Brussels, 7 January 2025
Europe’s startup ecosystem is rich with talent and innovation, yet scaling remains a formidable challenge. How can institutional investors unlock untapped opportunities to drive growth?
Europe’s startup ecosystem is rich with talent and innovation, yet scaling businesses to a global level remains a significant challenge. Despite the region’s strengths, European companies have seen a sharp decline in global market capitalisation, now representing just 12% compared to 25% two decades ago. Limited access to late-stage funding and fragmented financial ecosystems have further exacerbated this issue, highlighting the need for robust strategies to unlock Europe’s scale-up potential.
The recent high-level policy workshop Institutional investors as an untapped opportunity for the European financial market, organised under the StepUp Startups project, brought together policymakers, researchers, and industry leaders to address these challenges. The event explored how institutional investors can play a transformative role in building sustainable financial ecosystems, fostering collaboration, and harmonising policies to strengthen Europe’s competitiveness.
Europe’s competitiveness and scale-up challenges
Dr. Andreas Kübart, a key representative of the StepUp Startups consortium, presented findings from the project’s fourth report, focusing on Europe’s diminishing global competitiveness. He emphasised that Europe’s venture capital market remains underdeveloped compared to other regions, with institutional investors holding the key to unlocking sustainable growth. “Scaling requires a robust funding structure that engages both public and private sectors,” Kübart explained, outlining strategies to bridge Europe’s scale-up gap.
Roundtable 1: Strengthening venture capital for competitiveness
The first roundtable, moderated by Chiara Frencia, explored how Europe can improve its venture capital ecosystem to support startups.
Reducing fragmentation through innovation hubs
Panagiotis Alexandros Sevdalis, Policy Officer at the European Commission, highlighted the European Innovation Ecosystems Work Programme’s potential to foster connected innovation hubs. “By reducing fragmentation, we can give startups the tools they need to scale effectively,” he stated.
Challenges of small ecosystems
From a national perspective, Jonas Mercier of Startup Luxembourg pointed out the challenges faced by smaller ecosystems. “Luxembourg has a strong startup scene, but scaling across Europe is still a significant challenge due to fragmented markets and limited growth-stage funding,” he said.
The need for policy harmonisation
Carolina Rossi, from the European Startup Nations Alliance, underscored the importance of policy harmonization across the EU. “To truly unlock Europe’s potential, we need a unified framework that supports startups in scaling without unnecessary barriers,” she noted.
Innovative financing solutions
Adding a financial perspective, Philippe Hoett from the European Investment Bank (EIB) emphasised the importance of innovative financing solutions. “The EIB focuses on venture debt, enabling startups to grow without excessive dilution for founders,” he explained.
Keynote: Addressing late-stage funding gaps
Following the first roundtable, Chiara Fratto, Economist at the EIB, provided an in-depth look at Europe’s funding challenges. “By their tenth year, European startups raise only half the capital of their San Francisco counterparts,” she revealed, emphasising the need for public-private partnerships to address this disparity. “Europe has the talent and tools; now we need to align our financial markets to unlock that potential,” Fratto concluded, calling for collaboration between policymakers and institutional investors to close the scale-up gap.
Roundtable 2: Engaging institutional investors
The second roundtable, moderated by Gabrielle Kolm of Pensions Europe, focused on how pension funds can play a greater role in Europe’s venture capital ecosystem.
De-risking investments with fund-of-fund models
Remy Charrier of the EIF explained how fund-of-fund models are designed to de-risk investments and attract institutional players. “Our aim is to de-risk investments and provide a pathway for pension funds to engage in venture capital,” he said.
Aligning investments with Europe’s innovation goals
Jochen Brodersen from DG RTD stressed the need to align institutional investments with Europe’s broader innovation priorities. “It’s not just about mobilising capital – it’s about ensuring investments contribute to Europe’s priorities, from green transitions to digital leadership,” he remarked.
Building confidence among pension fund managers
Stefan Pesch, CEO of the Luxembourg Private Equity and Venture Capital Association, emphasised education and trust-building. “Many pension fund managers are unfamiliar with venture capital as an asset class. We need targeted outreach and co-investment opportunities to build their confidence,” he suggested.
Drawing lessons from Nordic success stories
Apostolos Thomadakis from the European Capital Markets Institute shared insights from Nordic countries, where pension funds have successfully embraced venture capital investments. “We can draw inspiration from these models to build more robust institutional engagement across Europe,” he noted.
In her closing remarks, Chiara Frencia summarised the event’s main outcome: “Europe’s potential lies in its ability to leverage its strengths – its talent, innovation, and resilience – while addressing critical gaps in its venture capital and financial ecosystem.” The event left attendees inspired to collaborate toward a shared vision: a Europe where startups not only thrive but scale successfully, contributing to a robust and inclusive global innovation economy.
Source – EU Commission