Challenges in Securing Funding for European Startups
This sector saw a 12% increase in the number of deals, with the average deal size reaching $7.7 million. While some countries like France and the Netherlands have lower relocation rates, between 3% and 15% of tech startups move to the U.S. due to a more robust venture capital landscape. Yet, a significant portion of AI solutions, approximately 95%, fail to integrate into business operations.
Startups in Europe are facing significant challenges in securing necessary funding, a problem that has been on the radar of the European Union since at least 2017. Despite various initiatives and funding bodies, many startups struggle to survive past their initial stages, with a notable number failing to reach their fifth anniversary.
Funding Landscape and Initiatives
The European Innovation Council (EIC), founded in 2017, is one of the key bodies set up to address funding issues by attracting venture capital. However, it has been inundated with applications, receiving 20 times more than it can fund. This highlights the substantial demand for startup support and the challenges in meeting this demand effectively.
Several countries have established their own institutions to support startups. Germany has the KfW bank, originally created from the Marshall Plan, while France established the BPI in 2012 and the Netherlands followed with Invest-NL in 2015. Despite these efforts, the private equity landscape remains underdeveloped in Europe, with a noticeable lack of large-scale funds. Few funds in Europe invest more than 1 billion euros, and European pension funds allocate less than 0.2% of their assets to venture capital.
Relocation Trends and Market Needs
The challenges faced by startups are not only about securing initial funding but also about growth and expansion. A significant number of tech startups, between 3% and 15%, relocate to the United States where the venture capital landscape is more robust. However, this trend varies across Europe, with lower relocation rates observed in France and the Netherlands, while higher rates are seen in Poland and Portugal.
A single market for startups in Europe is identified as a critical need to prevent the outflow of innovative companies. The fragmented nature of the European capital market, which comprises more than 20 stock exchanges, complicates the process of raising substantial venture capital.
Sector-Specific Insights
Despite the overall challenges, certain sectors like health tech have shown resilience. In 2025, venture capital investment in health tech rebounded, with funding through the third quarter surpassing the total of the previous year. This sector saw a 12% increase in the number of deals, with the average deal size reaching $7.7 million. The application of AI tools has been a significant driver of larger funding rounds, focusing on practical products within health tech.
Nonetheless, the sector faces its own hurdles. No major health tech IPOs were recorded in the third quarter, with policy uncertainties affecting decisions. Expectations for significant listings remain low for 2025.
Innovation and Capital Mobilization
Investment in innovation across Europe remains low, and there is a pressing need to mobilize capital for the real economy. The EIC Fund is projected to become operational by mid-2026, which may help address some of these funding challenges. However, the broader issue of limited capital mobilization persists.
The AI sector has seen substantial investments, raising $192.7 billion in 2025. Yet, a significant portion of AI solutions, approximately 95%, fail to integrate into business operations. Startups often neglect internal operations and documentation, making it difficult for investors to distinguish promising ideas from those less viable.
Overall, while certain areas show promise, the European startup ecosystem faces ongoing challenges that require strategic interventions and policy support to foster a more conducive environment for innovation and growth.