Europe has not produced a single company with a market capitalisation north of $100 billion in the last fifty years. Let that sink in. Half a century. The continent that gave us the combustion engine, the World Wide Web, and an almost religious devotion to regulatory frameworks has somehow managed to build precisely zero tech giants in the time it took the United States to produce Apple, Google, Amazon, Microsoft, Meta, and Nvidia, six venture-backed companies each worth over a trillion dollars.
This is not a talent problem. Europe has world-class universities, deep engineering pools, and no shortage of brilliant founders. I have written previously about the EU Commission’s misguided plan to invest directly in startups, and the damage that this kind of top-down intervention does to an ecosystem that desperately needs less government intervention, not more. But the structural rot runs deeper than any single policy initiative. Despite the shortcomings, and there are many, Europe still has enormous latent potential. The question is whether various EU government institutions will ever get out of the way long enough for that potential to be realised.
The State Funding Problem
Europe does not lack capital. It lacks the right kind of capital.
The continent is awash with government money flowing into venture through an alphabet soup of intermediaries: the EIB, the EIF, EBRD, national development banks, state innovation programs, economic agencies, and whatever acronym Brussels invented last Tuesday. These bodies have become the dominant allocators in European venture, and that dominance has consequences.
European pension funds, sitting on roughly €3 trillion in savings, allocate approximately 0.12% to venture capital. In Germany, approximately 12% of LP capital in venture funds comes from US LPs. From German institutions? 0.01%. The people whose retirement savings could be fuelling the next generation of European innovation are instead parked in government bonds and real estate, while American endowments and pension funds cheerfully back European managers from across the Atlantic. “Europe has the savings; the United States has the venture capital” – Jean-Claude Trichet (ex-ECB President).
When the state becomes the primary source of capital, the entire incentive structure warps. Public allocators prioritise policy goals, regional development, diversity metrics, and sector mandates over financial returns. There is little accountability and almost no feedback loop. A fund can underperform catastrophically and still raise its next vehicle because the decision-makers who approve allocations are seemingly evaluated on deployment volume rather than investment outcomes.
In short, state-backed venture capitalists are remunerated as if they operate in the private sector but evaluated as if they work in the public sector. It is the worst of both worlds: private-sector pay with public-sector rigour. And I use the word “rigour” loosely.
The Deployment Trap
Here is the fundamental misunderstanding at the heart of European venture: deploying capital is not capitalism. Capitalism requires that you get the money back, preferably with a profit attached. The easy part is writing cheques. The hard part is generating returns. Europe has optimised aggressively for the easy part.
Too many European funds are fundraising machines rather than investment businesses. The cycle is brutally simple: raise, deploy, repeat. Management fees are guaranteed from day one. Fundraising success, not investment performance, determines commercial viability. Funds balloon in size not because the opportunity set demands it, but because larger funds mean larger fees. The incentive is to gather assets, not to generate alpha.
When deployment becomes the metric, everything downstream suffers. Portfolio construction grows sloppy. Ownership targets drift. Value creation becomes an afterthought. The entire ecosystem begins to resemble a government grants programme with management fees. This is not Venture Capital. This is venture socialism – a system in which the state, not the market, determines who gets funded, how much, and on what terms.
And the consequences are predictable. Funds that are structurally insulated from bad investing cannot credibly advise founders on how to navigate the world of capitalism because they do not operate within it. The question is whether Europe is attracting the wrong talent into venture, or whether the structure itself is corrupting good talent. I suspect the answer is both.
Meanwhile, in America
Sinead O’Sullivan put it perfectly: in the US, venture captured the state. In Europe, the state has captured venture.
The American venture ecosystem is not just larger; it is fundamentally different in the way it is structured. Venture capital is embedded in the fabric of US economic life. The six largest companies in the world are American and venture-backed: Apple, Microsoft, Google, Amazon, Nvidia and Meta.
London has become a hub for many major US venture funds, collectively representing one of the largest investor bases in the European market. In fact, the United States currently accounts for 42% of the total funding and 58% of all late-stage funding over $100 million in the UK. However, growth investments, IPOs, and meaningful M&A activity remain overwhelmingly American phenomena.
Marc Andreessen has said he would back every European entrepreneur who moves to the US, and while that sounds like provocation, the logic is sound. The US provides the optimal environment for ambitious founders to build at scale: deep capital markets, a culture that rewards risk-taking, a legal system that facilitates rather than obstructs, and an exit landscape that actually functions. For top-tier European founders, the rational move is to leave. And increasingly, they do.
What Would Actually Help?
Europe missed the PC revolution. It lost the mobile revolution. It was muscled out of the cloud. It is now in the process of losing AI as well! At some point, the pattern stops being bad luck and starts hinting towards a structural failure.
The prescription is not complicated. It is, however, politically uncomfortable.
First, reduce the plethora of bureaucratic overhead that suffocates early-stage companies, examples being; GDPR, the AI Act, and indirectly, Solvency II requirements. While each is individually defensible, collectively lethal to the speed and experimentation that define successful venture ecosystems, Europe regulates first and innovates with the handbrakes on.
Second, restructure how venture capital itself is organised. Mobilise the €3 trillion of savings sitting in European pension funds. Even a modest reallocation, say, from 0.12% to 1%, would transform the LP base from state-dependent to market-driven. Private capital demands returns, which demands accountability, which demands better investing. The virtuous cycle writes itself.
Third, accept that capitalism works. This should not be a controversial statement, but in a continent that treats profit with suspicion and risk with horror, it apparently is. Europe needs to stop trying to engineer outcomes through policy and start enabling outcomes through markets. Less safety. More speed. Less consensus. More conviction.
The talent is here. The education is here. The savings are here. What is missing is the structure, the mentality, and the political will to let it all work. Europe does not need another public innovation fund, another state-backed accelerator, or another working group on competitiveness. It needs to get out of its own way.
Fifty years is a long time to go without building a global champion. The next fifty do not have to look the same. But they will, unless something fundamental changes. And no, another EU white paper will not cut it.
