Are Europe’s AI Ambitions Falling Short? - Lessons from the US VC Comeback

Talking to US founders and VCs over the past week paints a picture of vibrant recovery in 2024. Investment is surging, putting the US market back on its long-term growth trajectory after the 2021 peak - and subsequent correction.

The atmosphere in Europe, however, is markedly different. After a challenging 2023, 2024 saw further declines in investment, with second-half momentum fizzling out.

Our earlier analysis, "Europe vs US VC trends: A Guide for Founders" outlined 2024 venture investment predictions and contrasted the two markets' macro dynamics. While our European forecast was relatively close, we significantly underestimated the US rebound.

Here, we present initial 2024 figures from Pitchbook, providing an updated comparison of these distinct yet interconnected markets. The most striking divergence? The role of AI. It has become the defining factor separating the two ecosystems.

Will this divergence last or has Europe something greater to offer in 2025?

1. Deal Value (2024 total market)

• Europe: €56.7B in 2024 (down 8% from €61.6B in 2023)
• USA: $209.0B in 2024 (up 29% from $162.2B in 2023)

[Note €1 = $1.02 at today's rate]

Q3/Q4 2024 Breakdown:

• Europe Q3: €12.5B (down 34% from €18.8B in Q3 2023)
• USA Q3: $43.8B (up 25% from $35B in Q3 2023)
• Europe Q4: €13.9B (down 5% from €14.7B in Q4 2023)
• USA Q4: $74.6B (up 97% from $37.9B in Q4 2023)

Takeaway: After a promising start, European deal value faltered in the second half of 2024. In contrast, the US market experienced a powerful resurgence, with Q4 2024 nearly doubling Q4 2023 figures, approaching 2021 levels.

2. Deal Count (2024 total market)

• Europe: 9,619 in 2024 (down 16% from 11,410 in 2023)
• USA: 15,260 in 2024 (up 4% from 14,712 in 2023)

Deal Count by Stage (2024 vs. 2023):

• Europe Pre-Seed/Seed: -33% (USA: -14%)
• Europe Early-stage: -18% (USA: +2%)
• Europe Late-stage: -21% (USA: -9%)
• Europe Venture Growth: -15% (USA: +12%)

Takeaway: European deal count continued its downward trend across all stages. The US market, however, showed resilience, with growth in early-stage (typically Series A and B) and venture growth deals.

3. Deal Sizes (2024 vs 2023 Median)

• Europe Pre-Seed: +40% (USA: +21%)
• Europe Seed: +32% (USA: +4%)
• Europe Early-stage: +46% (USA: +33%)
• Europe Late-stage: +33% (USA: +30%)
• Europe Venture Growth: +54% (USA: -15.4%)

Takeaway: Despite declining investment value and deal count, European deal sizes increased significantly, suggesting a consolidation of capital into fewer, larger deals. While US deal sizes also increased in most stages, the changes were less dramatic due to already larger median deal sizes, indicating a convergence between the two markets. The exception is Venture Growth where US deal sizes decreased.

4. Deal Valuations (2024 vs 2023 Median Pre-Money)

• Europe Pre-Seed: +55% (USA: +15%)
• Europe Seed: +16% (USA: +26%)
• Europe Early-stage: +22% (USA: +44%)
• Europe Late-stage: +7% (USA: +36%)
• Europe Venture Growth: +28% (USA: +108%)

Takeaway: Just like deal sizes, valuations are up sharply everywhere. While US valuations have historically outpaced Europe, this gap is widening again, particularly at Early-stage, Late-stage and Venture Growth, with the exception of Pre-Seed.

5. The Impact of AI on Deal Activity

Our earlier analysis hinted at AI becoming a key differentiator. Q4 2024 data confirms this, now revealing a significant divergence between Europe and the USA.

