The Great Transatlantic Divergence: Why Europe Needs America More Than Ever
 
Last week we highlighted how 60% of late-stage funding for UK scale-ups still comes from overseas. Now, the latest venture data reveals this dependency isn't just a UK problem - it's symptomatic of a widening chasm between US and European venture ecosystems that should alarm every European founder.
 
The numbers from Pitchbook’s European and US H1 2025 analysis are sobering. While Europe faces steady decline, the US venture market nearly doubled its investment levels year-over-year.
 
But here's what should really make European founders sit up: this divergence isn't cyclical - it's structural, accelerating, and reshaping the fundamental dynamics of who can build what, where.
 
Last week's uncomfortable truth about UK founders building for an investor class that can't actually fund their growth? That's now Europe's reality writ large. As American capital becomes not just dominant but essential for European scale-ups, we're witnessing the emergence of two distinct venture economies - one that leads and one that increasingly depends.
 
 
The numbers that should alarm European founders
 
The transatlantic venture gap is developing into a chasm. Here are the latest H1 2025 vs H1 2024 venture comparisons from Pitchbook:

Europe:

• H1 2025: €29.2 billion across 5,362 deals
• H1 2024: €31.2 billion across 5,567 deals
• YoY trend: 6.4% decline in deal value, 3.7% decline in deal count

United States:

• H1 2025: $162.8 billion across 8,083 deals
• H1 2024: $92.7 billion across 7,883 deals
• YoY trend: 75.6% INCREASE in deal value, 2.5% increase in deal count

While Europe declined 6% year on year for the first half of 2025, the US venture market nearly doubled in dollar terms.

The US is now deploying 5.6x more capital than Europe. At the 2021 peak, this difference was just 3x. This represents a dramatic widening of the transatlantic divide, showing how Europe has failed to keep pace with America's venture boom.

The Q2 US figures do, however, deserve a cautionary word on momentum: US deal value dropped 24.7% from Q1 ($92.9B) to Q2 ($69.9B) 2025, while Europe's sequential decline was 13%. This suggests even the booming US market faces headwinds – in this case what analysts are calling a modest correction as investors pause to assess whether the AI investment frenzy has run too hot.

Even so, the divergence remains stark: Europe is shrinking from an already small base while America, despite quarterly volatility from AI digestion, is operating at a scale that is increasingly dominant.


AI: The 9x gap that defines the future

Nothing illustrates Europe's predicament more vividly than AI investment. In H1 2025, AI commanded 59.8% of US venture deal value - approximately $97.4 billion. Europe? Just 34.5%, or roughly €10.1 billion ($11 billion).

That's a 9x difference in absolute terms.

This isn't just about money; it's about infrastructure, ambition, and ecosystem effects. US investors distinguish between companies building "with AI" (applications) and "for AI" (infrastructure). They're funding both at scale. European investors, constrained by smaller funds and more conservative LPs, primarily back applications - missing the foundational layer almost entirely.

The concentration compounds itself. Major AI players like OpenAI and Anthropic create gravitational pull, attracting talent, spawning spin-offs, and generating deal flow that European cities simply can't match. When every ambitious AI researcher knows the serious money sits in San Francisco, not London, Stockholm or Berlin, the outcome becomes predetermined.

For European AI founders with global ambition, this creates an impossible choice: build for European expectations and risk undermining growth or optimize for US investors from day one and essentially become an American company with European origins.

The pattern is already clear: DeepMind fled London for Google's embrace; Graphcore courted Sequoia over European VCs; ElevenLabs’ Polish founders left London for Andreessen Horowitz's dollars; Stability AI's UK roots didn't stop it from raising primarily from Coatue and Lightspeed. Even Helsing, despite its European defence focus, raises from General Catalyst and thinks NATO-wide, not German. Increasingly, there's only one viable answer.


The Valuation Reality Gap

The latest valuation data reveals a deeper story about Europe’s structural disadvantage. At Seed stage, US companies command median valuations of $15.5 million while their European counterparts manage only €5.2 million ($5.7 million) - a 2.7x gap that only widens as companies mature.

By Series A, the disparity becomes more marked: US companies secure median valuations of $45.5 million, exceeding the entire European Series A-B combined median of €32.4 million ($35.6 million).

At Series B, US valuations soar to $119 million, significantly exceeding what European startups see even at Series D ($80M).

The message is clear: from the earliest stages, European companies are valued at a fraction of their American peers.

This isn't just about bragging rights - lower valuations mean more dilution for the same capital, less runway to prove metrics, and critically, less ability to compete for global talent. When a US Series A company can offer equity packages valued at 3x their European equivalent, where do you think the best engineers, designers, and growth experts choose to work? The valuation gap becomes a talent gap, which reinforces the valuation gap.

