Austrian Startups Grapple with Funding Freeze of €253 Million in 2025

Austrian startups raised just €253 million in 2025, marking a significant 56% decline from the previous year and the lowest total since 2019. According to EY’s latest Barometer, no funding rounds surpassed €50 million, and only four exceeded €10 million. This downturn highlights a troubling trend in the Austrian startup ecosystem, which struggles to secure the resources necessary for growth.

While the number of deals fell only by 2% to 148 rounds, the size of individual investments diminished substantially. Compared to its neighbors, Austria has experienced a more severe contraction, with Switzerland also seeing a slowdown but to a lesser extent. This situation contrasts sharply with Germany, which faced a smaller decline.

Marion Biber, Head of INVEST in AUSTRIA at the Austrian Business Agency, provides important context. She notes that the funding boom of 2021 and 2022, when Austria attracted over 90% of international capital, was driven by a few mega-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,” Biber states. The subsequent correction has revealed weaknesses in Austria’s late-stage capital market, which was already shallow.

Markus Raunig, Executive Chairman of AustrianStartups, adds a stark perspective: “We entered the downturn with a relatively shallow late-stage capital market, few domestic funds, and limited institutional participation.” He emphasizes that the withdrawal of international capital left local markets without the depth needed to support growth. This cycle is global; however, its effects have been disproportionately severe on smaller ecosystems that did not fully develop their funding infrastructure during the boom years.

Sector-Specific Challenges in the Funding Landscape

Conversations with various founders and investors across Austria reveal that sectors like deeptech and space are experiencing the most significant challenges. Lilly Eichinger, CEO and co-founder of Satellives, a Vienna-based company focused on next-generation satellite modules, outlines the difficulties of hardware development: “Our satellite modules have to work on the first try. We can’t afford a ‘fail fast’ mentality like in the US.”

The capital-intensive nature of space projects, coupled with prolonged development timelines and specialized infrastructure, makes them less attractive to investors seeking quick returns. In response, some deeptech founders are pursuing international partnerships, applying for global grants from organizations like ESA and Horizon Europe, and collaborating with universities to share resources and mitigate risks.

Eva Arh, Partner at 3VC, highlights that the challenges are not solely sector-based but often relate to the experience level of founders. “It is mostly founders who are just starting out — especially if this is their first company and they are still learning how to fundraise,” she explains. In contrast, experienced founders tend to attract investor interest more easily.

Software as a Service (SaaS) companies have demonstrated relative resilience during this funding freeze. Vlad Gozman, CEO of involve.me, explains that their ability to pivot and generate revenue before seeking institutional capital places them in a stronger position. “In 2019 we pivoted successfully, but it was only possible because SaaS is much more flexible,” he notes. The stark difference between capital-efficient software businesses and hardware startups underscores the broader challenges facing the ecosystem.

AI Dominates Investment Landscape

Despite the funding struggles, there is one area where investment continues unabated: artificial intelligence. Currently, AI-based solutions account for 36% of all deeptech investments in Austria, exceeding the EU average. Michael Kowatschew, founder of Heizma and a Sequoia Capital Scout, emphasizes that while capital is available for standout projects, mid-tier companies without clear differentiation face significant hurdles.

Raunig identifies a concerning trend: capital-intensive scaleups that are operationally solid or even profitable struggle to secure funding. Many of these companies raised earlier rounds during a more favorable market environment, and reconciling their valuations with today’s market multiples has become increasingly challenging. Biber notes that Series C rounds have become almost “unfundable” for investors in Austria, highlighting a substantial gap in the funding landscape.

Looking ahead, targeted policy actions could help alleviate this late-stage funding drought. Stakeholders advocate for measures such as tax incentives or co-investment schemes to stimulate participation from pension funds and other institutional investors in growth-stage rounds. Supporting cross-border venture capital funds or regional fund-of-funds that pool capital could also mitigate local risks.

Pressure on Founders to Relocate

As the funding climate tightens, some founders are contemplating relocation to more robust markets. While no one has made the leap yet, the allure of larger NewSpace hubs remains strong. Eichinger acknowledges this pressure: “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 this, she remains committed to Vienna due to its strong space infrastructure and technical talent. However, she also recognizes that foreign funding often comes with expectations that can necessitate moving abroad. Raunig warns of a significant risk: “Austria increasingly subsidizes early innovation, while value creation, scaling, and exits happen elsewhere.”

Simona Huebl, CEO of Nejo, offers a counterargument, suggesting that the funding freeze is symptomatic of deeper issues rather than the root cause of Austria’s startup struggles. She points to successful funding rounds, like Refurbed’s recent €50 million round led by a US investor, as evidence that international capital will follow strong traction and ambition.

Challenges in Regulatory Frameworks

Austria introduced the FlexCo structure in January 2024, aiming to provide a more startup-friendly environment. While over 1,530 startups have registered under this model, many founders express dissatisfaction. Huebl points out that the bureaucratic hurdles, including extensive paperwork and costly notary visits, remain significant obstacles.

Additionally, while FlexCo offers some tax benefits, the regulations are complex and less attractive compared to models in countries like Estonia and the UK, which provide more founder-friendly equity options. This discrepancy complicates the ability of Austrian startups to compete for senior talent.

Despite these challenges, Austria is not stagnant. The Industrial Strategy 2035 emphasizes space as a priority, with plans for a €100 million Red-White-Red Fund-of-Funds. The strategy aims to elevate Austria’s position in the global market.

Moreover, nearly 40,000 new companies launched in 2025, indicating that there is potential for growth. Some significant funding rounds are already occurring in 2026, including a $20 million Series A for Flinn.ai and €9.4 million for Vitrealab.

The future of Austria’s startup ecosystem hinges on the effectiveness of proposed reforms and whether they arrive swiftly enough to retain talent and investment. Founders are increasingly exploring options to navigate regulatory hurdles while advocating for the changes needed to ensure a vibrant and competitive environment in the years to come.