The State of European Tech 2025: Top talent, failing better and scaling faster

0:00As usual, I'm your host, Amy Lerwin, and it's that time of year again, Atomico State of European tech report has landed. This year, the monumental report, which takes stock of how Europe's tech scene is faring on everything from fundraising to attracting top talent to implementing entrepreneur-friendly legislation, has a humongous 183 charts. With me to discuss the most intriguing and frustrating findings in the report this year, with regards to talent in particular, is my colleague Miriam Partington, author of our Startup Life newsletter. Miriam, hello. Hello. Thanks for having me back again.

0:40You're joining us from Berlin. Is it snowing there like it was earlier today in London? It's not snowing, but it's incredibly cold. It's already, I don't know, one or two degrees. So I dread to think what it's going to be like in January and February. Yep. Jumper weather is upon us. So in the report, I guess the picture is looking a little bit more rosy than it has for the past few years. So if I run through a few top line figures, Europe's tech sector, which includes private and public companies, is now worth nearly $4 trillion, a fourfold increase on a decade ago. European tech now contributes 15 % of the continent's GDP, up from just 4 % back in 2016, a decade ago.

1:23And startups this year are on track to raise$44 billion in funding, which is higher than the totals in both 2023 and 2024. Miriam, Do you feel with the founders and investors that you speak with that they also feel that stuff is taking a turn for the better? Yes, it's an interesting question because I was also quite surprised when I read the report and could read how optimistic the report was. Because it's my impression, at least from living in Germany and speaking to German founders here, that it's still a bit of a struggle. I mean, it depends on who you speak to, right? But I think there's a lot of founders that are still struggling to raise funding, even though funding is up.

2:06And in general, I sense that there's still like a lot of frustration about where things are going in terms of policy and regulation. We had a new government come into force earlier this year. And I think there was a big promise that lots was going to change quite quickly. And we haven't actually seen much change at all. so I sense that there's still a lot of kind of why aren't things changing and why aren't they changing now yeah I guess if I were to kind of look back on 2025 I'd say this was almost like the year that founders and investors really started making their views heard about policy I feel like we've had so many you know there's the the EU Inc campaign but there's been so many other things specific to different countries or areas in particular where, you know, I'm sure we've received a record breaking number of open letters in our inboxes.

2:59I feel like the entrepreneurs love to sign an open letter to their chancellors and prime ministers at the moment. But I guess, yeah, that's a sign that there's lots of people identifying still needs to be done to make Europe a good place to build a company and invest doesn't it yeah absolutely and I think honestly there's a lot of um or rather a lack of faith in what the government's been doing and so lots of tech entrepreneurs are trying to take matters into their own hands and I think this Europe narrative that has been ongoing this year you know let's compete against US and China we don't want to be pushed around I think that is propelling a lot of people to want to um you know get their voice out there essentially yeah one thing that I think is super interesting about the report this year is that I think for the first time Atomico has kind of set the ecosystem some goals to achieve by 2030 so these are things that it thinks will be long-term drivers of success and many of them I'll go through them in a second but many of them are around these kind of policy areas these issues around scaling up etc and the idea is that from now on the report will track every year how the ecosystem is kind of getting on with achieving those goals and the first one is they've called it fix the friction and you know one of the big components so that's kind of frictions towards scaling and growing company in Europe and one of the key components of that that they identify is having this single way of company formation which is what EU Inc is pushing for to make it easier to invest in a European company no matter where the investor is from to make it easier to incorporate I know Germany in particular is famous for really loving a bit of paperwork still isn't it do you think those kind of goals are very realistic with regards to EU Inc I mean I think for the tech industry it makes total sense right like we can read that report and you know and the goals of the EU Inc and see this actually makes sense given what we hear on a daily basis from founders and investors.

5:11But I think it's interesting when you speak to people that are closer to policy and closer to the EU level, and it seems that not everyone agrees. Maybe they're marginal voices, but I think there is still a feeling that member states are competing with each other in some respects rather than joining forces. And I think there are some politicians that are still yet to be convinced of the value of EU Inc and perhaps not really understanding the urgency with which this needs to happen. And I think the challenge with EU Inc is less having to come to a compromise across all member states. And it's actually about how do you create something that's easy for people to follow?

