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DB Consulting · Thoughts

How to navigate the difficult European startup ecosystem

13 July 2026 · 5 min read

Europe’s startup funding gap comes down to three structural issues, not talent. Here is what the data shows, and how founders build around it.

European startups raised $63.9 billion in 2025, nearly ten times the amount raised five years earlier. Growth is real. So is the gap behind it: Atomico’s State of European Tech 2025 puts Europe’s cumulative underinvestment, relative to the US, at $375 billion over the past decade, and VC concentration in the US remains roughly twice as high as in Europe.

Three structural problems explain most of that gap — and each has a workaround founders are already using.

1. Fragmented markets

Europe isn’t one market. A startup that clears regulatory and tax requirements in Germany starts over in France, Italy, and Spain — different labour law, different VAT regime, often a different language for the sales team. Scaling across European countries costs more than scaling across US state lines, where corporate and tax law barely shifts.

Workaround: Prove the model in one or two markets before expanding, and hire a local operator for each new market rather than running everything from headquarters. Treating European expansion as several separate market entries — not one continental rollout — cuts both cost and time to revenue.

2. A risk-averse investment culture

European pension funds allocate about 0.01% of assets to venture capital, versus 0.03% in the US — a third of the rate, before even accounting for the larger size of US pension pools. Public institutions made up roughly 38% of European VC commitments in 2025, up from a historical 20-25%. Public capital tends to chase policy goals — regional jobs, SME support — alongside returns, which thins out the capital available for the outlier bets venture depends on.

Workaround: Build relationships with growth-stage funds 12-18 months before you need the round, and don’t assume a strong seed raise guarantees a Series A or B locally — increasingly, it doesn’t. More than 30% of repeat founders now set up headquarters outside Europe by Series C, citing fragmented regulation and shallow late-stage capital. That’s a signal from the founders with the most raising experience, not just an opinion.

3. Scale-up infrastructure still catching up

Seed and pre-seed capital in Europe is genuinely competitive now. What’s thinner is the capital and legal infrastructure for scaling past Series B — the reason so many repeat founders relocate headquarters once they reach that stage.

Workaround: Structure the holding company for where late-stage capital actually concentrates (often Delaware or the UK), while keeping operations where the talent and cost base are strongest. This isn’t abandoning Europe — most later-stage European unicorns already run this structure, matching legal domicile to capital, not to where the team sits.

What’s working

Deep tech now takes 36% of European VC dollars, nearly double its share four years ago, and 2026 funding is tracking toward $83.5 billion — up 31% year-over-year. Capital is following the categories where European technical talent has a genuine edge: deep tech, defence, climate. The ecosystem isn’t static; it’s specialising.

The unicorn gap in one number

The clearest single measure of the gap is unicorn creation. The US produced 611 unicorns in 2025 against Europe’s 134 — and just two US cities, San Francisco (271) and New York (124), account for over 64% of the US total on their own, more than any single European country manages alone. Within Europe, the UK (52), France (30), and Germany (29) lead, together making up over 60% of the region’s total, but none approaches the concentration of a single American hub. Of the 83 new unicorns minted globally so far in 2025, 52 came from the US and only 14 from Europe combined.

This isn’t a talent gap. It’s the fragmentation problem showing up in outcomes.

Capital and follow-on funding concentrate around a small number of hubs; Europe has several credible hubs instead of one dominant one, which spreads deal flow and follow-on capital thinner across borders. That’s part of why the market-by-market navigation strategy above matters more in Europe than in the US, where founders can chase capital within one legal and cultural system instead of several.

The bottom line

Europe’s disadvantage isn’t ideas or talent — it’s structural: a patchwork of national markets, capital that behaves differently than in the US, and scale-up mechanics still catching up to seed-stage strength. Founders who plan around those three constraints, instead of waiting for them to resolve, tend to raise faster and spend less time re-proving points the data already makes clear.

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