European start-ups know how to raise their first millions. What they don’t always find on the Old Continent is what comes after. The FIVE report from January 2026, produced as part of a Franco-German initiative on financing innovative enterprises, documents a structural imbalance: European supply of VC and growth capital exists, but it is limited for rounds above 100 million euros and non-European investors remain dominant. This deficit is not a one-off failure; it reflects the very architecture of European finance.
The Essentials
- The ten largest active European VC funds in 2026 total 3.29 billion euros, concentrated on early-stage: Kembara (1 billion euros), Earlybird (360 million euros), Seedcamp (320 million dollars) all operate in seed and Series A, according to FIVE Taskforce and EU-Startups.
- Patient capital at the 100 million euro scale and beyond is virtually absent: European pension funds allocate less than 0.01% of their assets to venture capital, compared to 5 to 10% for their American or Canadian counterparts (FIVE report, January 2026).
- The fragmented regulatory architecture, 27 distinct national regimes, makes the cross-border deployment of large tickets prohibitively costly, forcing scale-ups to raise in San Francisco or sell themselves after their Series B.
- The Scaleup Europe Fund, led by the Delors Centre, is expected to make its first investments in autumn 2026: the first test of the thesis that public capital can seed a segment that European private capital has not built.
- The 2026-2030 window is considered decisive: if reforms to financial architecture do not materialize by then, the EU risks consolidating its position as a net exporter of technology champions.
Early-stage European funding works. The rest is missing.
Europe has built, over twenty years, a credible early-stage ecosystem. Funds like Seedcamp, founded in London in 2007, have financed hundreds of companies at their outset and influenced venture capital culture across the continent. Earlybird, based in Berlin, has operated since the 1990s and displays a portfolio that includes successes like UiPath. Kembara, raised in 2025 with a billion euros, explicitly targets early rounds. This picture is real and documented.
The January 2026 FIVE report above all identifies a deficit in late-stage financing and large rounds, notably beyond 100 million euros. European funds operating at this scale exist, but they are few in number, modestly capitalized, and geographically fragmented. When a European start-up closes its Series B and seeks to raise significant capital for international expansion or large-scale hiring, it hits a less deep market.
Founders can then seek financing in the United States. American funds invest in European start-ups at different stages. The company can remain European while welcoming foreign investors.
Two structural obstacles that the market alone will not overcome
Understanding why this void persists requires examining two distinct but linked mechanisms.
The first is the allocation of pension funds. In Europe, these funds manage considerable sums, several thousand billion euros in total. In certain European regimes, guarantees and return obligations limit appetite for risk; this does not uniformly describe all pension funds. VC can suit some long-term pension funds; the obstacles noted are chiefly guarantees, risk aversion, expertise, and regime structure. FIVE does not establish an average allocation of European pension funds below 0.01% to VC; it estimates the exposure of European insurers to VC at well below 0.5%.
According to FIVE, American public pension funds allocate approximately 1% to 3% of their assets to VC; FIVE draws a comparison with Canada on funded retirement assets, but not on Canadian VC allocation.
Low institutional contribution is a major factor among several structural causes of the growth capital deficit. Europe remains undercapitalized in growth capital relative to the United States, for regulatory, institutional, and market reasons.
The second obstacle is regulatory fragmentation. A pan-European fund must contend with divergent national rules despite harmonized European frameworks; the number of relevant frameworks depends on the countries actually involved. The United States constitutes a vast domestic market of approximately 330 million inhabitants, with important federal frameworks but also substantive rules specific to individual states. Long-term financing spans multiple sectors of European social innovation: patient capital can be lacking when investment return cycles exceed five years.
These two obstacles reinforce each other. A pension fund manager who wanted to increase exposure to European VC immediately encounters cross-border complexity. A VC fund that wanted to raise European institutional capital discovers that its natural counterparties, pension funds, insurance companies, are regulatory-constrained. The circle does not close.
Heading toward the United States is not a choice: it is a constraint
Raising in the United States can be a rational response to higher market depth, without being the sole option.