5:51Because I think whenever something happens, whenever there's a new policy, I mean, you see it with the AI Act, right? The number one question is how do you implement it? And the AI Act has been dragged out for so many months now and again you know we just published a piece which is about how a crucial aspect of the AI Act has now been delayed once again. So I think there's a sense of if we do EU Inc let's do it right, let's give clear guidelines for how this is going to be implemented and let's not make it yet another EU policy that takes years to actually come to fruition. Yeah and that will be the big challenge with it is as it moves through the various parts of the EU, whether the various member states play with it in such a way that it isn't this really sort of simple universal thing that it's meant to be.

6:40And to run through the other sort of three main areas that Atomico wants to track moving forwards, one is just around funding towards the ecosystem. So getting more money from pension funds into startups and VCs, getting more money from All of the savings pots that us Europeans love to create and also the possibility of having one single European stock market, which I think is probably a topic for another day. And listeners, let us know if you think that is at all realistic. Another area is changing our narrative around risk and learning to fail better. Miriam I feel like the topic of startup failure is one that you talk to people a lot about what do we need to do to make entrepreneurs here more comfortable talking about failure giving up on companies when they're not working for operators to give up on jobs when they're not the right one like how do we how do we create that kind of fluidity around roles and companies and you know ditching one idea and moving on to the next one because your time is precious and we only have so long to change the world?

7:53I feel like with regards to talking about failure I feel like things are improving in that regard I mean I think you know we saw from 2022, 2023 that there were so many companies that were going insolvent and I think we wrote a piece at the time but you know there was a lot of founders coming out on LinkedIn saying you know this is what happened to the company and you know we're actually quite vulnerable about the kind of emotional impacts I can have on the platform, you know, when you feel responsible for so many employees and so on. But I think the thing that is still kind of a bit of a consideration is when it comes to just, you know, this whole idea of ditching a startup and then starting a new one if it doesn't work, it's perhaps harder to do that in Europe because there are so many structures in place that are quite rigid that makes it hard to do that.

8:46So, for example, insolvency law, like getting a company to actually wind down takes a long time and also if you think about employment law you can't just hire and fire people that's that's a very difficult thing to do um it's not like the u.s where the labor market is much more fluid so i think there's many more considerations as a european founder to be like right i'm just going to give up on this startup and start the next one so that would be the first thing but i do when i speak to founders i do hear that this um fail better mindset does have to be much more embedded into the way that we build companies these days.

9:21I mean, I was speaking to Choco, which is this food tech company, and Daniel, the CEO, he was saying that this is actually a quality that he tries to hire for now. Because as an AI company or a company that's kind of transitioning with AI, you have to be willing to try things out, to test them, iterate, scrap and move on at a much faster pace. And it's worth saying that Atomico also highlights that it's not just the founders. I feel like we always put so much emphasis on, you know, founders need to take more risk, founders need to be prepared to fail. They're also talking about we need more corporate and public procurement.

10:00So we need more corporates and governments to take a risk on startups and buy products and services from them, become those really important early customers for them. because that will help them be more innovative, but also will give those European companies a real leg up and a real advantage. So right now, just 9 % of public procurement is sort of around innovation in Europe. But the EU actually set itself a target that that would be 20 % back in 2014. So we've got a long way to go here. And I think it's that question around procurement and how we get more of the big players in Europe, you know, giving their money to startups, taking a punt on startups, I feel is a conversation that's also bubbled up a lot more this year than in the past, for sure.

10:49Yeah, absolutely. I mean, I was at the Digital Sovereignty Summit yesterday in Berlin, which President Macron was at and also Chancellor Merz von Germany. And this whole topic of public procurement was, you know, front, right and centre. It was all about European preference and kind of asking governments, you know, buy locally was the tagline. and I think France and Germany really tried to demonstrate this with the SAP and Mistral deal and so I think governments really have to be the model for this they can't just say to everybody else you need to buy locally from from startups if they're not doing it themselves but have you heard any anything else any kind of points that are moving this conversation along?

