European Venture Capital Surges: Why Europe Is Finally Having Its Moment
Something's Shifting
European venture capital is having a moment that's genuinely surprising people. Cambridge Associates' latest benchmark data shows the Europe Developed Venture Capital Index returned 14.61% over the past year (in USD terms), comfortably ahead of the US VC Index at 11.44% and well beyond the broader Ex-US VC Index's 5.57%.
This isn't a one-off either—Q2 2025 saw European VC return 7.78%, continuing a pattern of consistent strength.
The Long Game: Europe Growing Up
What's really interesting is that European VC is now competitive with or beating US performance across multiple timeframes:
**Europe vs. US - Horizon Returns:**
- 5-year: Europe 18.03% vs. US 15.00%
- 10-year: Europe 17.22% vs. US 13.06%
- 15-year: Europe 16.69% vs. US 15.35%
This represents a real shift. For decades, European VC was the also-ran, consistently delivering returns 3-5 percentage points below US peers. That dynamic seems to be changing.
What's Actually Happening? European Tech Comes of Age
A few things have converged to make Europe a genuinely competitive VC market:
Experienced Entrepreneurs Are Building Better Companies
Europe now has a full generation of founders who've done this before—think Skype, Spotify, Wise. These aren't first-timers figuring it out as they go. They're building better companies faster, with more realistic strategies from day one.
Capital Isn't Scarce Anymore
European VC has grown up. Mega-funds like Atomico, Index Ventures, and Balderton have raised multi-billion dollar funds. Growth equity firms like EQT Ventures can write the big checks needed for scale-up. European companies don't need to pack their bags for Silicon Valley anymore to access growth capital.
Exits Are Actually Happening
European exchanges, particularly London and Amsterdam, have become viable exit venues. More importantly, US tech giants and PE firms now regularly buy European companies, creating real competition for assets and driving valuations up.
The Talent Pool Has Deepened
Europe's engineering talent was always strong. But now there's real depth in product management, go-to-market strategy, and operational expertise. London, Berlin, Paris, Stockholm, Amsterdam—these aren't satellite offices anymore. They're proper tech hubs with full ecosystem support.
Regulation as Unexpected Advantage
Here's an irony: some of Europe's regulatory challenges—GDPR, AI regulation—are actually creating competitive advantages. European companies building compliance-first products have a head start when selling to enterprise customers globally.
Recent Vintages Are Delivering
The data shows some genuinely impressive performance from recent European VC vintages:
- 2023 vintage: 25.25% IRR (very early days, but promising)
- 2016 vintage: 24.67% IRR with 3.41x TVPI (exceptional)
- 2012 vintage: 26.85% IRR with 4.59x TVPI (mature and strong)
That 2016 vintage is particularly noteworthy—these funds invested during 2016-2019, capturing companies at reasonable valuations that have since delivered solid returns.
The Currency Reality
Worth noting: European VC returns are significantly affected by currency movements. In EUR terms, that one-year return is 4.63% versus 14.61% in USD terms—a 10 percentage point difference driven by EUR weakness against the dollar.
For US-based LPs, this currency movement is a real return enhancement. For EUR-based LPs, the returns are more modest but still respectable. It matters which lens you're looking through.
Geography Still Matters
While the report doesn't break down performance by country, there are clear patterns in where things are working:
**What's Working:**
- UK: London remains Europe's deepest tech hub with the most mature ecosystem
- Nordics: Stockholm and Copenhagen punching way above their weight, especially in gaming and SaaS
- Germany: Berlin emerging as a major hub, though exits still lag deal flow
- France: Paris making real strides, particularly in AI and climate tech
**Still Developing:**
- Southern Europe: Ecosystems are building but institutional support is limited
- Eastern Europe: Strong technical talent but capital availability remains an issue
- Switzerland: Excellent in life sciences but limited in software/consumer tech
Why Is European VC Outperforming?
There are some structural reasons this is happening:
Valuation Discipline
European valuations never reached the heights of US tech during 2020-2021. Series A valuations that hit $100M+ in Silicon Valley typically stayed in the $20-40M range in Europe. This discipline meant less painful markdowns in 2022-2023.
Bootstrapping Culture
European founders tend to be more capital-efficient, building toward profitability rather than growth-at-all-costs. In the current environment, that conservatism is actually paying off.
Global From Day One
European companies have to think internationally from the start—home markets are too small. This forces better product-market fit and creates more resilient businesses than US companies that can succeed domestically before thinking about expansion.
Less Crowded Deals
Despite improvements, European VC is still less competitive than US markets. Top-tier European VCs can access company rounds that would be mobbed in Silicon Valley, getting better pricing and terms.
Government Support Actually Helps
European governments have meaningfully increased support for venture ecosystems through tax incentives (UK's EIS/SEIS, France's JEI), co-investment programs (British Business Bank, Bpifrance), R&D credits and grants, and visa reforms to attract talent.
Rethinking European Allocation
For US-based institutional investors, these returns suggest European VC deserves more than token exposure.
Most US LPs currently allocate only 5-10% of their VC portfolio to non-US markets, with Europe getting perhaps 3-5% of total VC allocation.
Given the performance data, something closer to 15-20% European allocation within a VC portfolio seems reasonable—that's a 3-4x increase for many institutions.
**How to Build Exposure:**
- Multi-Country Funds: Funds like Index Ventures, Accel, and Atomico invest across European markets, providing diversification and leveraging pan-European networks.
- Specialized Geography Funds: For larger LPs, dedicated exposure to UK (Hoxton Ventures, LocalGlobe), Nordic (Northzone, Creandum), or German (Cherry Ventures, Earlybird) markets allows more targeted bets.
- Stage Considerations: European early-stage funds (Seed, Series A) look particularly attractive. Scale-up rounds (Series B+) are more competitive and may not offer the same value.
**Sector Focus:**
Europe has real strength in:
- Enterprise SaaS
- Fintech (regulatory innovation creating opportunities)
- Climate tech (strong policy support)
- Gaming (Nordic and UK studios producing global hits)
- Life sciences (deep academic research base in Cambridge, Basel, Munich)
The Challenges Are Real
European VC isn't perfect:
**Exit Markets:** While improving, European exit markets remain thinner than the US. IPOs are less common, and M&A multiples often lag US comparables.
**Fragmentation:** Multiple markets, languages, and regulatory regimes create complexity. Pan-European scaling is harder than US coast-to-coast expansion.
**Less Late-Stage Capital:** European late-stage funding, while improving, still can't match US mega-rounds. Companies hitting scale challenges may still need US capital or relocation.
**Currency Risk:** For USD-based investors, EUR exposure creates currency risk. The recent outperformance in USD terms partly reflects EUR weakness—this could reverse.
**Governance and Structure:** European fund terms sometimes differ from US standards. Due diligence on fund terms matters.
Where This Leaves Us
The data tells a clear story: European venture capital has matured from a developmental asset class to a genuine alternative to US VC. With returns now matching or exceeding US performance, deeper capital markets, experienced entrepreneurs, and attractive valuations, European VC deserves serious attention from institutional investors.
For US-based LPs still treating Europe as a small, experimental allocation, this data should prompt a rethink. A 15-20% allocation to European VC within a broader venture portfolio looks not just justified but potentially necessary for optimal portfolio construction.
The question isn't really "Should we invest in European VC?" anymore. It's more "How quickly can we build meaningful exposure before this becomes consensus?"
For European VCs raising from US LPs: this data makes your case better than any pitch deck ever could.