A European scale-up in Series B can seek significant capital for expansion. In Europe, large rounds are less abundant than in the United States.
Acquisition by a strategic acquirer constitutes another possible exit. Some foreign acquisitions may transfer control, assets, or functions outside Europe; their effects vary according to transactions.
This dynamic particularly affects sectors where development cycles are long and patient capital is most necessary: biotechnology, industrial software, deeptech. AI amplifies the inequalities it promised to erase in part because companies developing these tools are captured by non-European actors before they can build a continental user base.
The Scaleup Europe Fund: objectives and stakes
Faced with this diagnosis, several initiatives coexist. The most recent and most directly calibrated to the problem identified by the FIVE report is the Scaleup Europe Fund, led by the European Commission and the EIC Fund; EQT is the selected manager, while the Jacques Delors Centre has published an analysis of it. Its first investments are expected in autumn 2026. The Scaleup Europe Fund is a public-private catalytic mechanism, but not the first European public instrument of this type.
The fund’s logic is that of a catalyst: by entering growth capital tickets alongside private investors, it aims to demonstrate that these investments are bankable, to create a track record, and to attract institutional capital that, today, does not dare. The wager is known in public investment theory: it is the principle of the European Investment Bank, which has co-invested for decades to reduce risk perception. The question is whether the catalytic effect will play out at the growth capital scale, where tickets are larger and cycles longer.
The fund targets approximately 5 billion euros and responds to a documented deficit; its sufficiency or modesty depends on an explicit estimate of the retained deficit. If the Scaleup Fund documents solid returns on several investments, it could give European pension fund managers an argument to revise their allocations.
Other levers are underway. The Capital Markets Union reform, under discussion for several years in Brussels, aims precisely to reduce the regulatory fragmentation that weighs down cross-border capital. Progress is slow, compromises numerous, but the direction is set.
VC funds cannot solve alone what they did not create
European VC funds do not simply raise larger amounts because of the structure of their own investors, the limited partners. A VC fund raises from institutionals—pension funds, family offices, sovereign wealth funds, and insurers—who agree to immobilize capital for ten years in exchange for expected returns superior to listed markets. In Europe, these institutionals are either regulatory-constrained to limit their VC exposure or reluctant toward asset classes perceived as opaque.
American VC funds generally raise larger amounts. The ERISA regime in the United States, reformed in the 1970s, modified the framework applicable to pension fund investments. Several factors contributed to the development of American VC in the following decades. Europe presents a more fragmented framework.
Reducing the deficit requires a set of reforms in pensions, capital markets, corporate law, taxation, and public instruments. Naming the budgetary trajectory is a political act; naming the capital trajectory is an act of industrial policy.
What we will know by 2028
FIVE considers early 2026 as a critical moment calling for swift action, without defining an official 2026-2030 window. Three indicators will allow tracking of ongoing reforms.
The first results of the Scaleup Europe Fund, expected from autumn 2026 onward, will indicate whether the fund attracts European private co-investors to its operations and whether institutional limited partners begin to take interest. This will be the first ground signal.
Next, the progress of the Capital Markets Union reform. These reforms can help reduce regulatory fragmentation. Their effect on allocations will depend on their content and implementation.
Finally, the behavior of large European companies as investors. Players like Siemens, LVMH, or SAP have balance sheets sufficiently solid to do corporate venture at the growth capital scale. A few are doing so. If this trend accelerates, it could partially compensate for the absence of traditional institutionals.
In an unfavorable scenario, delayed reforms could limit the development of European growth financing. The more favorable scenario requires precise political decisions on prudential regimes and regulatory fragmentation—decisions that no one can make in place of European governments and legislators.
A technology company that raises abroad can develop certain functions there. The location of growth funds constitutes one of the factors in company implantation.
Sources
- FIVE Taskforce, Financing Innovative Ventures in Europe, January 2026: bundesfinanzministerium.de
- EU-Startups, Top VC Funds in Europe 2026: eu-startups.com (data collected Q1-Q2 2026)
- Delors Centre, Scaleup Europe Fund, public documentation 2026 (no stable URL available)