Barriers to Tech Growth in Europe

While I support pro-European initiatives like Project Europe, Europe does not need more seed capital or more young entrepreneurs. Only 4% of European startups reach 1M€ in ARR, with a significantly higher failure rate for people under 30. A major issue for startups scaling past 10M€ ARR in Europe is market size. The European market is fragmented, with tons of country-specific solutions offering similar feature sets that are never consolidating because no-one can afford to buy the others. Look how many companies based in different countries are solving the exact same problem right now in Spend Management, Procurement, Billing, Treasury, SMB payments... In a VC's mind, increasing the number of companies increases the likelihood of betting on the right one, especially if you capture them early like pre-seed stage funds do. But all it does in reality is creating a gap between offer and demand by artificially increasing offer while demand stays flat. It drives prices low for everyone and makes it hard to find sustained, long-term growth in an already small market. The same happens with quality, I started in tech at 19 and didn't have a good enough understanding of the actual issues to build a good enough product. I've seen it with Spendesk, Pleo, Payhawk, Soldo and others fighting for the same bone while Ramp grew unbothered on a significantly bigger market. Not everyone should be an entrepreneur, we need engineers, designers, sales and marketers for our companies to succeed. If everyone is offered the perspective to become the next Cursor (spoiler, it doesn't happen that often), especially at an age where you're supposed to start getting trained at your job, it removes an incredible pool of talented employees from the market. I actually think Europe needs less, higher quality companies that can cover the whole continent and get big enough to compete with US players. Europeans need to start buying products made in Europe when they're on par with American or Indian ones. European VCs need to understand it takes a long time to build a 100M€ ARR business when you need to expand in 27 different markets. The reason Europe doesn't build companies is unfortunately not that we lack seed stage funding, it's way deeper.

Europe doesn’t lack innovation. It lacks structure. From Advanced Semiconductor Materials Lithography (ASML) to AI, Europe has the world-class engineering talent, capital, and research depth to lead — but fragmented markets, outdated tax codes, and limited venture capital consistently hold it back. In my latest piece for CEPA’s journal Bandwidth, I lay out five structural reforms to help Europe regain its competitive edge — without grand new institutions or massive public spending: → A streamlined “28th regime" for startups to scale across borders → Tax reform to make stock options competitive → Strategic use of defense budgets to accelerate homegrown tech → Regulatory sandboxes that actually work → A modest pension shift that could unlock €60B in new capital each year But this isn’t just Europe’s to solve. It’s a transatlantic opportunity — and U.S. stakeholders have a real role to play, not as patrons, but as partners. How? → American VCs can de-risk early-stage capital by co-investing with European funds → U.S. defense tech firms can move beyond exports to joint R&D, co-production, and shared IP → Policymakers can link innovation cooperation to NATO procurement and collective security The future will be shaped by those who scale innovation — not just invent it. The question is whether Europe will shape that future, or be shaped by it. Welcome thoughts and feedback -- from anyone with a stake in this issue, from EU policymakers to U.S. natsec thinkers, and from tech and investment communities on both sides of the Atlantic 🙏 Big thanks to CEPA for the opportunity to share my thoughts! cc: Dr Alina Polyakova #TechPolicy #Innovation #DigitalSovereignty #DefenseTech #VentureCapital #Transatlantic #NATO #BandwidthCEPA #TechDiplomacy

Europe’s tech sector makes up only 7.5% of our public markets, while the US tech industry dominates with 31.7%. We’re falling behind. This is nothing new. But AI is making it even more OBVIOUS. Our startups are trapped in a fragmented system of 20+ legal frameworks, making it nearly impossible to scale. While American and Asian companies surge forward, Europe struggles with red tape and complexity. But it doesn’t have to be this way. What’s holding us back? It’s not a lack of talent — Europe has some of the brightest minds It’s not a lack of funding — venture capital is pouring in The real issue is legal fragmentation 🧩 In the US, one office can reach 330 million people. In Europe, startups must navigate a maze of taxes, laws, and regulations across multiple countries, stalling growth and innovation. The solution? >> Unite Europe << A pan-European strategy would allow startups to scale across borders without hurdles. Like a single framework that removes these barriers and frees our tech ecosystem to thrive. Imagine a Europe where the next trillion-dollar company emerges from Berlin or Lisbon, creating jobs and driving innovation. We can make this a reality. Let’s unite, simplify, and build a single tech ecosystem across Europe. ________ If that topic is of interest, Google it. Lots of really great initiatives out there. My heart goes to the “EU Inc” movement 👊 (amazing job here Andreas Klinger) If you’re interested, they just launched a petition. It’s worth a read: https:/eu-inc.org The moment is here. Let’s seize it. 🇪🇺

