Challenges Facing EU Startups: Trends in Relocation to Non-EU Markets

The European startup ecosystem is experiencing a significant shift as high-potential startups are increasingly relocating to non-European Union (EU) markets. This trend, analyzed in a study conducted by the European Investment Bank (EIB) in collaboration with the European Commission, highlights the growing challenges that startups face within Europe.

The Search for Capital: Why Startups Are Leaving

One of the primary reasons for this exodus is the access to venture capital, particularly for growth-stage funding, which is more readily available outside the EU. The United States, for instance, boasts deeper capital markets that offer better opportunities for scaling operations. Moreover, the market size is a crucial factor influencing relocation decisions, as larger markets provide ample opportunities for growth.

The EU's fragmented market presents additional complications for scaling, due to regulatory differences across its member states. This fragmentation not only impacts startup growth but also adds layers of complexity to cross-border investments. With 27 different corporate law systems, the complexity of investment often exceeds economic viability, particularly for angel investors. Consequently, major venture capitalists (VCs) have been pushing for Delaware incorporation, given its standardized and streamlined process.

Regulatory Challenges and the Push for EU INC

In response to these challenges, the EU INC initiative is gaining momentum in Brussels. The aim is to create a pan-European legal entity for startups, which could simplify cross-border investment and reduce the regulatory burdens currently faced by entrepreneurs. Presently, less than 18% of early-stage investment is pan-European, indicating a significant barrier to creating a unified market.

The proposed solution is the development of a new pan-European legal entity, referred to as the "28th regime." This would establish a standardized corporate structure alongside existing national frameworks. The initiative also includes the synchronization of European registries with local registries, taking inspiration from Delaware's successful standardization model. A single digital company form under EU INC could help reverse the decline in Europe's global competitiveness by making it easier for startups to incorporate and scale within the EU.

The Competitive Landscape for Startup Capital and Talent

The current situation has significant implications for the competition for startup capital and talent. Many founders are opting to relocate to jurisdictions where incorporation is simpler and more efficient. This shift affects Europe's ability to compete globally, as it risks losing both capital and talent to more favorable environments.

In the specific sector of fusion startups, Europe has seen some successes, with companies like Proxima Fusion, Marvel Fusion, Renaissance Fusion, and Novatron securing significant funding. In the first half of 2025, European fusion startups raised €290 million, surpassing 2024's record of €185 million. However, this is overshadowed by the US, where fusion startups raised $1.6 billion in the first half of 2023 alone. Companies like Commonwealth Fusion Systems and Helion Energy received substantial investments of $1 billion and $425 million, respectively, highlighting the disparity in funding between the two regions.

Future Prospects and the Need for Change

The ongoing trend of relocation underscores the urgent need for the EU to address its internal challenges. While the proposed EU INC initiative offers a potential pathway to simplifying the incorporation process and making Europe a more attractive destination for startups, it remains to be seen how quickly these changes can be implemented. As startups continue to seek environments that offer better funding opportunities and simpler regulatory landscapes, the EU's ability to retain its entrepreneurial talent and compete on a global scale hangs in the balance.