In recent years, European companies valued at more than $1B have emerged at an increasing pace. The number of new $B+ companies added over the last decade is five times the level seen before 2015.

Back then, the Social & Lifestyle sector accounted for the largest share (22%) of Europe's $B+ companies, with Enabling Technologies following at 19%, and Retail in third place at 17%. However, over the last decade, Finance has become the leading sector with globally recognised names such as Stripe, Klarna and Revolut demonstrating Europe's strength in the sector. It accounts for 24% of new $B+ companies added in the last five years, followed by Horizontal Software at 19%.

The Sustainability / Climate sector, which includes themes such as energy or carbon removal, has seen modest growth, accounting for 5% of $B+ companies created between 2020 and 2024. This limited representation contrasts with the significant investor focus on the sector. The solutions here are often more capital intensive, and access to follow-on funding remains a key risk in these companies' journey to scale. However, these large-scale projects are critical to make a meaningful contribution to the climate crisis.

Europe has also seen its first $B+ companies emerge in the Education and Health sectors over the past decade. Both sectors have continued to grow their share in the last five years, and it will be exciting to see who follows in the footsteps of companies like Multiverse and Doctolib.

Over the past decade, Europe’s funding priorities have shifted from consumer-facing sectors to those pushing the boundaries of innovation. In particular, the Retail sector has seen its share of the pie fall by almost 20 percentage points. Funding for the Social & Lifestyle sector has also fallen by nine percentage points.

Enabling Technologies — such as AI and semiconductors, which continue to lay the foundations for further innovation to take place — has been the biggest gainer in terms of the share of funding received, increasing by 11 percentage points and capturing 18% of capital invested in 2024 so far this year. The Sustainability / Climate sector is coming in at a close second, representing 17% of total funding.

Examining the progression of startups that raised a Seed round in 2015 reveals notable differences across sectors. Finance and Digital Infrastructure companies outperform the average benchmark for Europe across the funnel while Education, Health, and Social & Lifestyle lag behind.

A significant driver of this disparity is likely Europe's distinct market structure, especially in Education and Health, where startups are often reliant on public sector procurement processes, which can be lengthy and difficult to navigate.

Meanwhile for Finance, there are unique factors at play such as the more unified regulatory framework like the Payment Services Directive 2 (PSD2) or the more fragmented banking system in Europe that traditionally charged higher fees, especially for cross-border transactions.

Looking at the themes of rounds under $5M, we can see where momentum is building — and where $B+ companies might emerge.

AI / ML — which ranges from generative AI, AI computing infrastructure and more general AI applications — have long been favoured by investors, but there has been a recent surge in investment activity. So far in 2024, 23% of all sub-$5M rounds have been in this theme, with nearly one in every four VC dollars allocated to this area. Sustainability-related themes — energy, transportation, carbon management and new materials — have also taken numerous spots in the top 20 themes in 2024. On the other hand, the tables have turned for the likes of travel and gaming, which are no longer featured in the list as of 2024.

Comparing today’s most invested themes with those of 2015 provides a window into the journey technology is taking, as it becomes increasingly ubiquitous. Retail and Social & Lifestyle related themes — e-commerce, sales & marketing, communication and social platforms, entertainment, travel, and gaming — captured the lion’s share of investment back in 2015. Today, a greater proportion of capital is being invested in AI / ML, energy or even blockchain, as technology turns to the digitalisation of traditional sectors.

If we look at the evolution of the $B+ distribution across sectors, we can expect the early-stage energy and AI / ML companies of today to become the $B+ companies of tomorrow.

Today, one in every five venture capital dollars goes towards building a more sustainable future, where new technologies and innovations are necessary to turning that vision into reality. This trend has been picking up pace over the past decade and emphasises the effort companies are putting into pursuing that, as well as the sizable opportunity investors are recognising.

Between 2015 and 2021, the share of funding that companies in sustainability themes raised hovered between 9% and 12%. In 2022, this increased to 18%, followed by a high of 27% in 2023, driven by megarounds such as 1KOMMA5°’s $473M Series B round (part equity and options to finance potential acquisitions) and Verkor's $935M Series C. Funding rounds of this magnitude have not been as common in 2024, and capital invested in this theme has come down to pre-2022 levels as a result.

