The era of ‘cheap money’ is over, and Europe’s startups are being hit from all sides—plummeting VC investment, rising debt costs, and an increasingly complex regulatory landscape that demands compliance or risks substantial fines.
With venture capital drying up and an increasing number of compliance requirements, Europe’s most promising young companies could be at risk of financial instability—and potentially, failure. From data protection and AI governance to digital services and financial regulations, EU-wide Startups must now navigate a complex web of rules that, if ignored, could result in substantial fines.
In this article, we examine recent data from Channel Capital and Storyblok to analyse the funding hurdles faced by European startups, impending compliance deadlines, and the financial consequences of non-compliance that could threaten their survival.
Featuring analysis of the European Accessibility Act (EAA), General Data Protection Regulation (GDPR), the AI Act, the Digital Services Act (DSA), the Markets in Crypto-Assets Regulation (MiCA), Anti-Money Laundering (AML) Directives, and others.
Faltering funds, rising interest, and potential fines
According to the recent Channel Capital report ‘Financing Growth Potential in
Europe’s Innovation Economy’, 250 of Europe’s fastest-growing Tech startups have raised a total of €17.7 billion since their inception, predominantly through venture capital.
However, this environment is rapidly changing: interest rates are climbing, VC funding is declining, and startups are experiencing liquidity pressures that could threaten their stability. Channel Capital highlights that a fifth of these high-growth companies risk failure by 2025 due to dwindling funding sources.
Financial pressure mounts
The median startup on the Channel Capital list grew revenues at an astonishing 149% per year over the past three years, but that growth has been fuelled by record-breaking funding rounds—€17.7 billion in total, much of it raised during the 2021–2022 boom.
That boom is now over. VC funding has declined, with deal flow down 53% since 2021. Startups that once relied on venture capital to sustain aggressive expansion are now turning to debt, but rising interest rates have made borrowing significantly more expensive.
The result? More than half (59%) of these high-growth companies are now operating with negative cash flow, and one in five could run out of money before the end of 2025 if this continues.
Sectors like consumer technology, HealthTech, and B2B SaaS are particularly vulnerable.
A risky balancing act
Compounding the challenge, many startups have taken on substantial leverage in an attempt to bridge the funding gap. Channel Capital’s analysis shows that the average debt-to-equity ratio among these startups has doubled from 2022 to 2023, reaching 9.32—well beyond the 2.0 threshold considered financially risky.
A quarter of these companies now have a debt-to-assets ratio above 0.5, which means they are potentially operating on increasingly shaky financial ground.
As Walter Gontarek, CEO & Chair, Channel Capital puts it: “Could today’s challenging funding environment prevent Europe’s startup elite from achieving their full potential? So far, they’ve thrived in a world of cheap money. Now, they must adapt to a new reality, facing new risks, more expensive funding, and challenging interest coverage ratios.”
At the same time, liquidity is tightening. Despite holding an average of €123 million in cash reserves, these startups are hesitating to reinvest, perhaps fearing that securing future funding will be even more difficult.
The fear isn’t unfounded. If Europe’s fastest growing startups are struggling to raise capital, what does that mean for the wider ecosystem?
A storm of fines
Among the many directives and regulations applicable to European startups, a critical compliance deadline approaches – the EAA. The EAA is an EU regulation aimed at improving accessibility standards for products and services, ensuring equal access for people with disabilities across digital platforms, e-commerce, banking, transport, and other key sectors.
Research from Storyblok indicates that only 25% of European businesses are currently fully compliant with the Act’s provisions, despite the looming implementation deadline in June 2025 – potentially leaving them exposed to significant fines.
Non-compliance with the EAA can result in fines that vary across EU member states. In Germany, fines can reach €500k, while France imposes penalties of up to €250k. Spain and Italy set fines between €5k and €300k, and Austria may impose up to €200k in penalties.
Of the 200 senior professionals surveyed by Storyblok, nearly 18.5% admitted they were entirely unaware of the Act’s requirements. Even among those aware, 46.5% still have work to do, and 9.5% have no plans to make any changes. With approximately 87 million people in Europe living with disabilities, failure to meet accessibility standards is not just a legal risk—it could mean losing a massive customer base.
Yet, with limited resources, 37.5% of companies cite limited resources as a primary barrier to compliance. Another 22.5% blame technical limitations, while 15.5% struggle with workforce integration.
As Dominik Angerer, Co-founder of Storyblok, puts it: “Compliance with the European Accessibility Act isn’t just about adhering to another piece of red tape. It’s about creating inclusive experiences that benefit all possible users.
“Around 87 million people in Europe have a disability – equating to roughly one in every four adults. By failing to make their websites and content accessible to all, businesses now not only face legal complications but could be unknowingly isolating a huge potential chunk of business.
Yet, many companies may struggle to prioritise accessibility when they are already battling to stay afloat.
At the same time, startups face further regulatory hurdles that, if ignored, could lead to additional significant penalties.
The GDPR remains a major compliance requirement, with potential fines of up to €20 million or 4% of global turnover. Even small startups have been caught in enforcement actions—such as the French startup KASPR, fined €200k in 2024 for scraping personal data from LinkedIn without consent.
The AI Act, expected to take full effect by 2025-2026, introduces further financial risk for startups leveraging AI. Companies that fail to comply with transparency and safety measures for ‘high-risk’ AI systems could face fines of up to €35 million or 7% of global annual revenue.
Another critical compliance area is the DSA, fully applicable from February 2024, which imposes strict content moderation and transparency requirements on online platforms. Startups operating marketplaces, social networks, or content-sharing platforms could be fined up to 6% of their global turnover for failing to adhere to its provisions.
Financial regulations such as the MiCA and AML Directives also present compliance risks, particularly for FinTech and Crypto startups. Under MiCA, operating a non-compliant Crypto business in the EU could lead to penalties reaching €20 million or 5% of turnover, while AML non-compliance has already led to multi-million-euro fines, such as the €4.25 million fine imposed on German FinTech N26.
For those already navigating a funding crunch, failing to comply with directives such as the EAA, GDPR, AI Act, DSA, MiCA and AML could be catastrophic. Regulatory penalties, combined with the loss of potential customers, could push many into insolvency.
Can startups adapt?
The startups that survive this period will be the ones that can adapt—both financially and operationally.
The European startup landscape has weathered crises before, but this time, survival may depend not just on raising capital but also on making smarter, more strategic decisions that actively comply with incoming regulations.
For now, the question remains: is this just a rough patch for Europe’s startup scene, or are we witnessing a deeper structural shift?
Further reading
