Venture Capital Mid‑Year Review: From AI to Defense Tech: Where Venture Is Headed Next - 0100 Weekly Brief
Hello there!
We hope you’re enjoying the summer, whether you’ve managed to sneak away for a bit of sunshine or you’re just enjoying some slower days. As we move into August, it's a good time to reflect on what Q2 brought to us. Last week, we took a look at private equity, and we’ll now see a snapshot of the venture capital world.
In the second quarter of 2025, the global venture capital market reached $94.6 billion across 6,028 deals, marking the third consecutive quarter above the $90 billion mark. As expected, AI emerged as the dominant sector, securing $54.4 billion across 1,276 deals and fueling some of the largest funding rounds globally.
Venture capital activity in Europe got off to a strong start in early 2025, but momentum slowed in Q2 due to global macroeconomic uncertainty, market volatility, and reduced investor confidence.
Despite this, AI and defense tech stood out in Europe, together accounting for a significant share of VC investment in H1. Backed by major funding rounds and growing geopolitical urgency, both sectors attracted strong interest from investors across the continent.
With growing uncertainty about the US’s long-term commitment to NATO, many European countries are developing their defense strategies. Defence budgets across the continent have jumped, with a real-term increase of 11.7% in 2024.
Germany led the way with a 23.2% rise, now ranking as the fourth-largest defense spender globally. The European Commission’s new ReArm Europe initiative, launched earlier this year, promises €800 billion in defense financing by 2030, marking a new era of European military independence and industrial mobilization.
Market Snapshot: European Fundraising Still Struggling
Raising a round remains under significant pressure, with capital raised by European VC funds taking only €5.2 billion in the first half of the year. The median fund size has decreased to its smallest since 2019, highlighting a tighter LP sentiment.
If this trend continues, the annual run rate would reflect a 5.3% decline in total deal value compared to 2024. While public markets in Europe have shown some recovery, venture investors remain cautious.
The decline in deal count has been sharper than the decline in deal value, suggesting investors are making fewer bets, even as larger deals continue to support overall volume. This environment of tighter liquidity and delayed exits is creating challenges for fundraising and capital deployment across the ecosystem.
Venture fundraising in Europe is having a tough year. In the first half of 2025, just €5.2 billion was raised, putting it on track for the lowest annual total in nearly a decade.
Returns remain weak, despite a slight rebound from 2023 lows, and investor appetite is being put to the test. Europe’s IRR edged out the US for now, but capital remains tight, and the landscape is still shaped by uncertainty.
At the same time, we're seeing smaller funds dominate the scene. The median fund size dropped to €50 million, the smallest since 2019, and funds are closing faster, down to 17.4 months from last year’s record 21.6 months. A significant trend is the growing share of capital allocated to emerging managers, which now accounts for over 65% of the total raised in H1 2025.
Despite the challenging climate, there’s still dry powder waiting on the sidelines, with €15 billion across the top 20 open venture funds yet to close. If that capital gets deployed, the second half could look a bit brighter.
New VC Funds Launched in Q2 2025 to Invest in Europe
Despite a cautious investment climate, several new funds launched in Q2 show that capital is still flowing into some sectors across Europe.
🔍 CEE-Based VC Funds
Orbit Capital: Raised €70M for its Growth Debt II fund to support scale-ups in CEE.
Rockaway Ventures: Closed nearly €55M for its second fund, focusing on late-seed and Series A.
Movens Capital: Launched a €60M multi-stage fund, already at €40M close.
🌍 Pan-European & Global VC Funds
Project A (Berlin): Closed €325M Fund V, targeting early-stage tech across Europe.
Revaia (Paris): Closed a €250M growth fund with a focus on energy, AI, and cybersecurity.
Cathay Innovation: Raised a €1B global fund, with significant allocations for European AI, fintech, and energy startups.
What to Expect in Q3
Based on the data and developments from Q2, the following trends are expected to influence venture capital activity in Europe during Q3 2025:
More focus on AI and defence tech: These sectors are expected to continue attracting significant investment, driven by strong interest in dual-use technologies and geopolitical demand. Notable deals in Q2 reflect sustained investor appetite in this area.
More government initiatives and public funding: The EU and several member states are advancing funding programs aimed at strengthening technology sovereignty and supporting scale-ups. These initiatives are likely to support activity in targeted sectors.
More monitoring of macroeconomic conditions: Investors are closely watching US tariff policy and central bank interest rate decisions, which may impact capital flows and risk appetite.
Continued fundraising challenges: VC fundraising is expected to remain subdued due to liquidity constraints, reduced LP commitment activity, and slow exit markets.
Uneven regional performance: Investment levels are likely to vary across countries, with Germany, Israel, and parts of Southern Europe showing more resilience, while others face slower deal volume.
Cracking the Code on Value Creation in VC at 0100 International: “Building Unicorns: The Art of Value Creation in VC”
As venture capital continues to adapt to a more disciplined and data-driven market, we’ll demystify the latest changes in the market, looking to understand the art of building unicorns and creating value in venture.
This session will feature top-tier voices from the VC world, such as Mareme Dieng (Partner, 500 Global), Jacky Abitbol (Managing Partner, Cathay Innovation), Simone Riva Violetta (Partner, Partech), and Hemal Fraser-Rawal (General Partner, White Star Capital).
Our panelists will dive into how value creation in VC is changing, from growth levers and governance to timing, ESG integration, and the very nature of what drives long-term returns today. We expect reflective insights on portfolio scaling, innovation support, and how VCs are adjusting their strategies to the current market reality.
Across the Market | Key Perspectives from The First Half of 2025
The first half of 2025 has challenged both investors and founders to rethink familiar playbooks across venture capital. With fundraising under pressure, exits delayed, and capital flowing more selectively, the ecosystem is navigating a more cautious and disciplined market.
Here are more perspectives and resources from across the ecosystem to help make sense of where the market may be headed next.
🗞️ News | Europe doesn’t have a startup problem, it has a storytelling problem
Europe’s startup scene isn’t lacking talent, capital, or ambition — but it does have a storytelling gap. While US founders often launch with bold visions and media-savvy narratives, their European counterparts tend to lead with practicality and caution.
This mismatch is affecting who gets funded and which companies gain global traction, especially in hot sectors like AI, where excitement often drives capital as much as capability.
📊 Report | State of AI Q2’25 Report by CB Insights
AI investment is showing no signs of slowing down in 2025. In the first half of the year, global AI funding reached $116.1B, already exceeding 2024’s full-year total.
Alongside mega-rounds, the market is witnessing a shift toward AI applications, particularly in agents and voice technology, over general-purpose models. Early-stage startups continue to account for the majority of deal activity, and the demand for top AI talent is driving a wave of “quasi-acquisitions” by Big Tech.