Together with S&P Global Market Intelligence, we have been able to track the evolution of the sustainability conversation, both in terms of volume and topics. By going through the dataset of machine-readable earnings calls from listed technology companies, quarter by quarter, mentions of sustainability topics were extracted and injected into a proprietary LLM model to identify and contextualise trends over time in the US and Europe.

The AI classification model reveals a shift over time from compliance to strategy — in other words, companies are moving from viewing sustainability as a mere compliance requirement to integrating it as a fundamental component of their business strategies, driving overall shareholder value.

In addition, companies are increasingly defining specific sustainability goals linked to brand reputation and consumer expectations, and linking these to measurable results and long-term commitments. Indeed, we are seeing an increase in carbon-related mentions (e.g. carbon emissions, offsetting, and net zero), which underpins the appetite for more solutions in the space. This is likely to be a strong growth driver for the carbon management software solutions theme.

While the shift in the narrative towards measuring impact is positive, the decline in overall mentions could be an early indicator that, in a tougher macro environment, companies are pushing sustainability further down the priority list and focusing their resources elsewhere. If this trend continues, it could have knock-on effects for technology companies building in this area.

Exceptional talent is distributed across many themes in Europe — but increasingly, higher volumes of talent have migrated to companies solving hard problems.

Having overtaken sales & marketing, e-commerce and BI / analytics, AI / ML is now the theme that sees the largest number of new joiners, with many transitioning from other parts of the tech industry. Some notable talent magnets include DeepL, Scale AI and Synthesia, as well as Open AI.

Energy and HR tech have entered the top 10 after being absent in 2015. Notably, energy’s rise is characterised by a large influx of new joiners from outside of the tech industry, highlighting the diversity of roles and sector-specific knowledge needed to advance the transition to net zero. Following the large rounds raised in 2023, 1KOMMA5° and Verkor have been adding to their teams. Personio, Deel and Factorial are among the top names for HR tech.

Sustainability covers a wide range of business types, from software and asset-light companies to more capital-intensive deep-tech innovators. These companies are building for a more sustainable and efficient world — a world we haven't yet arrived at — and need access to committed, long-term partners.

We looked at who the top funders are in this sector, particularly those who have participated in rounds of more than $15M, where access to growth-stage capital can be a barrier. While there are many generalist venture funds investing in this space, we also found a number of specialist players among the top investors by number of rounds participated. For example, sustainability focused firms Lowercarbon Capital, Energy Impact Partners and Demeter are among the top firms by investment since 2015 in Europe. Government entities are also particularly active in direct investments in Europe, accounting for 18% of top investor activity, compared to just 1% in the US — French government-backed BPI France appears to be the most active sustainability investor in Europe over the period. In the US, corporations and corporate venture funds such as Amazon, Google Ventures and the like are far more active than in Europe.

Most LPs are still inclined towards generalist funds, but there's a clear trend towards increased interest in thematic funds, with deep tech emerging as a primary focus. Fifty-seven percent of LPs surveyed say they are conducting due diligence on deep tech funds, indicating potential future commitments or a growing interest in investing with more specialised fund managers. Sustainability also ranks high, with 42% of LPs interested, while 50% have explored other thematic areas. This trend towards due diligence in deep tech and other themes may well be a leading indicator of greater capital allocation to more specialised fund strategies.

Europe’s deep tech ecosystem boasts a combination of research excellence, a strong talent pool from world-leading institutions, and success stories like Deepmind keeping the flywheel in motion. 

Funding has followed accordingly, with investment in deep tech themes increasing from a modest $2.5B in 2015 to a high of $18.9B in 2021. Funding levels have dipped in line with the recent market activity, but remain well above even 2020 levels. So far in 2024, $14B has been invested into deep tech, representing a 85% increase on 2020 levels and an impressive 450% rise compared to a decade ago.

