Investors are pouring billions of euros into European artificial intelligence and defense technology startups, heavily backing companies considered vital to the continent's economic competitiveness and national security. According to data from PitchBook, total venture capital investment in Europe grew by 5% year-on-year in 2025, reaching €66 billion, a post-pandemic high. This growth was driven by large funding rounds for leading European AI and defense firms.
Sources familiar with the matter indicate that several companies within these two sectors are negotiating new funding rounds that would significantly increase their valuations. One such company is the Swedish legal AI startup Legora, which is discussing a raise at a valuation of approximately $4 billion, more than double its $1.8 billion valuation from October last year. Legora declined to comment.
London-based AI digital human company Synthesia recently secured $200 million in funding, achieving a $4 billion valuation. Audio AI firm ElevenLabs saw its valuation rise to $11 billion following a $500 million funding round led by Sequoia Capital.
In the defense technology sector, Munich-based satellite launch company Isar Aerospace, valued at $1 billion, is also in talks for a substantial new funding round. The company also declined to comment. Previously, German drone manufacturers Helsing and Quantum-Systems completed large funding rounds totaling nearly €1 billion last year.
Aaron Archer, a partner at law firm Gowling WLG, stated, "Defense and AI are the two hottest sectors right now, so it's no surprise they are attracting numerous large funding deals. We are seeing significant investment activity on both sides of the Atlantic, and we expect this trend to accelerate further."
PitchBook also noted that venture capital firms and related companies are capitalizing on the favorable market conditions by reducing their stakes or cashing out when startups are acquired, leading to an increase in so-called "exit" transactions.
In 2025, funding deals in Europe's AI-related sectors accounted for over 35% of the continent's total venture capital deal value, reaching €23.5 billion, up from €17.7 billion in 2024.
The rising valuation trend for European companies mirrors that of the US market, raising concerns that some private tech companies are overvalued and disconnected from commercial realities. Demis Hassabis, CEO of Google DeepMind, warned that fervor in certain areas of the AI industry is increasingly showing characteristics of a "bubble."
According to data from the NATO Innovation Fund and research firm Dealroom, beyond the AI sector, funding for European startups focused on defense and related technologies surged 55% year-on-year in 2025 to a record $8.7 billion. This growth was primarily fueled by large, late-stage funding rounds in areas like quantum computing and aerospace.
Sander Verbrugge, a partner at the NATO Innovation Fund, mentioned that the fund has raised €1 billion to invest in defense and "hard tech" startups. He stated that the "significant growth" in the defense sector signals the "maturing of the ecosystem" in this field.
These figures further confirm that investor enthusiasm for European startups in defense, security, and resilience has remained strong since the outbreak of the Ukraine crisis nearly four years ago. The data was released just days before the Munich Security Conference, where European rearmament is set to be a core topic.
Siraj Khaliq, a senior advisor at the €1 billion European hard tech fund Kembara, said that European governments are actively promoting enhanced domestic technological and security autonomy, creating a tailwind for AI and defense-related companies. He added, "European governments are clearly prioritizing the building of domestic technological systems. The development dividend stemming from this technological sovereignty is not to be underestimated."
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