughout the remainder of 2026.
This shows a consistent change from the cautious environment that characterized much of 2024 and 2025, when fundraising pressures and delayed exits constrained deployment across the ecosystem.
The recovery, however, has not been driven by a broad expansion across every segment of the market. Instead, investors have become selective, concentrating larger amounts of capital into companies demonstrating technological leadership, commercial traction and long-term defensibility. While total deal count continues to trend below historical highs, average round sizes have increased substantially, particularly at later stages.
This selective environment is also reflected globally. Although worldwide venture investment remained exceptionally strong throughout the first half of the year, much of the headline growth continued to be driven by a relatively small number of AI mega-rounds.
CB Insights notes that overall funding remains an imperfect indicator of broader market health, as record investment levels coexist with declining deal activity across many parts of the ecosystem. Europe has largely followed this pattern, although its funding growth appears to be supported by a broader mix of sectors than in previous years.
The Rise of Deep Tech and Defense Innovation
Across Europe, governments continue to prioritize domestic innovation in response to an uncertain geopolitical environment.
As public investment initiatives mature and defense spending remains elevated, venture capital is complementing public funding by backing technologies that serve both commercial and strategic markets.
KPMG also shows defense technology as one of the sectors expected to remain particularly attractive throughout the remainder of 2026. Companies developing autonomous systems, satellite infrastructure, robotics and AI-powered defense applications continue to benefit from sustained investor appetite, while Europe's expanding industrial base provides fertile ground for scaling these businesses.
Germany is emerging as one of the clearest examples of this trend. Venture investment has concentrated around Munich, where a growing defense-tech ecosystem is attracting larger funding rounds despite a moderation in overall deal activity. Across the country, investors are expanding beyond traditional software into dual-use technologies, deeptech and industrial innovation.
According to KPMG, many German and European funds have relaxed previous restrictions on defense-related investments in response to changing geopolitical conditions, creating strong demand for startups developing technologies with both commercial and national security applications.
The result is a venture ecosystem where dual-use technologies are becoming an important investment theme rather than a niche segment.
Exits Show Signs of Improvement as M&A Takes the Lead
Liquidity continues to recover gradually across Europe, although the path remains uneven. While public market conditions have improved compared with previous years, IPO activity remained relatively subdued during the first half of 2026 as many companies continued postponing public listings amid geopolitical uncertainty and changing market conditions. Instead, mergers and acquisitions emerged as the primary source of liquidity across the ecosystem.
According to Crunchbase, European venture-backed M&A maintained the momentum established in early 2026, with more than 150 acquisitions completed during the second quarter alone. Several billion-dollar transactions across biotechnology, industrial AI, and mobility demonstrated continued strategic demand for high-quality European technology companies.
Rather than waiting for IPO windows to fully reopen, many founders and investors are viewing acquisitions as an attractive path to liquidity.
PitchBook similarly observes that acquisitions have once again become the dominant exit route across Europe. Strategic buyers, particularly within life sciences and industrial technology, have played an active role, helping offset slower IPO activity.
This trend reflects the growing maturity of Europe's innovation ecosystem, where established corporations are turning to venture-backed startups as a source of technological innovation and competitive advantage.
The gradual improvement in exits is an encouraging development for both founders and investors. Healthier liquidity ultimately supports fundraising, portfolio recycling, and new investment activity, creating a stronger foundation for long-term ecosystem growth.
At the same time, the recovery remains uneven. Globally, total exit activity declined for the second consecutive quarter despite landmark IPOs such as SpaceX and Cerebras, illustrating that a handful of blockbuster transactions continue to mask a more selective exit environment.
While Europe's M&A market is gaining momentum, founders and investors are still navigating a market where strategic acquisitions are driving liquidity more consistently than public listings.
Let's Continue the Conversation at 0100 Emerging Europe!
As capital becomes more selective, one question continues to stand out: where will the next generation of high-performing investment opportunities emerge?
The answer lies beyond Europe's traditional venture hubs. Central and Eastern Europe is producing globally competitive founders and specialized technologies, while benefiting from strong local expertise, growing institutional support, and expanding cross-border capital flows.
These themes will take center stage at 0100 Emerging Europe in Budapest, where our panel discussions will bring together leading investors to discuss how local knowledge can unlock global opportunities across AI infrastructure, cybersecurity, defense tech, and deeptech. Joining the discussion are Tamás Molontay, Investment Director at Széchenyi Funds, László Czirják, Managing Partner at Interactive Venture Partners, with the session moderated by Andrew Caruana Scicluna, Partner at Camilleri Preziosi.