Does Europe need to be more like the US?
Tech folk in Europe spend a lot of time comparing the continent to the US. But in 2024, the squabbling on LinkedIn about which place was better to start a business seemed to be taken up a notch.
There are typically two camps. Those who shout about the US’s big investment coffers, appetite for risk and speed of doing business that beats Europe’s “over-regulation”, lack of funding and cautious attitude that has led many founders to set up shop over the other side of the pond. And the others who praise Europe for its array of cultures and languages, its strong universities and technical talent and its social safety net (largely free education and good healthcare) that makes everyday life more appealing than in the US.
It’s a debate that's surfaced a lot in conversations I’ve been having lately. It feels pertinent at a time where Europe’s economic progress has stagnated and countries are battling to dominate the next wave of critical technology. But is the constant comparing of here to there all that useful?
“This is something I have thought about for a long time: the countless posts and articles comparing US growth to EU growth, the number of multi-billion dollar companies created in the US vs the EU… on average, most people living in Europe are probably better off and happier than their US peers,” Axel-Bard Bringeus, an angel investor and startup advisor, wrote on LinkedIn at the tail end of last year. “Growth for the sake of growth and big companies (that don't employ many people...) just for the sake of having big companies (and making a few shareholders rich) is pointless... growth and big companies are not solving the US’ problems,” he added.
It is, however, true that Europe needs to spend more money on tech. Levels of investment in Europe are behind the US by a mile. Mario Draghi’s 2024 report on the future of European competitiveness sent out a worrying cry that if Europe doesn't increase investment by a minimum of €750bn-800bn annually, it’ll fail to be “a leader in new technologies, a beacon of climate responsibility and an independent player on the world stage”. The gap between Labour productivity in the Euro area and the US has also been widening in the US’s favour significantly since the mid 1990s. And only four of the world’s top 50 tech companies are European.
There’s a feeling among many that Europe missed out on the last wave of digital tech giants such as Meta and Amazon and their multi-trillion dollar valuations. In a recent piece in the Financial Times, Ian Hogarth, Songkick founder and one of the founding partners of VC Plural, lamented that Europe doesn’t yet have a trillion-dollar tech company — Skype could have been one if it hadn’t sold, he said — and building one would require Europe to support founders “building and investing in the highest-risk, highest reward ideas.”
Naturally, capital is one way companies need to be supported — and founders and investors often complain that there isn’t enough of it, particularly at the later stages. Funding schemes are fragmented in Europe, talent is dispersed (rather than largely concentrated in one location like Silicon Valley) and Europe’s venture ecosystem is young compared to the US, where the VC scene started to kick off around Silicon Valley at the end of the 1950s and early 1960s.
“So many countries want to emulate the US system to create the next generation of companies… but we are 30, 40, 50 years behind the US in consolidating the market,” says Yann Lechelle, founder and CEO of Probabl AI, a French government-backed private AI company that provides open-source machine learning tools. In the US, the ‘Magnificent seven’ — which includes the likes of Apple, Microsoft and Google parent Alphabet — have been around for decades, and are worth $15tn (more than the companies on the FTSE 100 combined). Europe doesn’t have many multi-billion dollar digital champions, other than SAP and Spotify, says Lechelle. “It will be decades before Europe can build big, big companies like those in the US. So the main question for me is, what do we do in the meantime?”
For Lechelle, creating an independent digital economy should be high up on the European Commission’s priority list. Europe is a “renter” of technology from other nations rather than an owner, he says, meaning that it relies heavily on other nations like the US for key technology — from chips to computing power — and doesn’t own or control much of this tech itself. Governments are at least cognizant of this. Lechelle says that in France, a “really low” percentage of the tech used is built by French companies. To try to remedy that, the French startup association France Digitale has launched an initiative to double the purchases made by major groups and public bodies from startups by 2027.
Another key priority for many policymakers and investors is uniting Europe to create a stronger ecosystem. Part of the US’s success is that it has a large and relatively homogenous market; Europe, on the other hand, tends to operate as a set of individual nations, rather than as an integrated whole. There are signs that things are moving in the right direction on that front: in 2024 talks reemerged about creating a single capital market (though it’s unclear when this will happen) and the EU Inc petition was launched, which proposes the creation of a pan-European legal entity to help companies operate and scale across 27 EU countries.
While sentiment may have been down on Europe lately, some investors are convinced that there’s big potential here. The continent is attracting big name VCs from the US: A16z opened an office in London in 2023, and Sequoia partner Matt Miller recently announced he was starting his own firm “focused on the great founders of Europe”.
There’s no doubt that Europe can build quality companies; there are already examples of European success stories such as Datadog, Spotify and Celonis, says Zoé Fabian, general partner at Noteus Partners, a specialist growth equity investment firm, (though Datadog and Spotify are both listed in the US and Celonis is reportedly considering an IPO there). The question a lot of people are asking is can we get European companies to list here instead of the US? “I think the answer is yes. It’s the same for other exit routes. Private equity is active across all of Europe. Software buyout is also a huge growing category; there’s so much dry powder. Adding an IPO route will add to exit optionality and ultimately increase value creation opportunities for the existing investors and obviously also the companies,” Fabian says.
How to increase the appeal of Europe’s IPO markets has been a hot topic among techies and governments. The UK changed listing rules in July last year to try and boost London’s declining stock market, which saw a lot of companies delist from the exchange or move their primary listing elsewhere in 2024. There have also been calls for a European NASDAQ to encourage founders to list closer to home. It’s long been a point of political discussion in Germany too, says Fabian, and going forward, European governments will need to align on the best course of action to make Europe a competitive location for IPOs, particularly when it comes to where exactly companies would list. How long that will take is another point entirely.
There are definitely lessons Europe can draw from the US on how to build a thriving ecosystem — but many people I spoke to said that Europe doesn’t need to become Silicon Valley to do that. The vision of seeing Europe build a trillion dollar company one day might take patience, and perspective — Microsoft was founded in 1975 and achieved a trillion dollar valuation in 2019, for example — but that doesn’t necessarily mean it's not possible. In the meantime, Europe should focus on its strengths, such as its decades of industrial know-how, which could give it an edge over other nations. Investors say applying AI to manufacturing, particularly in areas such as robotics, could be where Europe has a natural upper hand over the US. They also say that founders raised in Europe have to learn early on to internationalise as quickly as possible, making them well prepared to crack the US market if they decide to go global.
Europe’s task in 2025 should be to stop dithering and take action. Europe needs to make it easier for companies to incorporate businesses and be able to scale across different European markets. Access to later-stage capital is also a biggie — especially when it comes to getting more private investors to back riskier asset classes like VC and tech. Governments can help create opportunities for businesses by becoming their customer. And the single capital union? “If we continue not to touch this topic, the can will keep being kicked down the road,” says Fabian.
I want to hear from you reader: should Europe model itself on Silicon Valley? What can we borrow from the US playbook and how can we set ourselves apart? And what does it mean to be a European success story? Get in touch here.
— Miriam Partington, senior reporter
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