There is, it seems, an awful lot of “dry powder” around in Britain and the rest of Europe. According to a report published by HSBC Innovation Banking and Dealroom, U.K.-based VC firms raised $11.3 billion in dry powder in 2024. Meanwhile, separately published Dealroom figures say that across Europe, investors are starting the year with $31 billion in capital that has yet to be committed.
This ought to be good news. In Britain, startups raised $16.2 billion in 2024 compared with $18.9 billion a year earlier. In Europe the picture was similar. Investment in the innovation economy remained substantial but, in most cases, down from 2023. For instance, in Germany, the total capital raised fell from $9.1 to $8.2 billion. In France, there was a slight drop from $7.9 to 7.8 billion.
However, these figures need to be seen in the context of a long-term upward curve. The $53.5 billion raised by European companies in 2024 represents a more than four-fold increase from the $12.6 billion recorded in 2014. And as Stephen Lowry, Head of Investor Coverage and Business Development at HSBC Innovation Banking points out, if you compare capital raised across two decades, the progress made within the ecosystem becomes even more apparent.
“The amount of capital invested in Europe over the last ten years was ten times greater than in the decade before that,” he says.
Against that backdrop, there is hope that the presence of so much dry powder will signal an upturn in investment this year.
Caution Persists
But there are headwinds. Gregory Dewerpe is founder of noa, an investment fund specialising in the built environment. He says investors are still looking at European opportunities with a considerable degree of caution.
“We have probably reached peak negativity in Europe,” he says. There is a comparative negative bias, particularly when you compare European growth versus the US. As the U.S. is about to embark on a pro-business political era, Europe seems to be stuck in the mud.”
As he sees it, concerns about poor growth in Europe – coupled with a certain amount of political instability – have not yet fed through to company valuations. “Companies in Europe are quite expensive – very expensive in some cases,” he says. However, a fall in valuations could, he believes, encourage VCs to strike more deals.
So will startups see a rush of capital into the market as VCs finally unleash their dry powder? Well perhaps. “It won’t necessarily come into the system and there are a number of reasons why,” says Derwerpe.
For one thing, VCs that have backed companies at a time when valuations were high, are now seeing some of those businesses struggle in a difficult economic environment. Thus some of the powder will be devoted to shoring up portfolio businesses. “A lot of funds are on protection mode – earmarking capital to protect existing positions,” says Dewerpe. .
In addition, he argues that it is currently more difficult to raise new funds. Consequently, GPs are holding onto existing funds.
The Right Vintage
However, there is a distinction to be drawn. VCs who have recently raised money for new funds are ready to invest. “This is real dry powder,” says Dewerpe.” This is dry powder that will be active in the market.”
Stephen Lowry of HSBC Innovation Banking agrees that not all the capital held by VCs will be deployed to support new companies.
“When you look at where the dry powder has come from, there are vintages, ” he says . There is a mix of capital from funds that are ten years old to ones that have just been raised. The older vintages will naturally be the ones that are through their investment period. They aren’t adding new companies into their funds. It’s the newer vintages will be adding new companies.”
Lowry is keen to stress that there are other sources of capital. “The dry powder is in the hands of VCs, growth equity funds and private equity funds,” he says. “These are typically funds committed by limited partners to be invested over a ten year period with capital to be returned over time. But that’s not the only money that is invested in innovation. There is pension fund investment and also international investment that isn’t in the UK or Europe. There is a lot more capacity beyond the money that is sitting there in European VC funds.”
Fintech Tops U.K. Investment
As for accessing that money, sector is important. As the Dealroom figures for Europe show, healthtech and enterprise software did particularly well in 2024. In the U.K., the HSBC/Dealroom report sees fintech returning to pole position, overtaking climatetech.
Then, of course, there is AI. Imran Ghory, a General Partner at Blossom Capital, sees the sector as a major focus and there will be investment for businesses that can deliver value. “Start-ups that are using AI to solve real-world problems will be the true winners. We like nothing better than to hear that a company wants to disrupt a legacy industry player that we’ve never heard of – and that is worth $30bn,” he said in answer to an emailed question..
Of course, the popularity of particular sectors will wax and wane. Overall, though, Lowry says HSBC Innovation Banking Research has detected a broad willingness to invest in 2025. “When we speak to funds now, a lot of them are very enthusiastic about increasing the amount of capital in the market,” he says.
Read the full article here