11:34I feel like the area I'm hearing about it the most is in defense obviously the primes the big traditional defense players are such a big part of this ecosystem but also governments really are the primary customer for a lot of defense tech so I think that's an area where it's very live and very relevant as we're seeing so much public funding get sent the way of defense so I think if governments can come up with models that work for them to to test and work with startups that could potentially set a good, you know, a good model for doing things in lots of other areas of public procurement as well, perhaps.

12:15I mean, just to play devil's advocate, you know, the Digital Sovereignty Summit was all about kind of cloud services and AI and reducing dependency on China and the US, which has, you know, been pretty embedded into the way that companies build here, right, and being dependent on those services. And given that so many startups do fail maybe there is a question asking do we trust startups with you know that future of Europe so I think there's still a little bit of debate and still some details that probably need to be worked out but this was also something I was hearing yesterday and perhaps it's also about the image of startups right and people I think that are outside of the tech community expect these companies to fail or to be doing dodgy things or whatever so perhaps there's some work that needs to be done kind of to bridge that gap between the public perception and startups.

13:07Yeah, because it's not like the big corporates never do dodgy things or never use money very unwisely either, is it? So you're right, there's a good, there's a PR job that needs doing for startups. A quick one from me. If your company would like to get a message across to Sifted's audience of startup and scale-up leaders, VC frontrunners and tech advisors, why not consider sponsoring the Sifted podcast. You'll help us interview even more movers and shakers of Europe's venture ecosystem and analyse even more of the most impactful trends confronting them. And you'll reach a hyper-engaged listenership too.

13:43For more information, email commercial at sifted.eu. And then the final area that Atomico has kind of highlighted as an area to focus on is all around talent, which we'll talk a bit more about where we need to go with that. But before we do that, I'll just share a few more sort of the top findings from the report. As will surprise nobody, deep tech is having a moment. So this year, 36 % of European VC dollars went into deep tech companies up from just 19 % four years ago. Defence tech, as we just mentioned, seen a huge boom in funding. Companies in the sector have raised$1.6 billion so far this year.

14:24And again, sad one, but probably not a surprise. the biggest loser has been climate tech. The sector's gone from raising 32 % of capital in 2023 to just 18 % this year. As I think, Miriam, you'd agree, cement has very much cooled on that sector, hasn't it? Sadly, yes. I think it's been a really, really, really rough year for climate founders, which is kind of what I was referring to at the beginning when you asked me how optimistic people are. I think it really depends what sector you're in right now, of course. And then startups from the UK, As per usual, brought in the most funds, raising$14.4 billion, with Germany in second place with$7.4 billion raised, and France in third place with$6.1 billion.

15:10But let's move on to talent, which is a pretty chunky section of the report. Miriam, what kind of stood out to you the most from the talent data? I thought it was interesting that the report was almost trying to say that, you know, this idea of founders leaving Europe to go elsewhere is maybe slightly overblown. Because across all founders, this is in the report, across all founders, more than 80 % continue to build from Europe, a trend that has remained stable since 2016. So that was interesting because we hear a lot. And, you know, I was on the phone with a recruiter yesterday who was talking about the UK brain drain, everybody wanting to lead to go to the United Arab Emirates.

15:50We hear all the time about founders moving out to the US, which I'm sure is happening, of course. What was interesting, though, is that zooming in on repeat founders from that data set, the number of founders incorporating in the US has increased in the last decade. So that makes me think, did they have a tough time the first time around and then consider relocating the second time around? I'm not sure. But either way, I think Europe shouldn't really get complacent on that side, right? We know that people are still looking over to the US and seeing how the regulatory environment is much easier.

16:26There's much more funding, etc. So I think those things are still true. But I thought it was interesting anyway. And the US does remain the survey found the kind of main place European founders move to if they do move. So 15 % of the surveyed founders said they'd moved their headquarters to a different country. And of those, 57 % went across the Atlantic. And their primary reasons are funding and customers. customers do you hear other reasons Miriam from people who opt sticks wherever wherever it is they go I think for the US often it's just higher compensation I mean if you're if you're an executive not not a founder necessarily but I think the US tends to offer higher compensation and also equity schemes and which I think is still not incredibly common in Europe and again when I was speaking to a recruiter yesterday he was saying at the moment especially I'm not seeing any job advertisements including equity.