🗽 𝐖𝐡𝐲 𝐬𝐡𝐨𝐮𝐥𝐝 𝐄𝐮𝐫𝐨𝐩𝐞𝐚𝐧 𝐀𝐈 𝐬𝐭𝐚𝐫𝐭𝐮𝐩𝐬 𝐛𝐞 𝐔𝐒-𝐟𝐢𝐫𝐬𝐭?  Here are 7 differences in these markets that make the USA a GO-TO for FR/EU AI-native startups. Discussing today with Clément Moutet, community leader at AICamp and CEO of Vikit.ai, it struck me that the business and technological gap between France and the USA still isn’t clearly understood. I’m happy to share my learnings from building an AI infra startup between Paris and San Francisco. 𝟏. 💰 𝐀𝐯𝐚𝐢𝐥𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 $67B AI funding in 2023 in the US, $27B for SF-based startups. Vs. $BB AI funding for EU AI startups. This means there are far more funded startups in the US, and it’s much easier to sell to smaller Seed, Series A/B/C startups and scale later. In contrast, Europe has a limited number of VC-backed startups, but a vast ecosystem of SMBs, large enterprises (often old/non-tech), and a few untouchable unicorns. 🦄 𝟐. 💱 𝐑𝐞𝐚𝐝𝐲𝐧𝐞𝐬𝐬 𝐭𝐨 𝐛𝐮𝐲 Americans have an intense consumer culture, which means they are much more willing to buy and try new things. They may be less loyal customers, but their mindset is ideal for launching new products. If they see value and a willingness to help and innovate, they will buy. 𝟑. ✨ 𝐂𝐨𝐧𝐜𝐞𝐧𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐀𝐈 𝐭𝐚𝐥𝐞𝐧𝐭𝐬 Just go to one hackathon in SF. You’ll meet some of the best engineers in the world, junior developers, CTOs, senior AI engineers, and researchers all building side by side. It's a great place to set high technical standards and hire the best talents. 𝟒. ⚖️ 𝐌𝐚𝐫𝐤𝐞𝐭 𝐬𝐭𝐚𝐧𝐝𝐚𝐫𝐝𝐢𝐳𝐚𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐫𝐞𝐠𝐮𝐥𝐚𝐭𝐢𝐨𝐧 Europe scares US startups with its regulations, and for good reason! Regulation and compliance can be heavy when your startup deals with consumer or regulated-industry data. Unexpected rules and major differences between EU countries will arise. The US is a much more standardized and less regulated market when it comes to AI and data usage. 𝟓. ⏳ 𝐓𝐞𝐜𝐡𝐧𝐨𝐥𝐨𝐠𝐢𝐜𝐚𝐥 𝐭𝐢𝐦𝐞 𝐠𝐚𝐩: 𝐔𝐒𝐀 𝐯𝐬. 𝐄𝐮𝐫𝐨𝐩𝐞 If you want to lead a tech market for the next decade, you’re better off building a product inspired by the most advanced technology, so you don’t get wiped out by AWS/OpenAI overnight. The US is 2–4 years ahead in areas like AI agents and autonomous robots. 𝟔. 🏁 𝐇𝐢𝐠𝐡𝐞𝐫 𝐜𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐝𝐫𝐢𝐯𝐞 𝐭𝐨 𝐰𝐢𝐧 It’s common for US engineers, salespeople, and product folks in startups to work late nights and weekends. Dedication to work and success is valued more than hobbies or personal life. The US attracts the world’s best talents, hungry to succeed and challenge the status quo. 𝟕. 🎲 𝐑𝐢𝐬𝐤 𝐦𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭 Europe starts by managing risk before thinking about opportunity. The US thinks differently: they rely on good lawyers, structured methods, and contracts to mitigate risk. With an early stage startup, they see innovation and opportunities to win with the startup partner.

US vs. European Efficiency: A Tale of Two Continents Having worked in Europe, the US, and somewhere in between, I always find it fascinating to compare how business gets done on both sides of the Atlantic. And Stripe’s latest annual letter serves up some interesting insights into just that. First, it covers their results - which are pretty impressive - then dives into the sticky subject of why the US tends to outpace Europe when it comes to business efficiency. Here are the key takeaways: 📈 Productivity: The US leads with an economic output of $104 per hour versus Europe’s $85. And no, this isn’t just because Europeans actually take holidays instead of hoarding unused PTO. It’s due to lower investment rates, slower tech adoption, and a lack of “job dynamism” (which means less movement between roles and fewer new businesses). 💰Financing: In the US, 80% of corporate lending comes from non-bank sources, making capital easier to come by. Europe still relies heavily on traditional banks, making financing more expensive and growth slower. And venture capital is harder to come by in Europe. 🔖 Red Tape: Starting a business in Europe can feel like an uphill struggle. Regulatory and structural barriers slow new business creation, and strict labour laws make it harder for companies to adapt, restructure, or even just hire and fire employees. After more than ten years in the US, I’m constantly struck by the sheer speed at which business moves here compared to Europe. So the question is - can Europe close the gap? Or is this just a business battle that the US will continue to dominate? Here’s the Stripe letter: https://lnkd.in/edBbTVXF

