The era of abundant, low-cost capital has shifted, reshaping the funding landscape for European startups. Channel’s analysis, building on the Sifted 250 list of Europe’s fastest-growing startups, reveals how high-growth companies are adapting to this new reality
Funding boom and bust
Europe’s fastest-growing startups benefited significantly from the record funding levels of recent years. Atomico’s reports confirm a tripling of early-stage funding since 2015. Our analysis shows that Europe’s 250 fastest-growing tech companies raised a staggering £14.9 billion, with venture capital (VC) funding dominating at £11 billion.
However, the golden era peaked in 2021-22, and VC funding dramatically dropped in 2023 and 2024. Our analysis mirrors this, with VC deals among Europe’s high-flying startups falling by 53% in volume and 52% in value. Despite growth, these companies haven’t secured the late-stage funding we might have expected due to VC scarcity or a reluctance to dilute equity.
Adapting to the funding gap
With VC funding slowing down, startups are exploring alternative sources. Our data indicates an increased reliance on debt, though not enough to fully compensate for the VC shortfall.
Balance sheet analysis reveals a concerning trend: liabilities, including loans, are growing faster than assets. The average liability per startup rose from £68m to £151m in a year, eroding shareholder equity.
Conversely, Europe’s fastest-growing startups are also bolstering their cash reserves. In 2023, they held an average of £104m in cash, up from £42m the previous year. This suggests a more cautious approach, with companies prioritising liquidity over aggressive reinvestment.
Key findings and implications:
- Funding correlation: Higher funding in 2020-22 correlated with greater revenue growth in the following years.
- Regional disparities: UK startups attracted the most funding, but that isn’t the only determinant of success. Southern European startups, for example, achieved impressive growth with far less capital.
- Debt as a buffer: Startups are using debt to bridge the funding gap, but not at levels to replace lost VC.
- Liability growth: Liabilities are increasing, potentially impacting long-term financial health.
- Cash reserves: Startups are building cash reserves, indicating a cautious approach to reinvestment.
Challenges and questions
The new funding climate raises critical questions. Will growth plateau as startups hesitate to reinvest? How will the broader tech ecosystem fare without access to cheap capital?
In this new funding landscape, even the fastest-growing startups need to focus on financial discipline and efficient capital allocation. Instead of growth at all costs, startups are exploring alternative funding sources, including debt and strategic partnerships, and focusing more on profitability, sustainable growth and maintaining healthy cash reserves.
Investors need to recognise the shift in funding dynamics and adjust investment strategies. There is even more need to focus on companies with strong underlying fundamentals that can adapt effectively to the changing environment.
Download Channel’s report — Financing Growth in Europe’s Innovation Economy — to discover more
At Channel, we provide high-quality, privately originated asset-backed investment products by originating, structuring, and managing investments for leading institutional investors. We specialise in opportunities from issuers in specialty finance and the innovation economy.
For borrowers, we are a trusted partner in growth. Our expertise in structuring tailored financing solutions ensures you get the capital you need to scale, with a streamlined process and terms that work for your business. We are committed to delivering flexible, efficient, and growth-focused funding that empowers your success.
