Each year, Atomico’s State of European Tech Report offers one of the clearest signals of where our ecosystem is heading. The 2025 edition stands out for a reason: after two years of cautious sentiment and macro-driven paralysis, Europe’s tech landscape shows unmistakable signs of recovery. Momentum is returning, founders are building again, investors are leaning in, and Deeptech is accelerating at a pace that would have been unthinkable a few years ago.

But it’s not a simple “everything is great again” story. Europe is regaining confidence while still wrestling with structural weaknesses that hold the ecosystem back. Below are my core insights. The trends that matter for founders, operators, and investors navigating 2025 and preparing for 2026.

Optimism Is Back. For the Right Reasons

Atomico finds that 50% of founders and investors now view the next 12 months positively, the highest level since 2021. This is not driven by macro-euphoria; inflation, interest rates, and geopolitical uncertainty remain.

Instead, the sentiment shift reflects something more fundamental: real technological breakthroughs. AI, Defence, Robotics, advanced hardware, biocomputing, quantum, and enabling infrastructure are creating new surface areas for innovation. Small, efficient teams can now drive disproportionate impact. The return on innovation is higher than at any point in the past decade.

Europe’s tech community is regaining confidence because the frontier is expanding again fast.

Deeptech Moves to the Center

One of the most striking statistics: 36% of European VC dollars in 2025 went into Deeptech, nearly double the share seen at the peak of the 2021 bull market.

This isn’t a temporary AI-driven distortion. It’s a structural realignment.

Europe has always excelled in engineering, science, and industrial technologies. Now, the global value pools are shifting exactly into these domains:

• semiconductors and chip-adjacent technologies
• cooling, compute, data infrastructure
• robotics and automation
• dual-use defence systems
• quantum and advanced materials

The rise of companies like Mistral or Helsing is not a coincidence. Europe is finally building at the layer where it can win: the enabling infrastructure of the AI era.

Europe’s Ecosystem Is Now Worth Nearly USD 4 Trillion

A decade ago, Europe’s total tech ecosystem value was roughly USD 1 trillion. Today it is approaching USD 4 trillion.

This multiple is astounding especially given how fragmented Europe remains in regulation, talent mobility, and capital markets.

The growth shows one truth: despite macro cycles, despite political noise, Europe’s long-term innovation capacity is accelerating.

Talent Availability Has Flipped

After years of overheated hiring markets, Atomico reports a remarkable reversal: 40% of founders say it’s now easier to hire top talent. This is a direct result of:

• Big Tech layoffs and hiring freezes
• Unicorns from the 2021 boom scaling down
• Senior operators seeking meaningful missions over compensation-maximized roles

For founders, this is a generational opportunity: the best engineers, designers, and product leaders are accessible again and open to joining early.

The Exit Problem Is Europe’s Biggest Bottleneck

Here lies the harsh reality: Despite all the progress, exit markets remain Europe’s weakest link. Atomico highlights that 43% of investors hesitate to deploy more capital due to a lack of M&A pathways.

The symptoms are well-known:

• too few strategic buyers with global scale
• fragmented industrial sectors that don’t consolidate
• shallow IPO markets
• limited liquidity for LPs, which restricts VC deployment

This is not a temporary issue; it’s structural. Without stronger exit channels, Europe’s venture engine will always run below potential.

For founders raising in 2025–2026, this means:

1. Fundraising becomes more selective.
VCs deploy more cautiously. Not necessarily because they lack conviction, but because their LPs demand liquidity.

2. Exit storytelling becomes part of the pitch.
Startups with clear M&A relevance — strategic IP, defensible data assets, or mission-critical software/hardware — have a sharper edge.

The silver lining: AI infrastructure players and defence-tech acquirers are entering aggressive buy-mode. Expect more activity in 2026.

Europe’s Strengths and Weaknesses Are Now in Sharp Contrast

What emerges from the report is a dual reality:

Europe’s strengths

• globally leading research and engineering base
• deep talent pipelines from universities and labs
• resilience in mission-driven frontier innovation
• rising Deeptech clusters across Switzerland, the Nordics, France, the UK, and Germany
• nearly USD 4tn ecosystem value

Europe’s weaknesses

• fragmented policy and capital markets
• slow, inconsistent regulatory environments
• underdeveloped exit pathways
• almost no participation from pension funds
• a widening gender gap in tech leadership

Europe is accelerating and holding itself back at the same time.

What Founders Should Do Now

If you’re building in Europe today, the report suggests a clear playbook:

Use the momentum:
The window for Deeptech and AI-led infrastructure is wide open. This is a rare alignment of talent, capital interest, and technological need.

Sharpen your story:
Investors want clarity on your path to product relevance and future acquirers.

Think globally from day one:
The most successful new European companies no longer see themselves as “European startups” — they are global infrastructure plays originating in Europe.

Build IP and data moats:
They matter more than ever, especially when exit markets are constrained.

Final Thoughts

The State of European Tech Report 2025 is the clearest signal yet that Europe’s tech recovery is real. Deeptech is booming, talent is available, and optimism is returning. But structural bottlenecks remain and founders who understand both sides of this reality will be best positioned to win.

Europe is not chasing the past decade’s software playbook.
It is building the infrastructure of the next one.