But of course, not every European startup needs to play this game. Companies serving local markets, building regional SaaS businesses, or targeting European enterprise customers can thrive within the European ecosystem's ‘constraints’.

The tragedy isn't that Europe has smaller valuations - it's that founders building global platforms, frontier technologies, or winner-take-all marketplaces face an impossible choice. If you're building the next Spotify, Klarna, or DeepMind, accepting European valuations means accepting permanent disadvantage against US competitors with 3x your resources.

The data doesn't prescribe one path; it simply makes the trade-offs brutally clear. Build for European valuations if your ambitions are limited to European markets. But if you're targeting global dominance, the numbers show there's really only one playbook that works.


Exit dynamics: The profitability of false hope

The latest exit data delivers another stark contrast between Europe and the US. It’s no surprise that the US exit market is bigger - but how much bigger? At the peak in 2021 Europe exit value (the sum of acquisitions, buyouts and IPOs) hit €170B (around $187B). In the US the figure was 5x bigger at $917B.

Over the past 3 years (2022-23-24) the difference has moderated back to pre-pandemic levels in the 2x to 2.5x range. But in 1H 2025 there has been a significant jump to 4x, partly as a result of public listings starting to pick up. In Q2 2025, the US saw six unicorn IPOs including CoreWeave, Circle, and Hinge Health. Europe? One major listing – eToro (Israel) at €3.5 billion. Europe is still a market overwhelmingly dependent on acquisitions - over 60% by value so far in 2025 compared to 47% in the US.

Another scaling difference can be found in average exits sizes. Again, at the peak in 2021 Europe average exit sizes hit $135M. In the US the figure was $450M, a 3.3x premium. Over the past 3 years (2022-23-24) the difference has moderated back to pre-pandemic levels in the 1.5x to 2x range. But in 1H 2025 there has been a significant jump to 2.8x, as public listings start to pick up.

Averages are a useful comparator, but they can obscure the real story.  For this you need to look at exits over $500M where most institutional investors start to make meaningful returns. For H1 2025, European exits at this level represented approximately 10% of all exits by value. In the US they represented around 90%.


The leading indicator: Why fundraising predicts darker days ahead

If current venture activity shows Europe struggling, fundraising data reveals an ecosystem heading for even tougher times. The numbers are stark: US venture fundraising faces a 33.7% decline in 2025 (falling to approximately $53 billion annualized) from $81B in 2024, while Europe confronts a dramatic 53.1% drop (to just €11 billion annualised) from €22B in 2024.

But it's the composition that truly alarms. US funds, while smaller than peak years, maintain meaningful scale. European funds have collapsed to a €50 million median - fine for Seed rounds but irrelevant for growth. Just over a third all capital raised in H1 2025 went into funds above $250M. In the same period US funds over $250M captured almost two thirds of all capital raised.

This isn't just about less money; it's about Europe losing the ability to lead international rounds, set terms, and influence outcomes. Funds raised today deploy over 3-4 years. The European funds closing in 2025 - smaller, scarcer, and more risk-averse - will shape the market through 2029. By then, the dependency on US capital at late stage won't be 60%; it might be 80% or higher. The structural gap could get much bigger.


The bottom line: Accepting reality or changing it

Let's be very clear about what this data means for European founders with global aspirations. You're not competing on a level playing field. You're building in a market with less capital, weaker infrastructure, fewer exits, and diminishing relevance. While US venture investment in H1 2025 surged 76% year-over-year, Europe declined. These are just the cold facts.

For most European startups, this means making peace with limited ambitions. Build solid regional businesses, optimise for profitability over growth, and accept that global domination requires resources your ecosystem can't provide. There's honour in building sustainable, profitable companies - even if they'll rarely grace TechCrunch headlines.

But for the most ambitious - those building AI platforms, global marketplaces, or category-defining technologies - the message is clear: think American from day one. Not because it's better, but because it's where the capital, infrastructure, and ambition to build world-changing companies actually exists.

This isn't defeatism; it's pragmatism. The European founders who win globally don't do so by hoping the ecosystem improves. They recognise reality and build accordingly. They incorporate in Delaware, hire US executives, and craft narratives for Sand Hill Road, not Sloane Square.

The transatlantic divergence isn't narrowing - it's accelerating. As a European founder, you can rage against this reality or adapt to it. Those who adapt early give themselves options that would otherwise become very limited, very quickly.

If you're planning to raise in the next 6-12 months and are considering a US market funding strategy, let's talk.