Austrian Startups Face Funding Crisis with €253M Raised in 2025

Austrian startups raised only €253 million in 2025, marking a dramatic decline of 56% from the previous year. This figure represents the lowest amount of funding since 2019, revealing a significant downturn in the local startup ecosystem. Notably, no funding rounds surpassed €50 million, and merely four exceeded €10 million. The data from EY’s latest Barometer highlights a troubling trend as the ecosystem struggles to secure the necessary resources to foster growth.

Despite only a 2% reduction in the number of deals, which totaled 148 rounds, the smaller investments pose a more pressing concern. When compared to neighboring Germany, which experienced a milder decline, Austria’s startup environment has clearly been hit harder. Switzerland also faced a slowdown, but Austria’s drop stands out as one of the most significant in the region.

Marion Biber, Head of INVEST in AUSTRIA at the Austrian Business Agency, explains that the robust investment years of 2021 and 2022, during which Austria attracted over 90% of international capital, were largely driven by a few substantial deals involving companies like GoStudent, TTTech Auto, and Bitpanda. “It was not a structural norm, but the result of a few extremely large-volume financing rounds,” she notes. The current correction, while anticipated, has laid bare the vulnerabilities of Austria’s thin late-stage market, especially after international investors began to withdraw.

Echoing this sentiment, Markus Raunig, Executive Chairman of AustrianStartups, highlights that the country entered this downturn with a relatively shallow capital market, limited domestic funds, and minimal institutional participation. “When international capital pulled back, there simply wasn’t enough local depth to make up the difference,” he states. The implications are severe for smaller ecosystems that never fully developed their funding infrastructure during the boom years.

Deeptech and Space Sectors Struggle

A closer look at various sectors reveals that deeptech and space initiatives are particularly vulnerable. Conversations with six founders and investors across Austria underscore that these areas are facing the most challenges.

Lilly Eichinger, CEO and co-founder of Satellives, a Vienna-based company focused on next-generation satellite modules, articulates the difficulties inherent in developing hardware that requires flawless execution. “Our satellite modules have to work on the first try. We can’t afford a ‘fail fast’ mentality like in the US,” she explains.

The capital-intensive nature of space projects, which require years of development and specialized infrastructure, places them in a precarious position. Investors, in times of tightening budgets, prioritize ventures with quicker returns, leaving deep hardware and space projects out in the cold. Nevertheless, some founders in deeptech are adapting by forming international partnerships and seeking grants from organizations like the European Space Agency (ESA) and Horizon Europe.

Conversely, Software as a Service (SaaS) companies appear more resilient. Vlad Gozman, CEO of involve.me, an interactive content platform, notes that flexibility within SaaS models allows these businesses to thrive even during funding slowdowns. “In 2019 we pivoted successfully, but it was only possible because SaaS is much more flexible, it makes us very resilient,” he asserts.

Raunig points out an additional challenge for non-AI-native SaaS startups, which are grappling with the narrative that artificial intelligence will soon replace traditional models. This sector, once viewed as a safe haven for investors, now faces existential questions.

Funding Polarization: AI Dominates

A stark contrast exists in the funding landscape for artificial intelligence. Funding remains more accessible for AI-related projects, while other sectors grapple for limited resources. Biber’s data indicates that AI solutions now account for 36% of all deeptech investments in Austria, exceeding the EU average.

Michael Kowatschew, founder of Heizma and a Sequoia Capital Scout, describes the situation, stating, “Capital is available for outliers. What’s harder are mid-tier companies without strong differentiation or clear paths to scale.” Raunig highlights another issue: late-stage scale-ups, which are often operationally solid, struggle to secure new funding due to earlier rounds raised under different market conditions.

These companies are not failures; rather, they find themselves caught between inflated valuations from 2021 and the current market realities of 2026. Biber notes that Series C rounds have become almost “unfundable” for local investors, exposing a significant gap in late-stage financing.

Looking forward, experts suggest that targeted policy actions could alleviate the funding drought. Potential measures include tax incentives or co-investment schemes designed to encourage institutional investors to participate in growth-stage rounds. Supporting cross-border venture capital funds could also pool resources and mitigate local risks, while making it easier to attract foreign capital without requiring founders to relocate.

The question of relocation looms for many founders. While no significant moves have been documented yet, the allure of larger hubs with better access to capital and talent is undeniable. Eichinger acknowledges the temptation, stating, “Investors naturally ask about access to capital, talent, and ecosystem synergies, and there’s often an assumption that building from a smaller market automatically slows you down.”

Despite the challenges, she remains committed to Vienna, citing the city’s strong technical talent and space infrastructure. Yet, she recognizes that foreign funding can sometimes come with foreign expectations, leading to relocation.

The narrative further complicates when considering the economic implications of funding freezes. Companies like Refurbed recently secured €50 million in funding, led by a US investor, suggesting that international investors may support Austrian companies when they demonstrate traction and ambition. Simona Huebl, CEO of Nejo and a former VC, argues against viewing the funding freeze as the root cause of Austria’s startup struggles. “What Austria is lacking is pipeline,” she asserts.

FlexCo and Regulatory Challenges

In an effort to address these issues, Austria launched FlexCo in January 2024, a new company structure aimed at enhancing agility and improving employee equity. While over 1,530 startups have registered, many entrepreneurs express dissatisfaction with the bureaucratic hurdles still present in the system. Huebl criticizes the process, stating, “Even starting a FlexCo in Austria still means weeks of paperwork and an expensive notary visit.”

The employee equity situation remains problematic, with FlexCo offering limited tax benefits under complicated conditions. In contrast, countries like Estonia and the UK have more favorable equity models, making it easier for startups to attract top talent.

Arh highlights the absence of a competitive framework in Austria compared to models in the US or UK, stating, “Without attractive equity, Austrian startups cannot compete with US or UK companies for senior talent.”

Austria is making strides, as evidenced by the Industrial Strategy 2035, which aims to position the country among the top ten globally in the space sector. Plans for a €100 million Red-White-Red Fund-of-Funds are also under consideration, alongside the appointment of a State Secretary for Startups.

Despite nearly 40,000 new companies launching in 2025 and several significant funding rounds occurring in 2026, the road ahead remains fraught with challenges. Founders must navigate a complex regulatory environment while considering options for establishing holding structures abroad or leveraging temporary solutions like Estonian e-Residency.

The European Union, as a collective market, holds immense potential, yet fragmentation into regulatory silos complicates operations. As the ecosystem adapts, the pressing question remains: will the necessary reforms occur before founders lose patience and seek opportunities elsewhere?