Russia’s invasion of Ukraine has spurred funding of tech that could boost Europe’s quest for energy security
4 min
Venture capitalists’ appetite for energy and artificial-intelligence investments is putting Europe’s venture sector on a hot streak.
European governments’ focus on energy security amid heightened geopolitical tensions has helped spur a capital rush, investors and analysts say. That coupled with the emergence of Europe-based AI startups, which can be less expensive than their U.S. counterparts, is also drawing investors.
European startups raised $15.5 billion in the second quarter, up 14% from the first quarter and up 12% from the same quarter of last year, according to Europe-based analytics firm Dealroom.co. Meanwhile, the amount invested into North American startups rose 9.6% in the second quarter from the prior quarter while Asia deal value rose 6.4% over the same period.
Energy was the most funded sector in Europe in the first half of the year, netting $5.7 billion, while funding raised by AI startups accounted for a record 18% of venture funding in Europe, up from about 11% in 2021, Dealroom.co said. Before last year, energy startups typically raised less capital than fintech, health and enterprise software startups.
Russia’s invasion of Ukraine spurred European governments—which were historically dependent on Russian fossil fuels—to develop greater energy security. Support has reached startups in the form of grants and other government-backed investment opportunities.
“It has been a major shift,” said Orla Browne , head of insights at Dealroom.co. “The exposure of energy-security issues with the invasion of Ukraine has filtered down to startups.”
Large AI deals have also drawn capital to Europe. In May, Wayve, a U.K.-based developer of autonomous driving software, raised $1 billion from investors including SoftBank Group , chip maker Nvidia and Microsoft . In June, French startup Mistral AI raised $646 million from investors including the venture arm of software giant Salesforce , General Catalyst and Lightspeed Venture Partners.
In Europe, investors say they can scoop up shares of startups for less money compared with the prices that their counterparts in the U.S. command. Meanwhile, Europe’s technical universities are supplying promising entrepreneurs, particularly in the AI field.
“We have hired a world-class team at salaries that cost 30% or less than you would get for a similar team in [Silicon Valley] with the caliber being as good,” said Dominic Vergine , chief executive of Monumo in Cambridge, England, which uses AI to make electric motors more efficient.
Europe’s climate regulations have also helped attract funding for energy startups, for example the European Commission’s Innovation Fund.
Danijel Višević, co-founder of Berlin-based World Fund, said funding from countries like Germany and France as well as from the European Union helped push more capital into climate startups. “Europe has started to reap the rewards of the fruits it sowed with climate tech R&D,” said Višević.
He added that given the long-term effects of climate change, funding in the sector is likely to be stable, both from venture-capital firms and governments, for years to come.
Even so, Europe’s venture sector faces some headwinds. In the second quarter, the continent saw $2.2 billion in exits, a third fewer than in the same quarter a year ago and 93% under the second quarter of 2021, a banner year for exits worldwide, according to a report by professional-services firm KPMG. Exits include initial public offerings and mergers and acquisitions and are the primary way venture investors cash out of their startup investments.
High interest rates, which typically encourage investors to divert capital away from venture to fixed-income strategies, have also hurt the industry. European startups’ second-quarter haul is far below the record $34.6 billion they netted during the same quarter of 2021.
Investors are eager for a turnaround. Last year, Planet First Partners, which has offices in London and Luxembourg, raised a €450 million fund, equivalent to $485 million, in part on the thesis that Europe’s favorable climate regulations are a financial tailwind for energy startups.
In March, the firm invested in Sunfire, a German startup developing hydrogen energy technology aimed at reducing reliance on fossil-based energy from oil, gas and coal. The investment came as part of a €215 million Series E equity funding round and included an additional term loan of up to €100 million from the European Investment Bank.
Sergio Carvalho , a partner and head of sustainability at Planet First Partners, said the firm has invested in Sunfire in part for its potential to help Europe become more energy independent. PFP’s first investment in Sunfire was before the invasion of Ukraine. “Europe has been pushing decarbonization systematically,” Carvalho said.
Last year, Sunfire received €169 million from a European Union initiative that funds projects that address EU-wide challenges.
In July, Index Ventures, which was founded in Europe and has offices in London, San Francisco and New York, raised $2.3 billion in new funds—an $800 million venture fund and a $1.5 billion growth fund. Hannah Seal , an Index partner in London who focuses on enterprise AI deals, among other sectors, said she expects roughly half of the venture fund to be used to invest in startups that are based in Europe.
