Why the fear of missing out on AI is driving European VCs to make riskier bets than ever - Silicon Canals

"Fear of missing out isn't a casual phrase when billions of euros are on the line. It's a cognitive distortion that rewires how even sophisticated investors evaluate risk. A study from the National Bureau of Economic Research found that institutional investors systematically overpay for assets in sectors experiencing rapid narrative momentum - not because the fundamentals justify it, but because the social cost of missing a category-defining winner feels more threatening than the financial cost of backing a loser."

"According to PitchBook's Q1 2025 European Venture Report, AI-focused startups captured roughly 40% of all European venture funding in the first quarter - up from 25% a year prior. Median pre-money valuations for AI Series A rounds jumped 35% year-over-year. These aren't incremental shifts. They're the kind of market distortions that, historically, precede either a generational wealth transfer or a painful correction."

European venture capital is experiencing a concentrated investment frenzy in artificial intelligence, with AI-focused startups capturing 40% of all European venture funding in Q1 2025, up from 25% a year prior. Median pre-money valuations for AI Series A rounds jumped 35% year-over-year. This phenomenon reflects behavioral economics' "herding" effect, where investors abandon independent analysis and follow the crowd, particularly when uncertainty is high. The driving psychology is fear of missing out rather than greed, causing sophisticated investors to systematically overpay for assets in sectors with rapid narrative momentum. Research from the National Bureau of Economic Research demonstrates that institutional investors prioritize avoiding the social cost of missing category-defining winners over the financial risk of backing losers, creating market distortions historically preceding either generational wealth transfers or painful corrections.

Read at Silicon Canals