The US and Europe both boast incredible tech talent and visionary founders. But when it comes to sheer dominance in the tech industry, there’s only one winner – the US.
The latest State of European Tech report paints a clear picture of the growing disparity, especially when it comes to raising larger rounds. In the US, 13.6% of tech startups raise $5m or more, while in Europe its 8.7%. The gap grows for larger rounds, with 8.3% of US companies raising $15m or more compared to just 4.1% in Europe.
The EU is working to change this with new policies aimed to boost tech investment. But will they be enough to keep Europe’s top founders from heading across the Atlantic? RTP Global’s Orson Stadler, Principal in Europe and Head of Network, and Louis Dussart, VP in Europe, weigh in.
The Challenges Facing Europe – Orson Stadler
The startup ecosystems in the US and UK are relatively aligned when it comes to early-stage funding. But Europe’s access to growth-stage capital remains a significant hurdle. Securing Series C funding and beyond often requires US investors.
In the UK last year, 94% of VC deals exceeding £50 million involved foreign investors – a stark contrast to mature ecosystems like the US or China, where 80% of late-stage funding is domestically sourced. According to the latest State of European Tech report, for Europe to achieve a comparable level of financial self-sufficiency, it would have required an additional $75 billion in funding rounds exceeding $15 million between 2015 and today.
This structural disadvantage has led many ambitious founders to either launch their ventures in the US or relocate their European startups to access larger capital pools and higher valuations. The challenge is compounded by Europe’s regulatory complexity and market fragmentation. The recent Draghi report on European competitiveness identified 100 separate tech-related laws and over 270 digital regulators across EU member states.
Add to this the linguistic, cultural, tax, and financial disparities, and scaling a business in Europe becomes an uphill battle. In contrast, the US market, with its relative uniformity, provides a far more seamless pathway to growth.
The implications are profound. Europe is struggling to establish itself as a globally competitive innovation hub and an attractive exit market for high-growth startups. The composition of the FTSE 100 illustrates this starkly – it remains dominated by legacy industries such as banking and oil, rather than next-generation technology firms that emerged from the startup ecosystem. Moreover, exit options beyond IPOs are limited by the fact there’s only a small number of mid-market buyers in Europe. The world’s biggest tech M&A deals aren’t happening in Europe.
For now, the US remains the best destination for Europe’s top founders to scale. Until Europe develops a mature late-stage funding environment and policymakers take concrete steps to harmonize regulations and reduce structural inefficiencies, this dynamic is unlikely to change.
Can the EU Mount a Comeback? Louis Dussart
To mount a comeback, Europe needs to overcome its well-publicised challenges but also forge its own path. And it doesn’t necessarily mean copying the US playbook.
Europe’s tech ecosystem will be built by entrepreneurs, not policymakers. At the same time, policymakers are vital in setting the conditions for entrepreneurs to emerge and grow faster. Fortunately, EU policymakers are realizing this. From the Draghi report to the recent Paris AI summit, a dynamic is taking shape and not just in words. Initiatives to attract talent (via forward thinking passport policy) and improve capital availability (via the mobilisation of sovereign wealth through, for example, France’s BPIfrance and Italy’s CDP Ventures) are positives for European tech.
To build further on Italy, reasons for optimism about its tech ecosystem stretch beyond government-backed investment. We recently invested in Qomodo, a fast-growing fintech that serves over 2,500 local SMBs. Italy is ripe for disruption by homegrown tech startups like Qomodo, which are better placed to adapt to local regulation and thrive than market entrants from the US.
This build on the momentum, Europe still needs to solve its startup exit problem. A Capital Markets Union (CMU) – a single capital market across Europe – would be a game-changer, easing cross-border investment and funding. The EU has struggled to make it happen. However, last year’s Draghi report reminded Europe just how powerful it could be to improve financing options for founders and investors. If the CMU gains traction, it could be a tipping point for European tech.
What does that tipping point look like?
Europe will never become the US. It’s something that needs to be accepted and nurtured. The right mindset is to capitalize on what makes this continent different. Different languages, for example, mean that Europe should be the leader in translation services (like DeepL), or in text generative AI using local language (like Mistral). Specificities in energy generation at the local level allow some countries to offer more stable and greener energy for datacentres and compute, which is a significant draw for AI founders. Different currencies mean that Europe can be the leader in FX products (following in the footsteps of Wise and Revolut).
This is a vision for tripling down on strengths, rooted in creating European companies that can become global leaders, as opposed to pessimistically comparing the continent against the US ecosystem’s obvious strengths.
So, what’s the conclusion?
The US is undoubtedly the best launchpad for Europe’s top startups to scale. But that doesn’t always have to be the case.
Europe has the talent, the market, and the ambition to rival the US in tech dominance. What has been missing is a landscape that fuels innovation and supports startups at scale. If Europe builds the right ecosystem – one that rewards risk, fosters growth, and keeps its brightest minds at home – it won’t just compete with the US; it could become a powerhouse on its own terms.
The future of global tech is still up for grabs. The question is, will Europe seize it?