I am excited to share that I will be contributing to my friend Peter Wollmann's next book about Sustainable Organizations. The chapter I will try to contribute will specifically focus on how Venture Capital can help achieve the UN's 17 Sustainable Development Goals (SDGs), reflecting on Peter's impactful 3-P Model—Sustainable Purpose, Travelling Organization, and Connectivity. Peter’s comprehensive work in his book "Transforming Public and Private Sector Organizations" has been instrumental in shaping my understanding on sustainable leadership and the necessity of resilience in continuous transformation journeys. (More Info: https://lnkd.in/gkcCqSWi) 📚  In a unique twist, for this chapter I plan to collaborate with my son , Kenan Pala, blending our perspectives and embarking on this intellectually stimulating journey together... 🌍 One of the initial areas I explored in building our thesis for this chapter was the evolution of venture capital in the US and Europe and its impact on the different venture mindsets in these regions. This exploration led me to the upcoming AI Act in the European Union, which starts becoming effective tomorrow, August 2, 2024. So I decided to write a critical analysis of its potential impact on innovation within the EU and its broader implications. Here are some key insights from my analysis: 📊 Increased Compliance Burdens: High-growth startups will face significant compliance costs, diverting resources from innovation. 🚧 Barriers to Entry: Stringent requirements might discourage new entrants, reducing ecosystem dynamism. ➡️ Shift to the US: European founders may increasingly target the US for its more flexible regulatory approach. 💼 Investor Challenges: The phased rollout and potential regulatory divergence create uncertainty, complicating valuation and exit strategies. 🔬 Historical Lessons: The US's less restrictive approach to past technologies fostered rapid innovation and global dominance. In this rapidly evolving technological landscape, we must question if regulators have the foresight to balance the pros and cons of the AI Act. As innovators, our goal should be to ensure that regulations foster rather than hinder progress. Read my full analysis below #AItransformation #AIrevolution #AIregulation #EuropevsUS #USVentureCapital #EuropeanVC #Innovation #AIact

The headline that caught my eye this week was “Why the Draghi Report on EU Markets Matters.” Here's my take:   European productivity growth has lagged that in the United States over the past 15 years, and higher energy prices (following Russia's invasion of Ukraine) and complexities involving China as an export market have exacerbated Europe's economic challenges. On my recent trip to Europe, these issues (along with the U.S. election) were top of mind for business leaders. I have long admired Mario Draghi, whose career has spanned government, business, and academia, and who approaches complex issues with rigor and pragmatism. Draghi recently authored a lengthy report on how to boost productivity in Europe. His diagnosis: the EU is falling behind in the digital revolution, missing the AI wave, and struggling with fragmented capital markets that push promising startups toward US venture capital. The proposed solution — €800 billion in public investment, a stronger, centralized securities regulator, and a shift in attitudes on anti-trust policy — makes eminent sense and represents the type of boldness required. But implementing these reforms would require significant treaty changes and convincing member states to cede control of their financial markets to a European authority.   The reality is that while Europe needs this "radical change," the political appetite for such substantial reform is currently limited. But Europe can't escape its critical choice: maintain the status quo, with subdued growth prospects, or overcome political hurdles to forge a more competitive future. 

Will this be the end of the #BrusselsEffect? I have been asked this question multiple times over the last few months as the #Trump administration has been increasing its assaults on the #European #regulatory state, threatening the #EU with tariffs and withdrawal of security guarantees if the continent does not back off on its investigations on #US #tech companies. Together with my terrific colleagues Daniel Kelemen and Tommaso Pavone, we take on this question in Foreign Affairs Magazine today. Few highlights: ▶️ The Trump administration’s threats alone cannot force EU regulators to capitulate. The greater threats to the EU’s regulatory power today are those coming from inside the EU, such as calls by European industry for relaxing #regulation in the name of enhancing #competitiveness. ▶️ Yes, the #EU lags behind the #US in #tech innovations. But shredding EU regulations will not close this gap. Letting Elon Musk write the rules for Europe and not enforcing Europe’s #digital regulations will not make the EU a global superpower. Instead of relinquishing its rights-driven regulatory model, the EU should now deploy that same zeal to build other pillars of a thriving tech ecosystem. ▶️ The EU should cultivate tech entrepreneurship through completing the #DigitalSingleMarket and creating a true #CapitalMarketsUnion that would help EU tech companies scale and fund their innovations. It should relax #immigration laws that inhibit attracting global talent. And it should harmonize the #bankruptcy regimes across member states to make failure less fatal. This would encourage European entrepreneurs to take risks and pursue more disruptive innovations. ▶️ As the #US retreats from defending fundamental rights and liberal #democracy, the EU’s regulatory superpower is more necessary than ever. Today, the EU can (and must) stand as a beacon of stability and the #RuleofLaw. It can reassure the world that, unlike the US, the EU has not lost sight of where its influence comes from, who its allies are, and where its values lie. Thus, the #BrusselsEffect will survive as long as the Europeans themselves don't lose confidence in their regulations - and the values that underlie those regulations. If the EU lets the Brussels Effect die out, it would not be a defeat but an unnecessary surrender. The full article can be read here: https://lnkd.in/ebiutxaM