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European VC funds’ performance returned to the black in the penultimate quarter of 2025, but the lack of exits and a thinner AI market are holding back returns.
In Q3 last year, the rolling one-year IRR—the internal rate of return over the trailing 12 months, updated each quarter—in Europe stood at 0.3%, according to PitchBook’s latest Global Fund Performance Report. This marks a change from most of 2025, which has been in negative territory, bouncing back to the highest quarterly figure in a year.
Interest rate cuts in Europe and the UK helped to stabilize returns, and a small number of mature companies raising outsized rounds with higher valuations lifted IRR. The exit market improved, but much of the aggregate value was concentrated in Klarna‘s IPO, which generated €12.7 billion ($15.1 billion) in value. This signals a narrow recovery rather than a widespread improvement across portfolios.
Furthermore, while Europe’s one-year IRR has improved, it significantly lags North America. The latter’s returns figure almost doubled in Q3 from the previous quarter to 14.6%.
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North America’s surge in IRR was driven mainly by a significant improvement in the US exit environment and exuberance for AI.
Q3 was the strongest quarter for US VC-backed exits in almost four years, generating $74.5 billion in value, including $42.1 billion from 15 IPOs led by Figma and StubHub. In comparison, European VC exits totaled €23.8 billion over the same period, with almost half of that coming from Klarna’s IPO, signaling that liquidity remains hard to come by in Europe.
AI, which was a key driver of VC performance in the US, had a lesser impact in Europe. More than 60% of deal value in the first nine months of 2025 went to AI in the US, compared to less than 40% in Europe.
The Global Fund Performance Report also noted US tariffs as a headwind to European returns. The levies on goods affected hardware, defense and life sciences companies, holding back deal flow and exits. US VC funds, which are more heavily weighted toward software and AI, were less exposed to macro shocks.
This article originally appeared on PitchBook News