Title: Is Dried Powder Jamming Up Europe's Venture Capital Investment Game?
There's quite an abundance of "dry powder" in the UK and Europe, it seems. According to a report by HSBC Innovation Banking and Dealroom, UK-based VC firms raised an impressive $11.3 billion in dry powder in 2024. Meanwhile, Europe as a whole started 2025 with a staggering $31 billion yet to be committed. This figure represents a significant increase from the $12.6 billion recorded in 2014, with a more than four-fold increase observed over the decade.
This influx of capital should, theoretically, be beneficial for startups. In 2024, UK startups managed to raise $16.2 billion, albeit slightly less than the $18.9 billion raised the previous year. Across Europe, the picture was similarly mixed. While investment in the innovation economy remained robust, most countries saw a drop in capital raised compared to the previous year. For instance, Germany went from raising $9.1 billion in 2023 to $8.2 billion in 2024, and France saw a slight decrease from $7.9 billion to $7.8 billion.
However, these figures should be viewed in the context of a long-term upward trend. The $53.5 billion raised by European companies in 2024 is a testament to the progress made within the ecosystem over the years. In fact, compared to the $12.6 billion raised in 2014, Europe has seen a ten-fold increase in capital investment over the past decade.
While the availability of dry powder is encouraging, there are also reasons for caution. Gregory Dewerpe, founder of noa, an investment fund specializing in the built environment, points out that investors still approach European opportunities with a degree of wariness. He believes that Europe is currently lagging behind the US, especially given the latter's shift towards a pro-business political era. This perceived negativity has yet to fully impact company valuations, leading to expensive valuations in some cases.
However, a drop in these valuations could potentially encourage VCs to invest more. Dewerpe also notes that a significant portion of the dry powder will be used to support existing portfolio companies. Additionally, raising new funds has become more challenging, leading to GPs holding onto their existing funds instead of deploying them.
Despite these challenges, there is hope that the newer vintages of funds, which are not yet through their investment period, will be more active in the market. Stephen Lowry of HSBC Innovation Banking agrees, pointing out that there are other sources of capital beyond the dry powder held by European VC funds. In fact, there is a lot of potential investment capacity beyond the European VC market.
Interestingly, the sectors that have seen significant investment in 2024 include healthtech and enterprise software in Europe, while fintech has regained the top spot in the UK. AI is also expected to be a major focus, particularly for businesses that can deliver value by disrupting legacy industries.
In conclusion, while the abundance of dry powder in UK and European VC firms is a positive development for startup investment in 2025, there are also reasons for caution. Investor attitudes and sector preferences must be taken into account, and the challenges of raising new funds and supporting existing portfolio companies should not be underestimated. Nevertheless, the potential for investment capacity beyond the European VC market offers hope for a robust startup ecosystem in the coming years.
Blossom Capital, a prominent VC firm based in Europe, has also benefited from the abundance of dry powder. They raised $300 million in their fourth fund in 2024, demonstrating the high demand for startup investment.
The report by HSBC Innovation Banking and Dealroom also mentioned that noa, an investment fund specializing in the built environment, has been actively investing in startup companies. This growth in investment is likely due to the availability of 'vc investment' funds.
Additionally, Blossom Capital, along with other VC firms, has the 'dry powder' to support the growth of their portfolio companies. This dry powder could potentially be used to invest in startups that focus on disrupting legacy industries, such as AI and fintech.