17:29So I think the idea of going to a US company and being able to participate in that success is for a lot of people very compelling. And I think the United Arab Emirates, I mean they're doing an incredible job of branding this kind of tax-free business-friendly environment. So I think a lot of people particularly from the UK if I'm correct are moving over over there so it seems like founders and senior leaders are the most flighty when it comes to leaving europe yeah i'm not sure if the report has any specific data on that but sort of anecdotally i feel like we hear more as you said especially uk founders talking about potentially moving to um you know one of the emirates countries or uh at least talking about possibly doing it often around a kind of tax debate that has been set off by the government.

18:27So again, it's kind of this theme we've seen of founders in particular and investors being willing to almost take a stance on more policy or legislation matters than I feel they would have done a few years ago. In optimistic news, 60 % more people in Europe started companies last year than in 2023. So that was more than 27 ,000 founders starting new ventures in Europe. So that's more than any other year. I imagine that that's in part or like a lot influenced by AI making it a lot easier to start something, to run something with minimal people. What else do you think might be going on, Miriam? Why are people thinking now's the moment to start a company and start it in Europe?

19:21Yeah, I think absolutely. AI has just made company building so much easier, right? There's such a kind of lower barrier to entry, no code tools and open source infrastructure. All of this is just making it easier. And I think as well from the AI boom, you've also got kind of these other founder networks that are popping up that we've also reported on. And so, you know, these hacker houses and founder houses, this kind of thing. I think there's so much momentum and actually quite a lot of money that's going into this. So a lot of VCs are actually sponsoring some of these hacker houses around Europe because I think for them it's also a great source of deal flow.

19:59So I think that's a really strong call factor because people think, you know, I can be a part of something. And this is also, I reported earlier this year that lots of VCs were leaving VC funds. You know, originally they thought we're going to have like a really long career in VC. And I think the FOMO factor of like working at an AI company was so strong that a lot of them have also left VC. Whether it's really the only reason they left their job in VC is debatable. But, you know, who've moved into either operating roles in startups, often AI startups or started a company themselves. and their logic is often, you know, we think we're on the cusp of this great technological shift.

20:41You know, there's never been a better time to be an entrepreneur. You know, if you're going to go and start something, now is the time to do it. I think that's definitely been a narrative that we've heard a lot this year. And then another area of talent that the report looks into quite a bit is about the ability to attract top tier talent. And this is maybe one of the most sort of positive trends over time, which is that basically year on year since 2021, respondents have said that they're finding it easier and easier to recruit and retain top tier talent in Europe. So that this year it was 40 % said it's become easier or a lot easier to bring in top hires this year compared to last year.

21:28Are you, what are the main hiring challenges that remain for the companies you speak to Miriam and does it reflect that data? This was the part of the report that actually really surprised me. And we covered it in our Startup Life newsletter on Wednesday. And from what I'm hearing, the market has kind of bifurcated into AI companies and then everybody else. And so I think if you're an AI company, particularly one that's got a lot of money and has kind of, you know, got a lot of momentum with their brand. Sure, it's probably easy. It's expensive as well. AI salaries are incredibly high, especially for engineers.

22:08But aside from the AI space, I think there are a lot of companies that are still struggling. And I do think we have to remember in all this kind of AI and economic optimism that there are still companies that are still recovering from what's been happening financially and globally on a macro level over the last couple of years. And when I speak to recruiters, they say that some companies are still struggling to raise VC capital, to get enough of a brand presence and also to replenish the hires that they may have laid off in the last couple of years. So I don't, again, I think it really depends on where you're sitting.

22:47If you're in AI defense, sure, maybe it's amazing. If you're a climate company, now that the sentiment is kind of soured, maybe it's also not great. And maybe to end on, sadly, the most depressing part of the report every year, the gender gap. Once again, this year, there's been no progress on closing the gender funding gap, as has been the case for the past decade. So at all stages of investment, the share of capital invested into all women founding teams has either remained stagnant since 2016 or dropped. At Preseed, there's been a slight improvement in the percentage of funding picked up by mixed gender founding teams, rising from 13 % to 16 % over the past 10 years.

