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Investors are pouring billions of euros into European AI and defence tech start-ups, backing companies seen as critical to Europe’s economic competitiveness and security.
Total European venture capital investment rose 5 per cent to €66bn in 2025, a post-pandemic high, according to PitchBook. Those gains were driven by big deals for the continent’s top AI and defence companies.
Several companies in those sectors are in talks to raise fresh funding at sharply higher valuations, according to people familiar with the discussions.
This includes Swedish legal AI start-up Legora, which is in talks to raise funding at about a $4bn valuation, more than doubling its $1.8bn valuation reached last October. Legora declined to comment.
London-based AI avatar maker Synthesia raised $200mn at a $4bn valuation in recent weeks, while audio AI group ElevenLabs reached an $11bn valuation after completing a $500mn fundraising led by Sequoia Capital.
In the defence tech sector, Munich-based satellite launcher Isar Aerospace, which is valued at $1bn, is discussing raising significant new funds. Isar declined to comment.
Those talks come after German drone makers Helsing and Quantum-Systems raised close to €1bn in large funding rounds last year.
“Defence and AI are two of the hottest sectors so it isn’t surprising that they attract many of the mega-rounds taking place,” said Aaron Archer, a partner at the law firm Cooley. “We’re seeing a huge amount of investment that’s taking place on both sides of the Atlantic and expect that to accelerate.”
Venture capitalists and companies are also seizing on buoyant markets to sell down their positions or cashing out when start-ups are sold, with so-called exits also on the rise, according to PitchBook.
Last year, AI-related deals accounted for more than 35 per cent of all European venture capital transactions, worth €23.5bn. That marked an increase from €17.7bn for such deals in 2024.
The valuation increases have mirrored a similar trend in the US, raising concerns that the inflated valuations of some private tech companies have become detached from commercial reality. Google DeepMind chief Demis Hassabis warned that exuberance in parts of the AI industry looks increasingly “bubble-like”.
Outside AI, European start-ups focused on defence and related technologies saw investment soar 55 per cent year on year to a record $8.7bn in 2025, according to the Nato Innovation Fund and research group Dealroom.
That was fuelled by large, late-stage funding rounds focused on areas such as quantum computing and space.
Sander Verbrugge, partner at the Nato Innovation Fund, which has raised €1bn to invest in defence and “deep tech” start-ups, said the “significant growth” across the sector was a sign that the “ecosystem is maturing”.
The figures are the latest evidence of the strength of investor interest in Europe’s defence, security and resilience start-ups since the start of the war in Ukraine nearly four years ago.
The research comes just days before the start of the Munich Security Conference where European rearmament will take centre stage.
AI and defence-related companies are also benefiting from a push by officials to increase their technological and security independence, according to Siraj Khaliq, a senior adviser at the €1bn European deep-tech fund Kembara.
“European governments seem to really care about building their own stack,” he said. “The sovereignty tailwind is not to be underestimated.”
Data visualisation by Clara Murray
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