- 2025 became another year of waiting for much of the European private equity market. A 105 per cent increase in deal-making in Q3 versus Q2 showed that top-quality assets continued to transact, but slow growth and valuation uncertainty meant many investors held onto ‘B-grade’ assets for longer than expected. This created a bottleneck that affected the entire ecosystem.
- There is still significant dry powder across European funds, and LPs are increasingly keen to see it deployed rather than preserved. As pricing expectations soften and buyer and seller positions converge, exits and secondary transactions are likely to accelerate.
- Exit challenges mean zombie funds are everywhere, reaching an all-time-high AUM of $824 billion in 2024 and expected to reach $1 trillion by 2030.
- Investment in innovation, international expansion and commercial capability will define the next cycle.
Despite expectations of a stronger rebound, 2025 became another year of waiting for much of the European private equity market. A 105 per cent increase in deal-making in Q3 versus Q2 showed that top-quality assets continued to transact, but slow growth and valuation uncertainty meant many investors held onto ‘B-grade’ assets for longer than expected. This created a bottleneck that affected the entire ecosystem. Limited partners waited for liquidity, general partners delayed new fund cycles, and founders often found themselves navigating longer periods between funding rounds or exits.
Yet private equity is inherently cyclical. Every reset brings renewed appetite and recalibrated expectations. For entrepreneurs leading high-growth businesses, 2026 is shaping up less as a continuation of hesitation and more as a year where opportunity re-emerges. This is especially true for companies that can demonstrate operational discipline alongside growth potential.
Crunch time for exits – and what that means for founders
Regardless of macroeconomic noise, many investors are approaching a point where they simply cannot hold certain assets much longer. Liquidity pressure is becoming a more powerful force than patience. There is still significant dry powder across European funds, and LPs are increasingly keen to see it deployed rather than preserved. As pricing expectations soften and buyer and seller positions converge, exits and secondary transactions are likely to accelerate.
For founders, this matters. A more active exit environment does not only benefit companies already preparing for sale. It also unlocks capital recycling, which in turn increases appetite for new growth investments. IPO markets are expected to remain selective rather than fully open, but strategic acquisitions and secondary buyouts are likely to provide more realistic near-term routes. Businesses that can show strong unit economics, clear market positioning and leadership maturity will stand out quickly when buyers begin moving again.
Out of the sandbox: B2B and vertical AI goes mainstream
The extraordinary influx of capital into AI has produced remarkable companies, but it has also inflated expectations. A cooling period in the second half of 2026 appears likely, with more selective funding and slower investment cycles. For founders, the implication is clear: differentiation matters. Building vertical, application-layer solutions that leverage existing infrastructure offers a more resilient path than competing directly with hyperscale providers. Investors are increasingly rewarding defensibility, retention and profitability over growth at any cost.
Many successful AI implementations are not emerging from purely AI-native start-ups, but from established SaaS businesses with deep sector expertise. Our own portfolio reflects this, as both Relesys, the frontline retail app, and PriceShape, which provides real-time retail pricing data, have AI driven products in beta with major customers. What makes these products different is that they’re not developed by native AI businesses, but by B2B and vertical SaaS specialists. With deep, real knowledge of their customers and demand, they’re leveraging AI to enhance their current offerings, mixing and matching from the best technologies available. Competitive advantage increasingly comes from understanding customer workflows and embedding automation where it drives tangible outcomes rather than abstract innovation.
The quiet digitisation of the high street
The predicted collapse of bricks-and-mortar retail never fully materialised. Instead, the high street has stabilised into a hybrid model where online and offline experiences reinforce one another and continue to deliver value, for shoppers and retailers. Retailers are no longer focused solely on survival; many are investing in optimisation and profitability.
For technology-led growth businesses, this represents a significant opportunity as retail remains one of Europe’s largest yet relatively under-digitised sectors – a rare combination of scale and opportunity. Tools that integrate communication, analytics and workforce engagement into day-to-day operations are gaining traction because they solve practical challenges around retention, performance and customer experience. Companies like Relesys, PriceShape and others like them will become ubiquitous on the high street in the coming year.
AI hackers, internal risk and the cybersecurity opportunity
The acceleration of AI adoption also introduces new vulnerabilities. Cybersecurity is rapidly becoming one of the defining themes of the coming year, with AI companies ramping up investment to get ahead of the hackers. Concerns intensified after Anthropic reported that its technology had been ‘weaponised’ in August by cybercriminals, highlighting how advanced tools can be used for both innovation and exploitation. For scaling businesses where speed often outweighs process, this presents a material operational risk, but risk also creates opportunity.
Training platforms, secure coding tools and AI-governance solutions are becoming essential rather than optional. Companies like SecureFlag, a secure coding training platform, which recently launched programmes focused on managing employee AI usage, are tapping into a fast-growing demand for structured security education. For founders, investing early in AI governance can become a differentiator rather than a compliance burden.
Emerging managers and operator-led capital
Exit challenges mean zombie funds are everywhere, reaching an all-time-high AUM of $824 billion in 2024 and expected to reach $1 trillion by 2030. But rather than an existential crisis, this is driving a shift in power in private equity, away from the large funds towards emerging managers.
Despite 2025 fundraising being the lowest in several years, emerging firms such as Goldenpeak, which closed its debut fund of £375 million in just over 12 weeks, and Kester Capital, whose fourth fund reached £425 million in only slightly longer, have been flying. Newer private equity firms are often operator-led and sector-focused, prioritising operational value creation over financial engineering, building businesses suited to success in the current market. There are sure to be more of these in 2026, with LPs, management teams and talented investors jumping onboard.
Founder versus professional CEO – earlier than expected
As valuations rise and deals become more competitive, leadership capability is under greater scrutiny. Consequently, conversations about transitioning from founder-led leadership to professional CEOs are happening earlier in the company lifecycle. There’s no doubt that top founders bring vision and cultural DNA which are vital to early business growth. But once organisations reach roughly 150 to 200 employees, the skillset required to scale often shifts toward process management, governance and operational rigour. For many founders that isn’t their skillset, or what they enjoy, so it is vital to talk honestly about what makes sense for both sides.
This is not about replacing founders, but about aligning leadership with structure with scale ambitions and exit timelines. Many founders continue to thrive as product visionaries or executive chairs. What is changing is the timing and openness of these discussions, particularly where investors are focused on preparing businesses for eventual exits.
One consistent theme: intentional growth
If there is a single defining message for 2026, it is growth with intention. Reaching key performance milestones has been more challenging in recent years, but both investors and management teams are determined to change that trajectory. Investment in innovation, international expansion and commercial capability will define the next cycle.
Markets always reopen. When they do, businesses with strong operational foundations and credible organic growth will be best positioned to capitalise. For entrepreneurs leading high-potential companies, the coming year is less about waiting for perfect conditions and more about preparing for momentum when it arrives.
John Messer is co-founder and managing partner of CopilotCapital.
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