Europe’s central innovation challenge is its inability to scale invention. While the continent produces world-class research, engineering talent, and many high-potential companies, it too often fails to turn them into global champions on home soil. This is too often chalked up to difficult-to-remove structural barriers, but in today’s geopolitical context such resignation is a luxury Europe cannot afford. Today, strategic capacity increasingly depends on whether ideas can scale at home.
The numbers frame the challenge: Venture capital funds located in the United States total about €930 billion, versus roughly €150 billion in the European Union. Because of this gap, early-stage finance is generally available to European startups, but EU companies in need of large follow-on funding find it difficult to access.
A sample from the European Commission’s Joint Research Centre covering 2008 to 2021 found that 40 of 147 EU unicorns — referring to privately owned companies worth more than $1 billion — relocated their headquarters abroad, 32 to the US. When a company needs a nine-figure round, there are more doors to knock on in Palo Alto than in Paris.
This is not a shortage-of-money story. EU households held about €37 trillion in financial assets in 2023, yet only 17% of those assets were invested in securities. By comparison, US households invested 43% of their financial assets in securities. Europe’s problem is conversion: Too little of that savings pool reaches productive risk and companies capable of scaling. To compete, the continent must connect savers, institutional investors, and entrepreneurs more effectively. Three priorities matter most in closing Europe’s funding gap.
The region needs to unlock capital and build funds with scale
The ongoing Institutions for Occupational Retirement Provision (IORP II) review should preserve a genuinely principles-based, prudent-person rule: Diversified venture and growth allocations should not be deemed imprudent solely because they are unlisted or illiquid. They should be judged at the portfolio level against liabilities, liquidity, governance, expertise, and members’ interests.
Pooling or consolidating smaller pension vehicles can strengthen the specialist capabilities needed to invest in long-horizon assets. National schemes to mobilize institutional investment, such as France’s Tibi and Germany’s WIN, should be able to link up across borders so that successful managers can raise larger pools of pan-European funding.
For retail savers, the European Long-Term Investment Fund framework, or ELTIF 2.0, offers a regulated EU route into diversified long-term assets, including private companies. The next step is wider, lower-cost distribution, with transparent fees, robust suitability tests, and liquidity terms matched to the underlying assets.
Europe’s startup funding gap needs stronger exit markets
Startup exits should not be seen as the end of the financing cycle; they are what replenish it. They return capital to investors, create liquidity for founders and employees, validate valuations, and enable experienced people to return to the market to assist the next generation of startups.
Europe, therefore, needs three functioning channels: strategic acquisitions by European buyers, transparent secondary markets for private shares, and, most important, public markets with enough long-term investor demand, research, and post-IPO liquidity to support growth companies.
Relative to GDP, US capital-market liquidity is about four times Europe’s. And while Europe has created competition among trading venues, it has fragmented liquidity.
Our research finds the share of trading on the primary listing venues has fallen from 38% in 2020 to around 30% in 2025, so barely a third of European equity trading now contributes fully to price formation. Milan-based Bending Spoons’ July 2026 Nasdaq IPO makes the point:. Europe is not a credible first choice for listing.
Europe must use public investment to unlock startup growth
The state should be catalytic: crowd in private capital, then step back. ETCI 2.0, the second phase of the European Tech Champions Initiative, backed by all 27 EU member states and institutional investors, aims to mobilize up to €80 billion for European scale-ups. The €5 billion Scaleup Europe Fund can add direct late-stage capacity once it reaches first close, provided its governance remains commercial and it attracts private co-investment.
But procurement matters at least as much as financing. Europe has demand pools in energy, health, defense, mobility, and industrial automation, yet procurement remains too fragmented, slow, and risk-averse to give young companies reference customers. When authorities ask entrepreneurs to build here, they must also make it easier to sell here. That is where economist Mario Draghi’s proposal for the 28th regime comes in: A single market for customers matters as much as one for capital.
There is reason for confidence. Europe has solved coordination problems before, from medicines regulation to product standards, by choosing common rules over a patchwork. The talent and savings are here, and the EU Startup and Scaleup Strategy and new funding initiatives show political momentum.
The work ahead is practical and unglamorous: enlarge the investor base, connect markets, create exits, and use public purchasing power intelligently. The question is no longer whether Europe can finance its scale-ups at home. It is whether it will decide to.