Europe: Q1’26 Venture Pulse Report

European VC investment remained resilient in Q1’26, supported by a record number of $1 billion‑plus deals, while overall activity stayed highly selective and concentrated among large, established companies.

Q1'26 highlights for Europe

European VC‑backed companies raised $25.7 billion across 1,939 deals
Europe recorded a record number of $1B+ VC deals in Q1’26
Investment activity remained highly selective, concentrated in large, late‑stage rounds
AI and defense tech emerged as the strongest areas of investor focus
Exit activity remained muted, with M&A outpacing IPOs

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Europe sees strong deal value driven by megadeals

VC investment in Europe posted a solid start to 2026, driven by an unprecedented number of billion-dollar funding rounds. While deal value increased meaningfully, activity remained concentrated in a limited number of large transactions, reflecting continued investor caution toward earlier stage and higher risk opportunities.

Highly selective market favors scale and defensibility

Despite pockets of strong performance, Europe’s VC ecosystem remained highly selective in Q1’26. Investors focused capital on companies demonstrating scale, clear paths to profitability, and defensible market positions. Startups operating outside these parameters continued to face a challenging fundraising environment, often accepting tougher terms or exploring alternative funding structures such as venture debt.

Defense tech and AI gain momentum amid geopolitical tensions

Defense tech continued to gain acceptance as an investable asset class in Europe, supported by rising geopolitical tensions and increased government engagement. At the same time, AI remained a central theme, with investor interest spanning large platforms, industry specific solutions, and AI enabled infrastructure. Dual use technologies — capable of serving both commercial and defense applications — attracted particularly strong attention during the quarter.

Muted exit environment shapes investor behavior

Exit conditions in Europe remained subdued in Q1’26, with IPO activity soft and M&A emerging as the more viable path to liquidity. Private equity interest in durable, EBITDA positive VC backed companies continued to grow, influencing investors to prioritize capital efficient business models and later stage opportunities.

Trends to watch for in Q2’26

Looking ahead to Q2’26, VC activity in Europe will continue to be shaped by geopolitical developments, energy price volatility, and evolving regulatory frameworks, particularly in AI. While investor selectivity is expected to remain high, interest in defense tech, AI, energy infrastructure, and fintech is likely to persist. Exit activity is expected to remain uneven, with M&A continuing to outpace IPOs in the near term.

We’re seeing the early stages of a shift in Germany’s VC investment landscape. While Berlin remains a strong hub for digital business models - particularly in fintech and consumer-facing B2C startups - capital is increasingly being allocated to deep-tech ventures. Munich is the first hub to benefit from this shift. Its strong focus on deep tech, especially in defense, security, and critical infrastructure, aligns closely with the geopolitical realities shaping global investment priorities today.

Florian Merkel

Director of Tax, Head of Venture Services

KPMG in Germany