Newsletter

Weekly Briefing Note for Founders

19th December 2024

This week on the startup to scaleup journey:
  • How Europe’s Founders Can Turn 2024’s Hard Lessons into 2025 Success

How Europe’s Founders Can Turn 2024’s Hard Lessons into 2025 Success

As the curtain falls on 2024, the long-awaited resurgence in European venture capital hasn’t quite materialised. The optimistic mood that prevailed during the early part of the year has given way to yet more uncertainty.

Even though median deal sizes and valuations have continued to forge ahead, this has been at the expense of deal volume. Early figures for 2H24 show the lowest number of venture deals announced since the second half of 2012. Overall European investment in 2H24 may be down as much as 30% compared to 1H24 by the time final figures are reported.

Founders, investors, and boards have had to readjust their expectations, embracing a reality where capital is far more selective, deals take much longer, and strategic rigour matters more than ever.

However, it’s not all gloom. Across the Atlantic, the U.S. venture ecosystem is showing signs of recovery, signalling that some of the frost is thawing and that global capital may yet become more fluid. For European startups, this distant warmth can offer some encouragement: the dynamics that sparked growth stateside may eventually spill over, rejuvenating local funding environments.

As we turn our eyes toward 2025, the lessons of 2024 become invaluable. By learning from the year’s hard-won insights - understanding what truly attracted funding, appreciating the investor emphasis on fundamentals, and recognising where new opportunities emerged - European founders can position themselves more advantageously.

The following ten observations highlight these lessons, offering guidance as the continent’s entrepreneurs plan their next moves.


1. Selective capital deployment and targeted deal origination

Europe’s VC market is exercising greater discretion in where and how it deploys capital. Investors, influenced by macroeconomic uncertainty and LP pressure, have reduced deal volume again in 2024. Many are using targeted deal origination strategies to find outliers. Meanwhile, deal flow into VC is off the charts. Startups must show compelling value propositions, proven traction, and distinctive technologies to stand out as investors become more selective and deliberate in their allocations.

Key Action for Boards: Before approaching investors, refine your strategic positioning and emphasise unique selling points that truly set you apart. Validate your claims with clear evidence of market demand, customer commitments, or revenue traction. By elevating differentiation and credibility, you give investors a strong reason to choose your startup over others.


2. Increasing emphasis on profitability and sustainable growth metrics

As Europe’s market matures, emphasis shifts from speculative hyper-growth to provable financial stability. Investors demand a clear path to profitability, robust unit economics, and predictable revenues, especially at Series A. Lofty ambitions must now be matched by sound fundamentals, positioning financially resilient businesses favourably in a landscape that rewards stable, defensible growth strategies.

Key Action for Boards: Reassess your business model to ensure a credible plan for attaining and maintaining profitability. Implement concrete steps to improve margins - cut unnecessary costs, refine pricing strategies, and enhance operational efficiencies. Reinforce these actions with regular internal reviews so you can confidently present a sustainable, growth-ready story to investors.


3. Consolidation among venture firms

Europe’s venture ecosystem is polarising: well-resourced, brand-name funds and specialist micro-funds thrive, while mid-sized, generalist firms struggle. 2024 has seen a significant rise in zombie funds - they are still alive but not investing. This reconfiguration encourages founders to choose capital partners more strategically, favouring investors with strong reputations or niche expertise who can support the startup’s journey through multiple funding rounds and market shifts.

Key Action for Boards: Map out the investor landscape in your sector and build a qualified shortlist of firms aligned with your stage, domain, and growth ambitions. Build relationships early - engage in proactive dialogue, share updates, and gauge cultural fit. By nurturing ties with well-matched VCs, you position the company to secure meaningful capital support when the time is right.


4. Greater influence of Corporate Venture Capital (CVC)

European CVC arms, once secondary players, now actively shape the startup landscape. Offering industry insights, customer channels, and strategic resources, corporates provide more than just funds. By intensifying their involvement in 2024, they enabled startups to accelerate validation, scale faster, and gain competitive advantages beyond what traditional VC investors typically offer.

Key Action for Boards: Research CVCs that specialise in your vertical and understand their strategic interests. Tailor your pitch to highlight how a partnership addresses their innovation needs, while securing their support to reach valuable customers, suppliers, or distribution networks. Regularly assess these relationships to ensure both parties benefit from long-term value creation.


5. Rise of ClimateTech, HealthTech, and DeepTech Funds

EU innovation funding, ESG mandates, and investor enthusiasm converge to boost Europe’s ClimateTech, HealthTech, and DeepTech sectors. These mission-driven, R&D-intensive areas are enjoying supportive ecosystems and more patient capital. Startups tackling global challenges find fertile ground for transformative solutions that offer both long-term commercial potential and positive societal impact.