Since 2015, deep tech companies in the US have raised over $310B, while Asia and Europe are neck and neck around the $100B mark (at $123B and $94B, respectively). The accelerated rise in US deep tech funding figures is largely attributed to its growing AI / ML scene. In the last two years, Enabling Technologies contributed just over half of all deep tech funding in the US. OpenAI's $10B round in 2023 alone accounted for 22% of the total capital raised by deep tech companies in the US that year. But even without these outlier rounds, the US is currently outpacing all other major economies in the world, by nearly four times.

The top two names in deep tech have reached significant milestones this year, with OpenAI hitting more than 1 million paid users and SpaceX's Starship booster successfully completing a first of a kind landing. Meanwhile in Europe, Northvolt, once touted as Europe's electric vehicle battery champion, is now fighting to stay afloat.

Moonshot companies like these require significant amounts of funding as they grow. Across the top 10 best funded, they have collected $60B of venture capital financing. The vast majority — eight out of 10 — are based in the US, a ratio that remains the same when we look at the top 100 companies in terms of capital invested.

With less growth capital available in Europe, local champions face a higher barrier to success from the outset. While the nature of pursuing these ideas means that some will fail, Europe must also work hard to ensure that it doesn't fail them.

From foundation models to first-of-a-kind products, the amount of capital required by some deep tech companies to compete on a global scale can be substantial. The journey to scaling such complex technologies is often non-linear, with companies going through cycles of funding, scaling and cost management before fully optimising their business models or even securing customers.

These are business models that require a large base of investors with not only deep pockets, but a high degree of patience and commitment, too.

While the majority of rounds are backed by VC funds, government agencies fund nearly a quarter of the rounds mapped through direct investment in Europe. This is thanks to the role played by Bpifrance and other very active Pre-Seed and Seed government investors.

This differs from the US, where there is a larger base of VC funds with deep pockets to invest in the space, as well as strategic corporate VCs (such as Google Ventures, Microsoft M12, Intel Capital). Across both Europe and the US, the most active corporate investors are Tencent, NVIDIA and Microsoft.

AI has dominated tech discussions since late 2022, with mentions of the topic in public tech company earnings calls across the US and Europe doubling quarter-on-quarter following the launch of OpenAI’s ChatGPT. This surge peaked in mid-2023, driven largely by the rapid rise of generative AI, which has since overshadowed traditional machine learning and predictive analytics.

For private markets, this shift signals a pivotal trend: as enterprises increasingly prioritise AI-driven solutions, demand for innovation in generative AI could reshape purchasing strategies, potentially intensifying competition from incumbents already adopting AI at scale. This may also be a leading indicator of heightened M&A activity as companies seek to integrate generative AI into their capabilities.

While the US and China dominate AI funding globally, several European nations rank highly when looked at individually.

The UK ranks third on the list of top countries by AI funding, having invested $4B so far in 2024. It holds this position comfortably ahead of Canada, which is in the next top position, having invested more than twice the amount into AI.

Germany and France have also made strong showings, ranking in fifth and sixth place respectively, and each allocating over $1B each to AI companies. These countries demonstrate Europe’s growing influence in the AI race, despite the continent’s broader funding gap with the US. 

Europe has a long way to close the gap with the US in terms of AI funding. In 2024, the US will have invested $47B in AI, compared to Europe's nearly $11B.

However, it's not too late for Europe to catch up, and the continent has made remarkable progress over the past decade. In 2015, AI investment in Europe was just over $1B, meaning that it has seen an almost ninefold increase in funding over the past decade. This momentum is far greater than that of the US, and has put Europe on a par with China, the former leader in AI funding.

The ambition to build global AI leaders in Europe is there, with examples all around. The UK's Wayve is going head-to-head with the US's Waymo in the self-driving arena. AI mafias are also emerging — H Company in France was founded by ex-DeepMinders and recently raised one of the country's largest Seed rounds. Black Forest Labs was founded by Stable Diffusion alumni and is now competing with Midjourney in text-to-image generation. Meanwhile, Poolside, founded by the former CTO of GitHub, is building the next generation AI for software engineering, Germany’s DeepL is setting new standards in translation tech, and France’s PhotoRoom continues to break ground in image-editing AI.

The opportunity for AI breakthroughs in Europe is immense, but more funding will be key to unlocking these ambitions on a global scale.