23:31But at Series B and beyond, it's just looking awful. So it's actually dropped. Mixed gender founding teams raised 22 % of capital at Series B and beyond in 2025, which is a drop from 32 % in 2016. Miriam, I'm not going to ask you for the big solution because I think if it was that easy, hopefully someone would have implemented it. But are there factors at play that you think means that things are sort of stagnant or even going backwards here? I think the Trump administration coming into power had a big impact on a lot of things, whether it's the climate debate and also when it comes to diversity initiatives as well.

24:14I think this was a key factor that I was hearing from people is, you know, if you have a big American administration kind of asking companies, what are your quotas on this and what are your quotas on that? And, you know, really laying into people as if to kind of shame them for wanting to have this, you know, gender parity or, you know, parity in all sorts of ways. Right. I think that has had a really, really significant impact. But funding has been stagnant for over a decade, basically. and so yes there have been recent changes that have really kind of impacted the diversity conversation I think it's just it's been an issue for ages I mean I don't know what you think about that Amy but it just seems to be an enduring problem and whenever I go to you know women events or speak to people who are kind of very actively working in this space to make things more equal I sense this kind of fatigue of the issue and this kind of you know we're trying really hard but people are tuning out of this conversation and we don't know how to re-engage them and it's also been a reporting challenge and for me and for us at Sifted I feel like we're also like what's the best headline that's going to get people to actually read this thing.

25:24It is a journalistic challenge you know bad news the same bad news it's been for ages it's not you know the most compelling story. I think it's a good point about the sort of wider people have been focused on other issues right there's been chaos going on in the US but then there's also you know just everyone so wrapped up in what was happening with AI what does AI mean for my industry for my personal life for my job prospects and I think when we're in those kind of moments of big upheaval other very important issues can I think fall by the wayside and maybe we're seeing that a bit I I think there is still positive stuff happening.

26:08I was sitting next to a woman who works at the British Business Bank, which is the biggest LP in British VC funds, at a dinner about a month ago. And they've got huge initiatives and big funding pots going on to invest in female-led companies and VC firms. And, you know, we've seen similar things with KFW. The big German state fund has pockets of capital, doesn't it, for kind of more diverse founders and investors in different ways. And I think those kind of big institutions that can, you know, slowly change the course of things have, you know, I think work that's probably been being done over quite a few years is coming to fruition now.

26:54Now, there's also, you know, a big fund of funds being set up in the UK, the Invest in Women Fund, to back female fund managers with the idea that they would then fund more female startups in the UK. And I think there are these things underway such that the issue clearly hasn't been completely sidelined. It just doesn't feel like the most live topic of conversation, does it? And then I think there's also worth saying that it's not all that common to find female founders in either AI or defense, you know, two of the biggest areas that are attracting funding right now. Yeah, I think there are lots of female founders, but they're not getting the time and the attention.

27:38We need these female role models. I mean, we can say it over and over again, but I think if we could have like a female AI unicorn, that would really kind of set the record of like, hey, we're here too, you know. And if just imagine thought experiment for everyone, imagine if Helsing and Eleven Labs and Deepal and name another unicorn deep tech company were all led by women. like I feel like that would that would slightly change the conversation that would set some things in motion that aren't there but that's just not that's just not the case right now there are of course you know there's Elen Ubi running the space tech company the exploration company you know there's there's there's people we can name but just the volume is really not there they're not there on stage they're not there on other podcasts you know they're not there at VC events as anywhere near as much and and i feel like that's what we that's what we need but we are out of time now any solutions to the gender funding gap please submit them to amy at sifter.eu i would be delighted to hear your ideas um and miriam thank you so much for joining me thanks for having me if you want to hear more from miriam on all things talent please sign up for her startup life newsletter which comes out weekly on wednesdays we'll drop a link in the episode description.

28:59We'll also add a link to the Atomico report and some of the pieces that Miriam has mentioned. As always, please rate, review and share the podcast. And this episode was, as per usual, edited and produced by the splendid Maya de Rampel Hornby.