Key Action for Boards: Clarify your technology’s distinct advantage and the regulatory pathways you’ve considered. Document your alignment with EU innovation frameworks, grants, or accelerator programs that back your mission. Continuously communicate these efforts to investors, demonstrating not only a compelling market opportunity, but also a carefully managed approach to pioneering solutions within regulated spaces.


6. Increasing prominence of non-dilutive funding and alternative capital sources

With equity harder to secure, European founders are leveraging grants, venture debt, and other non-dilutive capital to extend runway while preserving ownership. By diversifying financial strategies, startups reduce reliance on equity rounds, maintain strategic flexibility, and position themselves advantageously when it’s time to re-engage with the equity financing ecosystem.

Key Action for Boards: Investigate suitable non-dilutive instruments, from EU grants to venture debt, ensuring they complement your growth strategy. Structure these alternatives to bridge short-term funding gaps without compromising future equity rounds. Review their impact on covenants and repayment terms to maintain financial agility and credibility with prospective investors.


7. Normalising valuations and renewed investor confidence

Valuations, which dipped momentarily across many European sectors during 2023, are now continuing on their upward trajectory. At all stages other than venture growth (typically Series C+) median valuations are now at all-time highs. Investors are regaining confidence as fundamentals improve and growth stories solidify. Startups demonstrating strong metrics, solid pipelines, and credible growth plans may still find it hard to find investment but when they do the valuation reward is there.

Key Action for Boards: Regularly benchmark valuation ranges in your sector to keep expectations realistic and credible. Align internal performance targets, go-to-market strategies, and milestone achievements with valuation enhancement. Communicate these improvements clearly to investors, showing that the company’s trajectory supports a fair and progressively more favourable valuation.


8. The AI imperative and investor lens

As AI capabilities advance and regulatory frameworks evolve, European VCs view AI-centric strategies as a differentiator. Beyond hype, investors seek evidence of responsible AI applications that enhance product offerings, streamline operations, or strengthen defensibility. Ethical and transparent AI usage can raise a startup’s profile in an increasingly discerning market.

Key Action for Boards: Audit your AI strategy to ensure it is embedded responsibly and measurably improving outcomes. Communicate how AI underpins competitiveness - whether through predictive analytics, improved customer experiences, or automated processes. Continuously monitor regulatory changes and refine your approach, signalling adaptability and foresight that keep you ahead of investor expectations.


9. Intensified diligence on compliance, ESG, and operational integrity

Investors aren’t just selective; they examine deals deeply. Beyond financials, regulatory compliance, ESG standards, data security, and IP protections all come under scrutiny. This may be light touch at Seed but for later stages it becomes more stringent - and takes much more time. Due diligence now involves multiple dimensions of organisational resilience, pushing startups to meet higher integrity benchmarks to gain the confidence of increasingly thorough European investors.

Key Action for Boards: Conduct regular internal audits to identify and fix compliance or governance gaps before investors spotlight them. Implement formal ESG reporting, cybersecurity measures, and IP strategies to reassure investors of long-term viability. Train management teams to handle tough investor questions, demonstrating that meticulous oversight is ingrained in your culture.


10. Renewed interest from U.S. investors with different expectations

After a period of caution, U.S. investors are re-engaging with Europe’s venture landscape, attracted by its diverse sectors and stable ecosystems. However, their criteria may differ - expectations for rapid scaling, stronger go-to-market execution, and more assertive growth strategies can contrast with traditional European investor preferences for steady, measured expansion.

Key Action for Boards: Adapt your fundraising narrative to emphasise scale, speed, and market dominance while maintaining the operational rigour European investors value. Develop targeted growth plans, including aggressive U.S. market entry strategies or fast product iteration, to appeal to transatlantic backers. Balance these ambitions with a clear understanding of your long-term sustainability, showing you can thrive in multiple investment cultures.


In summary

Although 2024 didn’t usher in a grand revival, it did bring provide some valuable lessons. It’s now clear that success isn’t about chasing growth at all costs - it’s about building a robust business that can weather prolonged funding cycles, adapting to evolving investor expectations, and incorporating emerging technologies like AI responsibly.

As we step into 2025, founders and boards in Europe must embrace a more measured, strategic mindset. Growth strategies must now be underpinned by disciplined planning, operational excellence, and a willingness to engage deeply with investor priorities. Any business strategy that does not proactively take these into account is likely to fail.

At the same time, Europe doesn’t exist in a vacuum. The renewed energy of U.S. investors, combined with the continent’s own progress in specialised areas like ClimateTech, HealthTech, and DeepTech, provides a foundation for optimism. By blending European strengths - patient capital, responsible scaling, and strong compliance frameworks - with the more aggressive growth mindset of U.S. backers, founders can craft narratives that resonate across geographies.

In short, the path ahead demands strategic clarity, operational discipline, and adaptive thinking. Those who internalise the lessons of 2024 and align with the evolving market environment will be best positioned to thrive in 2025 and beyond.

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