EU Startup Investment 2026: Where the Money Goes, What AI Is Doing to SaaS, and How Startups Will Look in 2027

European startups got about $17.6 billion of venture capital in the first three months of 2026. That is up 30% from last year. But the money is going to fewer companies. More than half of it went to AI. SaaS is having a hard year but is not dead. Solo founders using AI agents are a real thing now. A startup that needed 10 people in 2022 may only need 3 people plus AI in 2027. AI is both breaking old businesses and creating new ones.

European startups raised about $17.6 billion in venture capital in the first three months of 2026. That is 30% more than the same time last year. For the full year 2025, the total was $58 billion.

But there is a catch. The number of deals is going down. Q1 2026 had 40% fewer deals than the same quarter last year. Seed funding (the very first money a startup raises) dropped 44%. Early-stage funding dropped 30%. Late-stage funding stayed the same.

What does this mean? Investors are giving more money to fewer companies. The big winners are getting bigger cheques. The smaller startups are finding it much harder to raise their first round.

2. Which businesses are attracting investment?

One sector wins above all others: artificial intelligence (AI). In Q1 2026, more than half of all European venture money went to AI companies. This is the first time AI has crossed 50%.

Here is the rough picture of where European venture money is going in 2025-2026:

AI: Over 50% of all venture money. AI is also growing inside many other sectors.

Climate technology: About 22% of European venture capital in 2025.

Defense, security and resilience: 13% of total venture money. This share has tripled in three years because of the war in Ukraine and growing pressure on European security.

Biotech and health: Still a big sector. New AI-powered drug discovery startups are pulling in large rounds.

Robotics, space and semiconductors: All growing under the "deep tech" label. European deep tech is now worth $690 billion.

These percentages overlap. An AI startup that helps the defense sector counts in both AI and defense.

Geographically, the UK still attracts the most money. France is second, with Paris becoming Europe's leading deep tech hub. Germany is third. London, Paris, Berlin, Stockholm and Amsterdam remain the main hubs. Sweden has the most unicorns per person in Europe.

Yes, but the picture is mixed. SaaS (Software as a Service) is software that customers pay for monthly or yearly, like Salesforce or HubSpot. For 20 years, it was the favourite of venture investors.

2025 and early 2026 were brutal for SaaS. The SaaS stock index fell 6.5% in 2025 while the wider US stock market grew 17.6%. In the first week of February 2026, over $1 trillion was wiped from software company valuations in just seven days. Some people are calling it the "SaaSacre".

Why? Investors are worried about three things:

AI agents may do the work that humans used to do with SaaS tools. If fewer humans use the software, companies that charge per user lose money.

AI tools let small startups copy SaaS features in days, not months. The competitive moat is shrinking.

Companies are spending more on AI tools and less on traditional software.

But not all SaaS is in trouble. There is one type that is doing fine: vertical SaaS. This is software built for one specific industry, like dentists, made-to-measure curtain retailers, or law firms. The vertical SaaS market is growing from $133 billion in 2025 to about $194 billion in 2029. Why? Because deep industry knowledge is hard to copy with AI, and the customer relationships are stickier.

4. Is AI breaking SaaS or saving it?

The answer is: both at the same time.

What AI is breaking

The seat-based pricing model. SaaS companies charge per user. If one human plus AI agents does the work of five people, the company only pays for one seat.

Feature differentiation. AI tools like Cursor and Claude Code let developers build features in days. What took six months of engineering work can now be copied in a weekend.

Horizontal point solutions. A simple, single-purpose SaaS tool (like a survey tool, or a small productivity app) can be replaced by a general AI assistant.

Traditional search and SEO. When customers ask AI assistants directly instead of searching Google, the old marketing playbook stops working.

What AI is creating

New AI-native companies. Companies that have AI in their core product are growing twice as fast as traditional SaaS at every revenue level.

New pricing models. Instead of charging per user, AI-native companies charge based on the work done (outcomes or usage). This is more flexible for customers.

Stronger moats for vertical SaaS. Companies that own deep customer data and industry-specific workflows are now in a stronger position. AI cannot replicate that data overnight.

Defense, climate, biotech, robotics startups. Whole new categories of European startups are getting funded that did not exist five years ago.

The summary: AI is destroying the easy SaaS playbook (build a simple tool, charge per seat, grow forever). But it is creating opportunities for SaaS companies that are deeply specialised, own their data, and rebuild themselves with AI inside.

