European venture debt markets are experiencing significant growth, with over €21 billion invested during the year and projections indicating totals approximately 60% higher than the prior year, positioning 2026 for its strongest annual performance on record according to PitchBook data.
However, this expansion masks a narrowing of opportunities across the sector. The number of completed deals has declined substantially to 237 transactions at the current pace, compared with 707 deals in the prior year. Notably, the five largest transactions account for more than 40% of total deal value, with two of these major deals involving the same company, Nscale.
AI infrastructure startups have captured a disproportionate share of venture debt capital. The substantial funding requirements for building AI infrastructure make venture debt an attractive alternative to equity financing, as it allows founders to avoid significant shareholder dilution. Additionally, physical AI infrastructure serves as financeable collateral, making such companies more appealing lending candidates and enabling larger loan amounts.
Mistral AI, a French developer, secured $830 million in venture debt to fund a data centre facility and announced plans for €1.2 billion in AI capability development in Sweden. The company subsequently raised €3 billion in a Series D funding round. Nscale, a London-based AI compute provider, has completed multiple debt transactions worth approximately $3 billion for US facilities and is planning additional financing through convertible notes and investment from Nvidia before an anticipated public offering.
Meanwhile, the venture debt fund landscape has shown limited expansion, with Claret Capital Partners closing its fourth fund at €575 million and Orbit Capital completing its second growth debt fund at €107 million. The concentration of lending activity and declining deal count underscore an increasingly challenging environment for startups with fewer resources seeking alternative financing.
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