It is shaping up to be a roller coaster year with tectonic shifts in both politics and tech. Let’s dive in!

China’s DeepSeek delivers the Sputnik 2.0 moment for US’s Gen AI domination
China’s open-source AI ecosystem has achieved a Sputnik-like leap with DeepSeek’s R1 model, matching OpenAI’s performance at (allegedly) fraction of the cost and undermining the belief in Silicon Valley AI dominance, taking the shine off the “Magnificent Seven” while throwing the US GPU export restrictions policy into question. However, everything is not what it seems in the world of smoke and mirrors… We’ve looked beyond the headlines to uncover The Good, The Bad and The Ugly of DeepSeek – take a moment to see for yourself.

Is the US “Bazooka diplomacy” seeding a “Make Europe Great Again” (MEGA) movement?
The Munich Security Conference in February 2025 crystallized Europe’s reckoning with the US retrenchment, which was delivered in the Trump administration’s signature “electroshock” style. You’d expect European markets to tumble, right? WRONG! Euro Stoxx 50 is up almost 12% since the US election and Europe-focused ETFs recorded their biggest inflows since early 2022, according to WSJ. The EU proposed suspending fiscal rules to fund rearmament. Indeed, it’s not unusual for economic turnarounds to start with a military spending spree – European contractors supplied only 22% of the bloc’s defense needs in 2022-23, so the defence push is already forcing the design of a new industrial strategy.

Europe also seeks “digital sovereignty” through AI partnerships, wary of the US-China bifurcation. Mr Merz’s CDU/CSU victory in the German elections delivered respite, although AfD’s 20.8% result shows the complicated road ahead for the mainstream parties in Germany, to revitalise (or reengineer?) the German economy and strengthen security and defence, while dealing with a myriad of pressures in the society – we are rooting for Merz to deliver!!

Market Review: The European Perspective

• European VC activity expanded across the board reaching £6.6Bn in Q4’24 (vs £4.7Bn in Q3) with the most notable +207% QoQ increase in the early stage while seed and later stage showed a modest +12.3% and 5.5% uptick.
• Mega-rounds, although scarce, are back in Q4’24 in Europe with Greenscale (data centres) raising £1Bn and Poolside raising £378M in early stage while later stage saw decent raises by Lighthouse (£288M), Vorpen AI (£227M), Zepz (£202M) while a handful of others crossed £100M+ round size (Oura – £158M, ICEYE – £125M, Nscale – £122M and SeQura – £117M).
  The total deal count (1,040; +5% QoQ) saw a much more modest increase across seed (+10%), early (+3%) and later (+4%) stages this quarter.
• In the US, total VC investments increased by +144% QoQ to £42.8Bn (vs £17.5Bn in Q3) fueled by +234% increase in later stage investments (£36.1Bn) due to a handful of mega-rounds: £7.9Bn Databricks, £5Bn OpenAI, £4.7Bn xAI, £4.3Bn Waymo all closed this quarter.
• Seed investments contracted by -18.5% QoQ to £1.6 Bn. Early stage investments increased to £5Bn (+6% QoQ) in Q4’24.