- Europe’s main start-up bottleneck is systemic risk aversion, not a shortage of public money.
- With public actors already supplying a large share of VC (e.g., ~25% via the EIF), more grants may deepen dependence rather than catalyse private risk-taking.
- The EU’s Startup & Scaleup Strategy (28th Regime, insolvency and regulatory reforms, Scaleup Europe Fund) can cut fragmentation but won’t lift outcomes unless it changes the risk calculus.
- Proposed levers include success-contingent funding, procurement as demand-pull, guarantees and asymmetric co-investment, and shared infrastructure to crowd in private capital.
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Paulo Andrez’s piece argues that Europe’s biggest constraint is not capital scarcity, but systemic risk aversion. He notes that public grants and institutional funds dominate Europe’s venture capital ecosystem: for instance, the European Investment Fund (EIF), national development banks and public investors are deeply involved, with EIF-backed capital comprising around 25% of all VC investment. Adding more public funds under current design is unlikely to change behaviour.
The European Commission’s Startup & Scaleup Strategy (launched mid-2025) includes several major reforms that could reduce friction in scaling up — regulatory harmonisation (the “28th Regime”), a new legal status for companies operating across borders, reforms to insolvency laws, and the establishment of a public-private Scaleup Europe Fund set to begin investing in Spring 2026,. These are essential pieces, but as Andrez observes, they may still fall short if they do not explicitly target the risk calculus of founders, investors and early public-private interactions.
Empirical data confirms Europe lags in scale-ups, exits, institutional capital participation, and global share of VC raising. The EU accounts for only ~5% of global venture capital raised, compared to ~52% for the U.S. and ~40% for China; only 8% of global scaleups are based in the EU. Fund sizes per deal tend to be smaller; valuations are lower; exit activity is weaker; regulatory fragmentation (legal, insolvency, procurement) imposes high costs,.
Risk reduction policies—as proposed by Andrez—are pragmatic and likely to shift behaviour. Examples include: making infrastructure freely available to early-stage start-ups; R&D funding tied to success and royalty-based repayment; a standardised “startup risk passport” to reduce legal/technical/regulatory assessment burdens; procurement quotas to ensure public customers; equity loss guarantees; co-investment funds with asymmetric terms favouring angel investors.
Strategic implications for investors and policymakers include: public funds must evolve from being primary funders to enablers; failure must be destigmatized (legal and reputational) to lower founders’ risk; regulatory harmonisation must be real and inclusive (ideally via regulation rather than directive); procurement can serve as demand-pull to validate start-ups. Europe’s global competitiveness hinges on these reforms being implemented rather than remaining conceptual.
Outstanding questions remain: How will public institutions define “innovative companies” for eligibility under the 28th Regime, and will access be restricted? Will the Scaleup Europe Fund truly crowd in private capital, and under what terms? Can procurement policies be made binding rather than voluntary? How will the EU balance protecting taxpayers with encouraging risk-taking? Monitoring metrics will need to include risk perception, not just capital committed.
Supporting Notes
- EIF-backed capital represents roughly 25 % of all VC invested in Europe; when national public investors and development banks are included, Europe’s VC market is structurally dependent on public money.
- Europe raises only ~5 % of global venture capital; in contrast, the U.S. raises ~52 % and China ~40 %.
- Only ~8 % of global scale-ups are based in the EU, while ~60 % are in North America.
- The EU Startup & Scaleup Strategy includes the 28th Regime, regulatory harmonisation, insolvency reform, improved access to markets, finance, talent, infrastructure, and plans for the Scaleup Europe Fund beginning investments in Spring 2026,.
- Commissioner Zaharieva has argued the 28th Regime should apply not only to “innovative companies” but broadly, to avoid delay and ambiguity in defining innovation, and should be structured as a regulation for immediate effect.
- Structural limitations: European pension funds, university endowments, etc., are underrepresented as sources of VC capital; many public funding schemes reinforce grant dependence rather than privately driven risk-taking,.