5. The solo founder revolution

One of the biggest changes in 2026 is who is building startups. More and more, it is one person.

In 2026, about 36% of all new startups in the US are founded by a single person. The same trend is growing in Europe. The reason is simple: AI tools have made it possible for one person to do the work that used to need a team of ten.

Here are some real examples:

Midjourney makes about $200 million per year with around 11 employees. That is about $18 million in revenue per employee. Five years ago, this was impossible.

Medvi, a telehealth company, was started in September 2024 by Matthew Gallagher with $20,000 and no employees. By the end of 2025, it made $401 million in revenue with about $3 million per month in profit.

Maor Shlomo built Base44 alone using AI coding tools. He grew it to 250,000 users and sold it for $80 million in six months.

Dario Amodei, the CEO of Anthropic, said in 2025 there is a 70-80% chance the first one-person billion-dollar company will exist by the end of 2026.

A solo founder today typically uses around $200-$400 per month worth of AI tools to do the work of a 10-person team. These include AI for coding (Cursor, Claude Code), AI for marketing (ChatGPT, Claude), AI for customer support (Intercom Fin), AI for automation (Make, n8n).

Investors are starting to notice. In 2024, solo-founded companies got about 15% of all venture money. That number is growing.

6. What will a startup team look like in 2027?

The simple answer: smaller, with AI agents doing what employees used to do.

Today (2026), most startups still look like the old model. A 10-person team handles product, engineering, marketing, sales, support and operations. By 2027, that same startup might have 3 people and 50 AI agents.

Each AI agent does a specific job: one writes code, one answers support tickets, one creates marketing content, one watches the books, one researches competitors. The humans manage the agents and make the big decisions. This is sometimes called a "hybrid workforce".

Gartner predicts that by the end of 2026, 40% of all business software will have task-specific AI agents inside it. By 2028, 15% of work decisions will be made by AI alone (today it is almost zero).

This does not mean every startup will be solo. But every startup will be smaller than the equivalent five years ago.

7. Is AI destroying jobs or creating them?

Both. But not in the way most people think.

Goldman Sachs estimated that AI could replace work equal to 300 million full-time jobs worldwide. About two-thirds of all jobs in the US and Europe have some part that AI can do.

But the International Labour Organization (ILO) says only 2.3% of jobs can be fully done by AI. Most jobs will not disappear. They will change.

Here is what is happening:

About 30% of US companies have already replaced some workers with AI. That number is expected to rise.

49% of all jobs can use AI for at least a quarter of their tasks. So most workers now do their job partly with AI help.

Workers with AI skills earn up to 56% more than peers who do not use AI.

New jobs are appearing. "AI agent manager", "prompt engineer", "AI auditor" did not exist three years ago.

The truth is most office jobs in 2027 will look different from 2022. People will spend less time on reports, emails, data entry and basic analysis. They will spend more time on decisions, relationships, judgment and creativity. The repetitive parts of the work are being handed to AI.

8. What this means for European founders

If you are building a startup in Europe today, here is the simple takeaway:

Money is there, but it is concentrated. If you have a clear AI angle and good traction, money is available. If you are early-stage and not AI-related, raising is harder than it has been in years.

Pure SaaS without AI is a tough sell. Investors want to see AI inside your product, not bolted on. The best move is to rebuild your product around AI from the inside.

Vertical is your friend. If you serve one specific industry deeply (like made-to-measure home goods, dental practices, or small law firms), AI is a tailwind, not a threat. Your industry knowledge and customer data are the moat.

Smaller is now an advantage. A team of 3 with strong AI tooling can outproduce a team of 15 from five years ago. Use AI agents to extend your runway and avoid hiring as long as possible.

Defense, climate, deeptech, biotech are growing in Europe. If you can build in one of these areas, European public money and EU grants are abundant.

Hubs matter. London, Paris, Berlin, Stockholm and Amsterdam still have the most investors and best talent networks. If you cannot move, build strong remote connections to one of them.

Europe still pays lower valuations than the US. You will get less money for the same growth. But the cost of building (talent, office, AI tools) is also lower. Use it as a feature, not a bug.

The biggest mindset shift: stop thinking of AI as a feature to add. Start thinking of your company as one that would not exist without AI inside it.