“The first half of this year was one of the busiest we’ve ever had,” Seal said about AI dealmaking in Europe. “We’re seeing a general stabilisation in the global economy which is obviously impacting sentiment.”
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Investors are bracing for a bumpier fall stock market due to shifting odds of a Federal Reserve interest-rate increase and other macro challenges.
3 min
The stock market had a decent summer. Investors are bracing for a bumpier fall.
In the past couple of months, equity investors cheered soaring profits at big companies, shrugged off jitters in the bond market and nudged megacap tech shares back near records.
Now, as the post-Labor Day stretch begins, a number of new challenges lie ahead: ever-shifting odds of an interest-rate increase from the Federal Reserve. Sky-high expectations after a stunning earnings season. The persistent threat of higher consumer prices as fighting in the Middle East drags on.
“You’re moving from this earnings-driven market to this macro-driven market with the Fed, inflation and interest rates in focus,” said Keith Lerner, chief investment adviser for Truist Advisory Services. “It tends to be a choppier period.”
Historically, every major U.S. stock index experiences its worst average return in September. The Dow Jones Industrial Average has slid an average 1.1% in the ninth month of the year, in data that dates back to the 19th century. The S&P 500 has seen the same average decline—and for every September dating back to 1928, the benchmark ends the month lower more than half of the time.
Analysts caution against reading too much into those seasonal patterns. But in recent weeks, new reasons for investor caution have emerged. One of the largest: the looming threat of an interest-rate increase from the Fed, which announces its next policy decision on Sept. 16.
Chairman Kevin Warsh’s decision to ditch forward guidance and take more of his cues from markets has muddied the waters for investors when it comes to monetary policy. That has left traders scouring Fed governor speeches and economic-data reports for clues on the central bank’s next move.
“There’s going to be a lot of eyes on those numbers,” said John Luke Tyner, head of fixed income and portfolio manager at Aptus Capital Advisors.
The past couple of weeks offered just one example of how frequently those expectations can change. After Warsh struck a hawkish tone during remarks on Aug. 28, the odds of a hike at the Fed’s next meeting jumped from 35% before the speech to 58%, according to CME FedWatch data.
On Thursday, Fed governor Christopher Waller made a case for leaving rates where they are. Interest-rate futures showed coin-flip odds between a hike and a hold. Then Friday’s robust jobs report amped up rate-hike bets once more, back to a roughly 60% chance of higher rates after the meeting.
“Rates have really been driving the car for equities the last few weeks,” said Ross Mayfield, an investment strategist at Baird.
That uncertainty comes as an unruly bond market could put pressure on stocks. Treasury yields have marched higher for much of the summer, driven by concerns about rising oil prices, growing U.S. budget deficits and a deluge of tech-company bonds now competing for investors’ cash. Last week, the rout went global, pushing yields to multiyear highs in Japan, Germany and the U.K.
Higher bond yields can drag on stock prices and lift borrowing costs for companies and consumers across the economy.
Rising prices remain the top concern for bond traders, and continued fighting between the U.S. and Iran has done little to ease those worries. The national average price of diesel climbed to a record of $5.850 on Friday, according to AAA. That is up from $3.712 a year ago.
Investors will get more insight on the path of prices this week, with the much-awaited consumer-price index report due Friday and a reading on producer prices Thursday.
With another blockbuster earnings season in the books, some analysts have also warned that any boost from the third-quarter reports due in the coming months could be minimal. Back-to-back quarters of standout profits have raised expectations and made it especially difficult to impress traders. Custom-chip company Broadcom, for example, said Wednesday that it more than tripled its earnings and nearly doubled its revenue. Shares slipped 2.7% the next session.
Many analysts note there are plenty of reasons not to panic. The economy is in impressive shape, thanks to a healthy labor market and the rippling effects of the artificial-intelligence investment boom. Profits are booming at America’s biggest companies. The Cboe Volatility Index has dropped to its lowest levels of 2026. Credit spreads are tight, a sign bond investors aren’t concerned about economic conditions that could hurt companies.
But the mood has shifted from the euphoria that felt tangible when the Nasdaq was notching back-to-back records early this summer. The question, Mayfield said, is whether the fundamentals that have bolstered the bull market so far can stretch the rally into 2027.
“There are more anxieties or uncertainties about the backdrop,” he said. “It does feel like a transitional moment.”
