“Europe is less hard-working, less ambitious, more regulated, and more risk-averse than the US, with the gap between the two continents only getting wider.” Those were the words of Nicolai Tangen, the boss of Norway’s $1.6tn Norges Bank Investment Management (The Petroleum fund), in an interview with the Financial Times in April. As one of the largest single investors in the world, with increasing holdings in the US compared to Europe, Tangen’s views matter. But is he right, and what does it mean for Europe’s startups?
Just stereotypes? Or reality?
We all know the common stereotypes on doing business in the two regions and, from my extensive travel in the US, some are hard to disagree with. There does seem to be a higher willingness to take risks, greater curiosity, and less stigma around failure. For example, just a novel thing I’ve noticed is that Americans are much more open to setting up meetings than Europeans, as there seems to be a greater openness and willingness to listen to new propositions.
But at the same time, many of the stereotypes are unfair. For example, Tangen’s point about the US having the hardest workers doesn’t necessarily chime with reality, with figures showing that workers in Eastern Europe actually work more hours and other regions are allegedly more efficient. It’s also hard to back up claims that Europeans are less ambitious or more risk-averse when you consider that one in five of all US Unicorn founders are European. Figures like this suggest that the picture isn’t as simple as it may seem.
A strong ten years for Europe’s startups
Looking at growth figures, there are also lots of reasons to be positive about Europe’s business landscape. While the public markets have unquestionably fallen far behind the US, in many ways the story is the opposite for startups. In March 2022, Goldman Sachs found that the European startup ecosystem had grown twice as fast as the US over the preceding seven years, whilst both markets have dropped by a similar percentage since then.
Furthermore, Europe’s share of the venture capital ecosystem has increased since 2021, its net returns have outperformed the US – by 6.24% in the last five years – and it is ahead for new tech startup formation.
The US still draws the big bucks.
The big difference is size and scale. In 2023, European startups raised less than half the funding of those in the US ($52bn vs $138bn) and, while average returns in the EU are stronger, the amount invested per company in the US is almost 5:1. The biggest success stories are also still mainly across the Atlantic, which boasts four of the five largest companies in the world – all originally venture-backed.
A big factor in this is that Europe has a history or “track record” of missing out on major technological developments, including the PC, software, and internet waves, putting it in a weakened position for developing critical transversal technologies. We are currently seeing this trend play out in the development of generative AI, which saw over 90 percent of venture capital concentrated in the US, and nearly twice as many generative AI startups founded there as in the European Union and UK combined.
In contrast, Europe excels in building focused solutions for key sectors, such as fintech and climate tech, by leveraging foundational technologies in smart ways. It is also a world leader for academic research, due to world-leading universities and STEM talent; European countries dominate the top 20 nations for AI research, and Europe now has more AI talent than the US, according to a study from Atomico.
Structural challenges
That begs the question, what is holding Europe back?
Some claim regulation is the issue. Europe led the world with GDPR and has done so again with the recent AI Act. Many say that this makes developing cutting-edge technologies more challenging, although conversely, many would argue that the advantages outweigh the disadvantages, particularly given current fears around AI.
The German-born entrepreneur and VC, Andreas Klinger, recently argued that regulation itself isn’t the issue, but the sheer number and variety of rules and regulations across the European region. After all, the US is one country, while there are 27 separate jurisdictions in the EU, or over 40 if you count wider Europe. This presents enormous barriers to doing business, including numerous languages, cultures, and legal systems to navigate. Klinger has called for an “EU Inc” system, to streamline doing business across the block.
Funding is another significant challenge, with private capital much more limited and cautious here than in the US. In Europe, government agencies are the biggest contributor to venture capital, contributing 37% of funds in 2023, according to Invest Europe. These funds may have different criteria to their US LP counterparts, such as pure R&D, regional development, youth employment, or primary sector focus. In contrast, US VC funds have substantial support from privately led institutional investors, such as pension funds and insurance companies, giving entrepreneurs greater freedom to take risks and scale.
Looking beyond stereotypes
It’s easy to fall back on stereotypes when comparing the US and Europe for doing business, but a deeper analysis shows that it isn’t as simple as hard work and ambition, and there is a complex web of factors at play. The US and European markets are vastly different in several ways, and unless these structural differences are addressed, we will always face enormous challenges in reaching the heights of the US for startup investment and growth.
In the meantime, we must maximise the huge strengths and potential that we do have, while continuing to fully explore the opportunities for investment, partnership, and growth that lie across the Atlantic. As a European venture investor, the US will always be vital for our portfolio companies’ expansion, for relationships with LPs and corporates, and for making connections with co-investors, executives, opinion leaders, and bankers. We are strongest when we work together.
