Venture capital investment in European startups passed $52 billion last year, reflecting the market’s long-term growth trajectory and gradual stabilization after the out-sized peaks of 2021-2022 (driven largely by the COVID-19 pandemic), and the comparative slump of 2023, according to a new report.

Although 2024 has seen political and regulatory turmoil, Europe’s talent pool of startups continues to increase, even if funding shortages kicked in last year, per global law firm Orrick’s new “Deal Flow” report, which covers 2024.

An analysis of more than 375 VC and growth equity investments in Europe last year reveals a handful of key takeaways. Compared to previous years, Europe’s startup market stabilized, with a modest rebalancing of investment terms compared to the extreme highs and lows of the pandemic hype and post-pandemic slowdown. 

There was also a lot more adoption of the British Venture Capital Association’s new model form documents in European deals, which tend to more closely align with U.S. practices. With this de facto standard emerging, this trend is likely to accelerate future deal-making because it’s a lot easier to push through deals where everyone is familiar with the structure.

European companies also appeared to expand option pools, with over 70% of equity financings including a top-up, highlighting a stronger European talent pool and focus on scaling companies rather than selling early.

There were signs of an improvement to deal volume and size, too, with the average size of deals Orrick did with investor clients growing by 66%, while deals initiated by startups saw a slight decline, even though company-side deals still represented the majority. 

However, the report reflected the fact that Europe remains constrained in the number and amount of growth-stage funding deals. While Europe is well-served for early-stage, later-stage and growth-stage funding is scarcer.

Equity-based deals were stronger than debt-based deals, with companies preferring extension rounds over debt rounds. The two most common types of equity-based deals emerging in this instance are ASAs (Advanced Subscription Agreement) and SAFE (Simple Agreement for Future Equity). 

Some 30% of rounds were either a standalone secondary financing or rounds that included a secondary component. Founders tended to access secondary transactions earlier in the funding stage, with some occurring as early as Series A.

Startups with some kind of SaaS or platform-based business model represented 21% of financings, deep tech increased to 23%, deals with an AI and ML (machine learning) component maintained a 33% share, and fintech rose to 16% of European deals.