If you were hoping for signs that French startup funding had bottomed out, brace yourself - Q1 2025 just delivered the weakest quarter in nearly seven years.
French startups raised just $1.2 billion, marking a 39% drop from Q1 2024 ($1.7B) and the lowest level since Q3 2019. At this pace, 2025 could end at $4.8B, a steep decline that puts us closer to 2018’s $4.6B than the peak $16B in 2022:
What’s behind this decline? Are certain sectors holding up better than others? How does France compare to its European neighbors? And, perhaps the biggest question of all - is this just a temporary dip, or are we seeing a deeper, more structural shift?
To find out, I turned to three of France’s top VCs: Matthieu Baret, Managing Partner Venture at Eurazeo, Reza Malekzadeh, General Partner at Partech and member of the Partech Venture team; and Stéphanie Nizard, Partner and Head of Investor Relations at Serena.
Here’s what they had to say.
Q: Why Has French Tech Funding Dropped So Much?
1️⃣ No Mega Rounds to Inflate the Numbers
Unlike 2024, where massive rounds like Verkor’s €1.3B raise and Mistral AI’s €600M helped prop up the numbers, Q1 2025 lacked these headline-grabbing deals. The absence of big-ticket fundraising means the underlying market is more exposed and the decline is more visible.
2️⃣ A Natural Rebalancing After the 2021-2022 Frenzy
“We’re seeing a healthy correction after the bubble years of 2021-2022,” Malekzadeh said. “Back then, startups were burning cash and raising more simply because they could."
It definitely looks as if those days could be over for a while. “In our portfolio, startups have restructured and are being much more reasonable with their growth strategies. They have realised that burning cash is not sustainable, they have to be wiser and more creative with their cash," he added.
Matthieu Baret agreed "In the past couple of years, there's been a much stronger focus on profitability and VC funds are becoming more selective" he said.
3️⃣ Less Money in the System = Fewer Exits & IPOs
Venture Capital relies on a “cyclical model” where investors in the fund (LPs or Limited Partners) are encouraged to reinvest the returns gained from successful exits - whether through IPOs, acquisitions, or secondary sales - into new VC funds.
However, in recent years, the cycle has slowed considerably. Large-scale exits have become increasingly rare, with IPO activity dwindling and M&A deals losing momentum.
The current landscape offers far less liquidity. With fewer exits and reduced payouts, fund investors (LPs) are holding back on new investments, leading to a contraction in the amount of capital available for VCs to deploy. As a result, the funding pipeline is tightening. Higher interest rates are also playing a role as institutional and private investors look for higher returns elsewhere than in VC.
The slowdown in exits is not unique to France or Europe—it’s a global trend, with the U.S. venture ecosystem also feeling the impact. VC Exits in the U.S are also in sharp Decline: 2024 > 938 exits, totaling $68.9B / 2022 (Peak) > 2,031 exits, reaching $779.8B.
"Tech investors are awaiting a return of DPI (Distributed to Paid In Capital) before reinvesting" said Matthieu Baret "Its therefore possible that as a result some VCs are now more focused on selling their later stage participations than refinancing them".
As Malekdaleh noted: “As a VC, I’m giving startups less because I’m also getting less." The shift is reflected in French VC fundraising: French funds raised only €775M in 2024, down 59% YoY, and represented just 4% of total European GP fundraising—an all-time low. That said, some firms are doing
Q. Are Some Sectors Holding Up Better?
Not all industries are suffering equally. According to Nizard, the impact of the funding slowdown varies across sectors and startup stages. Some are actually thriving despite the downturn:
- AI & Deep Tech: AI hardware and foundational model developers like OpenAI and Mistral need massive funding—and will get it if they have the right credentials. Meanwhile, smaller AI-driven B2B applications are also securing investment. “If your AI solution solves a clear pain point for a given vertical, boosts productivity, and proves its ROI, investors will pay attention,” said Reza Malekzadeh.
- Cybersecurity: “Cyber is a must-have, not a nice-to-have,” he explained. As AI-powered cyber threats increase, demand for security solutions is skyrocketing.
