Europe: Q2’26 Venture Pulse Report

European VC investment remained strong in Q2’26, reaching $25.6 billion across 1,636 deals. While down slightly from the $26.0 billion recorded in Q1’26, it remained well above historical averages as investors continued to prioritize larger bets on fewer startups.

Q2'26 highlights for Europe

European VC-backed companies raised $25.6 billion across 1,636 deals
Q2’26 was Europe’s second-highest quarterly VC total in four years
Large UK AI deals—including Isomorphic Labs’ $2.1 billion raise, Wayve’s $1.3 billion raise and Ineffable Intelligence’s $1.1 billion raise—helped drive regional investment totals
AI and defensetech emerged as the strongest areas of investor focus, alongside biotech and alternative energy
Exit activity remained subdued, with M&A continuing to drive the bulk of liquidity

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AI continues to attract large deals in Europe

VC investors in Europe continued to invest in AI in Q2’26, increasingly prioritizing AI-native companies over software companies adding AI to existing offerings. The UK saw the largest AI funding rounds in Europe, including Isomorphic Labs’ $2.1 billion raise, autonomous driving company Wayve’s $1.3 billion raise and Ineffable Intelligence’s $1.1 billion raise.

Defensetech and dual-use solutions become mainstream

Defensetech has evolved from an off-limits area of VC investment into one considered mainstream in Europe, driven by protracted geopolitical conflicts and the increasing focus of governments on sovereign defense capabilities. Investors showed interest across autonomous vehicles, drones, spacetech, intelligence, secure communications, cyber solutions and dual-use technologies. France-based Aura Aero raised €50 million in equity funding as part of a broader €340 million financing package, while a UK-based defense firm announced investments into two defensetech VC funds during the quarter.

Defense tech and AI gain momentum amid geopolitical tensions

Defense tech continued to gain acceptance as an investable asset class in Europe, supported by rising geopolitical tensions and increased government engagement. At the same time, AI remained a central theme, with investor interest spanning large platforms, industry-specific solutions and AI-enabled infrastructure. Dual-use technologies—capable of serving both commercial and defense applications—attracted particularly strong attention during the quarter.

Muted exit environment shapes investor behavior

Exit activity in Europe remained exceptionally subdued in Q2’26, particularly on the IPO front. M&A continued to drive the bulk of liquidity, while US investors remained interested in acquiring UK startups, likely driven by more attractive multiples. The muted exit environment continued to influence investors to prioritize profitability, capital efficiency and clear paths to scale.

Trends to watch for in Q3’26

Looking ahead to Q3’26, AI and defensetech are expected to remain clear winners across Europe, alongside biotech and alternative energy. Many investors will be watching the US IPO market, while subscription-based business models could evolve as AI reshapes pricing and profitability expectations.

I don’t see AI investment going away anytime soon. What we’re seeing now is that the really strong AI native businesses are the ones getting the money, while the ones that were just associating themselves with AI are now falling away. You could say we’re starting to see the crème de la crème shining through in the space, which is resulting in some big investments.

Nicole Lowe

UK Head of Emerging Giants

KPMG in the UK