AI as a Share of Deal Value:

• Europe 2024: 25.7% (2023: 19.1%)
• USA 2024: 46.4% (2023: 36%)
  
• Europe Q4 2024: 31.6% (Q4 2023: 22.4%)
• USA Q4 2024: 62% (Q4 2023: 38.2%)

AI as a Share of Deal Count:

• Europe 2024: 23.3% (2023: 20.7%)
• USA 2024: 28.9% (2023: 24.2%)
  
• Europe Q4 2024: 25.1% (Q4 2023: 21.9%)
• USA Q4 2024: 32.1% (Q4 2023: 26.6%)

Takeaway: AI's share of deal value increased in both regions, but the US saw a far more substantial surge, especially in Q4 2024, where it reached a remarkable 62%, double that of Europe. While the US also saw a higher share of AI deals by count, the difference was much smaller (4-5 percentage points). This disparity in value share suggests significantly larger AI deal sizes in the US, particularly at Early-stage and Venture Growth.

Why is AI a Much Bigger Factor in the US VC Recovery in 2024?

To understand this divergence in greater detail, we can see there are several big factors at play:

1. Established Tech Ecosystem and Research Base

What’s Happening in the US?

• Foundation Model Companies: A notable cluster of US startups and scale-ups are focused on building large-scale, general-purpose models (e.g., OpenAI-style language and vision models). These efforts require extraordinary compute resources and advanced research teams, both of which the US tech ecosystem supports through mega-fundraises and deep partnerships with Big Tech players.
• Compute & Infrastructure Providers: The US is also home to emerging hardware startups that create specialised AI chips or systems (e.g., GPU alternatives, AI accelerators, cloud AI infrastructure). This infrastructure layer demands significant capital to compete with incumbents like NVIDIA, driving larger fundraising rounds.

Comparison With Europe

• While Europe has strong academic research and notable AI talent, startups are more likely to focus on applied AI (e.g., domain-specific enterprise solutions) rather than foundation model building. This often translates to smaller deal sizes, as the capital requirements are lower for specialized AI applications than for massive infrastructure or foundational research.
  

2. Greater Access to Later-Stage Funding

What’s Happening in the US?

• Scaling “Full-Stack” AI: Many US AI companies do not just develop software or algorithms; they also integrate hardware, security, or data pipelines - making them “full-stack” AI providers. This comprehensive approach appeals to later-stage investors willing to write bigger checks for end-to-end solutions.
• Strong Follow-on Rounds: US VCs specialising in AI have deeper pockets and a higher risk tolerance for capital-intensive ventures (e.g., advanced LLM startups or GPU-scale cloud platforms). Once a startup shows traction, it can often secure hundreds of millions to scale quickly.

Comparison With Europe

• European AI startups often face challenges in raising large Series C+ or Growth rounds. They are more typically funded through modest, incremental investments and often rely heavily on non-VC sources (e.g., government grants). This can slow growth, especially for capital-intensive AI research or hardware-focused ventures.
  

3. Investor Appetite Driven by Past Successes

What’s Happening in the US?

• High-Profile Exits and valuation growth in AI: The success of AI-first companies - ranging from platform-level AI providers (like Anthropic) to specialised enterprise AI solutions - has created a track record of significant returns (mostly acquisitions and secondary sales so far). US investors are therefore keen to “double down,” fuelling even bigger investments in the next wave of AI infrastructure, dev tools, and foundation models.
• Spillover Effects: Mainstream software VCs are being pulled into AI investments, increasing overall capital flow. Many funds that historically backed SaaS or consumer tech now have dedicated AI arms or partner teams, further propelling deal size and frequency.

Comparison With Europe

• Europe has had fewer blockbuster AI exits. European investors, while interested in AI, often have more conservative growth timelines and are less likely to pour large sums into nascent technologies without clear near-term monetisation. This tempered approach can mean slower ecosystem growth.
  

4. Dynamic Regulatory Environment

What’s Happening in the US?