- Climate Tech & Decarbonization: Europe’s regulatory push and rising corporate commitments are driving investment in startups tackling emissions and energy transition.
- Fintech (Back on the Rise): After a rough 2023, fintech is making a comeback.
“Vertical AI and fintech are seeing renewed investor interest, with notable upticks in funding," Nizard said. "Decarbonization startups are also attracting capital, although we haven’t seen any in this first quarter, we are expecting to see some mega deals this year and early-stage startups - particularly at the seed and Series A levels - are still securing funding and are strongly supported by business angels.”
Matthieu Baret predicts the next big investment sector will be defence tech "Funds are starting to look closely at innovation in the defence and European sovereignty space" he said "companies in that space should have a much easier time fundraising."
Which sectors are struggling? Consumer apps and “nice-to-have” tech solutions that don’t solve clear pain points. Investors are more selective than ever.
Q: Why did funding in Spain triple when it has slowed down in the UK, Germany, and France?
One surprise from Q1 2025 is that Spain nearly tripled its startup funding, raising $1.1B in Q1 2025, compared to just $385M in Q1 2024.
Why? According to Malekzadeh, Spain’s ecosystem is maturing with government incentives, academic research, and early-stage funding finally paying off. Southern European markets in general (Spain, Italy, Portugal) are growing as investors look beyond saturated, expensive markets like the UK and Germany. “We’re seeing a lot of great tech companies in these southern regions with valuations that are more attractive - perhaps more realistic. In the UK, startup valuations and expectations are still high,” he said.
Q: Is This Just a Blip – or a More Structural Shift?
According to Nizard, the drop in funding is more of a continuation of the post-COVID correction rather than a full-blown crisis.
“We’re moving away from the era of free money and back to a more sustainable startup model. This will have long-term positive effects on the ecosystem,” she said.
Analysts at Serena say that the fundamentals are still there with strong deal flow, experienced entrepreneurs, and well-funded verticals (AI, Cyber, Climate).
Baret is not too worried "Recent dealflow is still very active and there is still strong competition between VCs to finance the best deals" he said.
The challenge? Only the strongest startups will secure funding.
Q: Should Startups Be Panicking?
While the funding landscape has undoubtedly shifted, it would seem then that there is no need to panic. That is, if you are a startup with a sound business model that is solving real, pressing problems - a “must-have rather than a “nice-to-have” solution. In today’s climate, only those addressing concrete pain points with clear value propositions will stand a chance of securing investment.
The market is entering a phase of survival of the fittest. VCs are becoming increasingly selective, raising the bar for startups seeking funding. This is not the first time the ecosystem has faced such a reset - similar downturns occurred in 2001 and 2008. During those periods, weaker companies failed, funding tightened, and only the most resilient startups with solid fundamentals and sustainable growth models endured.
As Nizard pointed out, investors today are demanding more from startups in terms of metrics and financial discipline. “Investors are becoming more selective,” she said, reflecting a broader trend across the industry.
Malekzadeh echoed this sentiment, explaining that Partech itself has slowed its investment pace, making tough decisions to avoid overly hyped or unsustainable businesses. “VCs have generally become more disciplined in their approach,” he said. “In our case, our venture fund backs companies with more than $1 million ARR - with our new fund, we are keeping our investment thesis and stage focus but as everyone else, we’re being even more selective. It’s harder and slower, but the opportunities are still great.”
Baret struck a more philosophical tone: “We’re clearly entering a new wave of innovation. After the semiconductor, telecoms and hardware wave, then e-commerce and media, followed by social media, mobile apps, B2B SaaS and cloud— we’re now stepping into a new paradigm with deep tech and AI. There are a lot of opportunities to seize in a European ecosystem that has truly matured. Perhaps the real question is: will VCs still be able to raise money?”
In short, while French startups may be navigating a tougher environment, those with strong fundamentals, clear market demand, and a sustainable growth trajectory still have a path forward. The funding landscape may be evolving, but opportunity remains for those who can adapt.
Whether the same will hold true for VCs in this new cycle remains to be seen.
