European Ecosystem Matures
Key takeaways
This year marks the first time that early stage investment is equal across European and North American markets, with faster growth in European early stage deal sizes.
Deal sizes overall remain larger in North America, while there continues to be a later stage funding gap for both deal volume and total investment.
The US market has contracted significantly this year, while Europe’s largest markets, Germany and the UK have seen strong growth.
For the first time, the top three cities for investment are European, with US cities moving down the rankings.

Europe vs the US: An inflexion point?

European early stage investment on par with North America for the first time

This year marks the first time total Pre-Seed to Series B investment is larger in Europe than North America, however the last three years have seen a widening gap for later stage.

Early stage (Pre-Seed to Series B) deal count has been consistent between North America and Europe over recent years, while invested capital has typically been concentrated in the North American market. Notably, this year was the first year that early stage investment volumes in North America and Europe were on par. This is indicative of a maturing European market, with the median Series B deal size growing +54% year on year. Average Seed and Series A deals also saw significant growth in 2023, while the 20% decline in Pre-Seed size was much lower than the 57% drop seen in the North American market.

Venture deal sizes are growing faster in Europe

Median deal sizes continue to be higher in North America, but growth has been muted relative to the European market where larger deal sizes are driving overall investment growth.

While the trend may be upwards, deal sizes remain smaller in Europe across all stages. When it comes to the later stage deals, venture capital remains overwhelmingly concentrated in North America. For Series C investment, the gap has widened since 2020, with 2023 showing no signs of change. However, with Series B deal sizes showing strong growth in the European market relative to North America’s contraction, this could set the stage for a stronger later stage investment market over the coming years.

US investment dips by a third and Germany displaces UK as second largest market

The top three venture markets for greening the built world remain the same in 2023, with capital continuing to be concentrated in the US.

The US alone recorded +4x the amount of investment than Europe’s largest hub, Germany, and while London was the top city for both deal count and investment ($1bn, 77 deals), the Bay Area is expected to see $1.4bn investment across 121 deals. Breaking down the numbers by theme, it’s clear that the US’ dominance is more prominent for certain verticals. For example, the US accounted for close to 80% of building materials funding in 2023 despite Europe representing 33% of global deal flow. Notably, building electrification capital is equally dominated by Germany and the US which each account for just over a third of global investment. This is also true for earlier stage deals, with the US, Germany and UK making up a large portion of deal count.

Some markets have fared better than others during this year’s macro downturn. One standout market is Germany, which saw an impressive 74% investment growth in 2023, recording over $1.4bn in venture capital. Investment was primarily concentrated in building electrification installers, with players such as Enpal and 1Komma5 seeing large later stage rounds. Israel is similarly an ecosystem to watch, with a large number of digital twin solutions across building design and infrastructure monitoring. The UK’s ecosystem is concentrated in building to grid solutions, which accounted for a fifth of total deal count and over 40% of total investment, driven by funding for grid scale battery installers such as Field Energy. Another fifth of UK deal volume is in climate risk solutions such as Climate X, with a number of very early stage deals accounting for 5% of the country’s total investment this year.

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