• Faster Experimentation, Fewer Barriers: Although discussions around AI regulation are ongoing, US startups generally face fewer immediate compliance hurdles. This policy gap allows them to iterate quickly on foundation models, advanced data-sharing techniques, and cutting-edge infrastructure projects.
• Early-Stage AI Sandboxes: Public-private partnerships and university incubators often facilitate “sandbox” environments for AI experiments, promoting rapid innovation in areas such as generative AI, autonomous systems, and biotech AI.

Comparison With Europe

• The EU is advancing regulations like the AI Act. While these efforts aim to ensure safety and privacy, they create added compliance steps - especially for companies developing high-risk AI (e.g., healthcare, autonomous vehicles). Consequently, some of the largest, most ambitious AI endeavours (which often attract the biggest investments) may gravitate toward the US, where the regulatory environment is comparatively fluid.
  

5. Cultural Emphasis on Risk and Growth

What’s Happening in the US?

• Big-Bet AI Ventures: US founders often pitch highly ambitious AI visions - think multi-year R&D roadmaps for advanced robotics or cutting-edge LLM infrastructures. These ventures naturally require substantial upfront capital but promise equally large payoffs, resonating with US VCs who prize big, scalable bets.
• AI-First Everything: The US market has quickly embraced AI as a core differentiator. Investors are eager to back “AI-first” startups in diverse sectors (fintech, healthcare, logistics, etc.), often overlooking short-term profitability in favour of long-term market disruption.

Comparison With Europe

• Europe’s AI startups are frequently more sector-specific (e.g., industrial AI for manufacturing, AI-driven climate tech) and pragmatic in their growth plans. This can lead to more measured fundraising - enough to demonstrate ROI to cautious investors, but not enough to support the kind of massive, paradigm-shifting AI research often seen stateside.
  

Will AI help Europe get back on the funding growth curve in 2025?

As AI permeates new application spaces in 2025, Europe may find itself at an advantage in certain areas. 3 key opportunities stand out:

Deep Industrial & Robotics Expertise
Advanced Manufacturing Base: Europe, particularly Germany, has a long tradition in industrial automation and robotics. In addition, European industrial hubs often feature close ties between universities, startups, and established manufacturing giants. This ecosystem can foster applied robotics innovations - e.g., self-optimising assembly lines, human-robot collaboration, and advanced logistics. This background could be invaluable as AI-driven robotics moves from research to large-scale adoption.

Strong Biomedical & Pharmaceutical Sector
Leading Biotech Hubs: Regions like the UK’s “Golden Triangle” (Oxford, Cambridge, London), Switzerland, and parts of Germany boast world-class biotech and pharmaceutical research. This foundation could give Europe an edge in digital biology - applying AI to drug discovery, genomics, and personalised medicine.

Ethical Framework & Consumer Trust
Regulatory Clarity: Europe’s work on the AI Act and existing frameworks like GDPR reflect a cautious but constructive approach to data handling. For example, in healthcare or biotech - where data privacy and patient safety are paramount - Europe’s regulatory leadership may help build public trust in AI-driven medical solutions.

Conclusion

The US venture market recovered strongly through 2H24 whilst Europe slid backwards again. AI became the big differentiator. On the flip side, startups that successfully raised rounds enjoyed deal sizes and valuations that beat all time records. FOMO still exists for outliers.

Europe must play to its strengths. It has has serious competitive advantages in certain markets like industrial automation, advanced manufacturing, and biotech. It also has a robust regulatory approach that can foster public trust in AI-driven innovations.

However, limited late-stage capital, a more risk-averse culture, and fragmented regulations continue to hamper the EU’s ability to scale AI startups as quickly as the US. If European stakeholders and policymakers can address these challenges - encouraging higher-risk capital, retaining AI talent, and expediting cross-border regulatory coherence - Europe could play a pivotal role in the next phases of AI.

Meanwhile, international investors, who already account for 30% of the European investor pool, could easily allocate bigger slices of cross-border investment into Europe. Motivated by unique AI innovations and more appealing valuations, European startups could be the beneficiary of increasing investor appetite for AI in 2025.

Let's talk.