Series B capital in Europe is drying up, deal sizes are shrinking, and some of the continent’s most promising climate tech companies are packing their bags for the US. World Fund’s latest report puts numbers to what founders have been feeling for some time.
In an exclusive interview with TFN, Craig Douglas, founding partner at World Fund, a European VC backing entrepreneurs who build climate tech, notes, “The Series B gap disproportionately affects hardware-based technologies that must move from lab prototype to First-of-a-Kind (FOAK) and ultimately a mature Nth-of-a-Kind (NOAK). Unlike software, these require large amounts of equity to prove commercial viability and cannot yet access alternative capital due to their risk and capital intensity.”
Structural nature of the funding deficit
The average Series B in Europe sits at $35.2M, a full 20% below the US average of $45.5M. That’s a $13.5B gap at Series B alone. To close it, Europe needs to find an additional $2.4B in growth capital each year.
Only 15% of European climate tech startups made it from Seed to Series B between 2020 and 2024. In the US, it’s 25%. Even after €23B poured into early-stage bets, most European startups are still stuck at the scaling cliff. The pain is sharpest in industrial tech, new energy, and food tech, where big equity rounds are a must for commercial rollout.
“The hardest place to be at the moment is a hardtech or deeptech climate startup seeking to raise a $30-50M Series B to scale up manufacturing or deploy a FOAK facility. This is visible on both sides of the Atlantic, given the limited number of funds that can lead such a round (more acute in Europe),” says Christian Hernandez, co-founder and partner at 2150, a venture capital firm investing in technology companies that are redefining cities and the industries, to TFN.
It’s only getting tougher. Early-stage funding is still flowing, so more startups are reaching Series B, with less than 1 in 5 European climate tech funds actually backing growth rounds.
Andrew Symes, co-founder and CEO of OXCCU, an Oxford University spinout developing catalytic technologies that convert CO2 into drop-in fuels and chemicals, adds, “Europe has done a good job at seeding early-stage innovation, but many companies then hit a wall just as they need to move from demonstration into first-of-a-kind commercial scale. That’s exactly the point at which capital intensity rises, risk is perceived to increase, and European funding thins out.”
Pension fund allocation is the underlying issue
But it’s also about where the money comes from. In the US, 1.9% of pension assets are allocated to venture capital. In the EU, it’s just 0.018%, which is a 100x difference. Institutional capital accounts for 72% of US VC fundraising but only 30% in Europe.
Douglas argues, “The most immediate catalyst is the reform of Solvency II and IORP II, reducing capital charges for unlisted equity from nearly 50% to around 22%… creating a legal path toward 1–2% VC allocations in line with the US.”
So who’s stepping in to fill the gap? Mostly the public sector. The European Investment Fund now makes up 31% of all European VC, compared to just 4% in the US. Europe is leaning heavily on public money, but everyone knows that’s just a temporary fix.
By Series B, just 75% of funding is actually European. For mega-rounds over $250M, almost half the money comes from abroad, mainly the US, Asia, and the Gulf.
Douglas states: “Failure to close the Series B gap would lead to a permanent IP and value drain, with European breakthroughs scaled and owned abroad… Ultimately, Europe would risk losing strategic sovereignty and becoming a downstream consumer of a technological revolution it helped create.”
Broader continental challenges
Germany and France are leading the pack, with Germany averaging $52.7M in Series B rounds. But even there, the funding gap is real. The Nordics, the Netherlands, and Denmark are still held back by smaller funds and a heavy reliance on foreign syndicates.
Nicolàs Juhl, CEO of encentive, an AI energy management startup, describes, “European founders are currently under more pressure to prove long-term innovativeness while simultaneously demonstrating a credible and ambitious growth trajectory… sustained and consistent execution has become even more critical as companies scale beyond Series A.”
“Access to internationally experienced growth investors is increasingly important for European startups, especially when scaling capital-intensive or infrastructure-relevant technologies,” says Juhl.
What needs to happen to close the funding gap?
Europe needs to get institutional capital moving, including pension funds, insurers, and banks. France’s Tibi initiative shows it can be done: they scrapped pension fund limits and pooled commitments. Europe needs more of this, and quickly.
Bilal Hussain, CEO and co-founder of Artio, a fast-moving climate tech start-up redefining what is possible in the world of decarbonisation, shares: “Europe clearly produces world-class innovators in climate and carbon markets… “We’re seeing increasing involvement from international investors in European climate businesses, particularly from Japan… That’s a meaningful signal of confidence in European climate innovation.”
At the same time, global investors are starting to reframe this gap as an opportunity rather than a structural weakness.
Julia Wilkinson, Managing Partner & Chief Investment Officer at LEBEC Consulting, a women-owned and led company working across philanthropy, impact investing, and sustainable finance, argues, “Europe has made meaningful progress on climate disclosure and alignment, but disclosure alone does not mobilise capital, particularly in today’s uncertain environment. Without parallel incentives for growth-stage deployment, capital continues to stall at the Series B bottleneck.”
Why acting now matters
Europe has built the world’s largest early-stage climate tech ecosystem, with more than 6,000 venture-backed startups. But without action, control could easily slip away into the hands of foreign capital and innovation hubs.
Europe needs to channel an extra $2.4B a year into climate tech growth. The money is there, in pension funds that manage €2.7–3T in assets. For founders, the clock is ticking. Europe can’t afford to wait another 18–24 months for policy to catch up.
