TLDR:
Europe is experiencing faster growth in startups than the US, but many end up moving to the US due to various challenges. Fragmentation and regulatory differences within the EU hinder scaling and cross-border business. The US offers a more attractive market for founders and investors, with a larger pool of venture capital and easier avenues for cashing out. European leaders are recognizing the need for reform to keep startups local and competitive globally.
Get ready for a surprise: Europe is seeing faster year-on-year growth in new startups compared to the US. But many end up moving stateside. Sweden’s Spotify, founded in 2006, introduced music streaming in Europe before moving the bulk of its operations to the US. Stripe, founded by two Irish brothers, became a major global player in payment services as a US headquartered enterprise. Portugal’s Sword Health entered the US market in 2020, allowing it by the following year to reach a unicorn $1 billion valuation. For Europe, it’s a troubling trend.
Although Europe is generating a flood of startups, US firms are 40% more likely to have secured venture capital funding in their first five years of existence and many of Europe’s best and brightest are flocking across the Atlantic Ocean to scale. Fragmentation represents the key problem. Across the EU, a patchwork of rules and regulations plague the much-lauded Single Market. Tax and stock option regimes, for example, differ country by country. So do rules on how founders or investors can cash out. Most European startups struggle as they attempt to navigate the red tape of doing cross-border business.
Moving forward, investors are pouring money into artificial intelligence. AI accounted for 11 European mega-rounds of $100 million+. French startup Mistral AI raised €600 million this month to challenge ChatGPT owner OpenAI. It already had raised €400 million. European leaders are aware of the startups’ challenges. In a recent joint op-ed, French President Emmanuel Macron and German Chancellor Olaf Scholz acknowledged the urgent need for reform. “Too many European savings are being invested abroad rather than in Europe’s most promising start-ups and scale-ups,” they wrote. “We have to get serious about a truly integrated European financial market.”
The EU stands at a crossroads. Choices made in coming years will determine whether it succeeds and whether it can reverse the trend of “crossing the pond.”
