European VCs need to accept risk — or concede the AI era to U.S. dominance.

      Europe’s AI startups are falling behind their American counterparts, with their own investors playing a significant role in this decline. According to the European Commission, the EU raises only 5% of global venture capital, while the US secures more than half and China claims 40%. However, Europe is not lacking in capital; households save €1.4 trillion annually, nearly double the amount saved in the US. Yet, very little of this capital is directed toward startups, despite various incentives such as the UK’s EIS tax relief for angel investors.

      Even when funding does become available, Europe’s venture capital firms tend to be slow and cautious. They often take weeks to conduct due diligence and are reluctant to act when valuations exceed $10-15 million. While regulation is frequently mentioned as a barrier, it’s noteworthy that American firms investing in European startups operate under the same regulatory conditions and continue to attract capital.

      The issue isn’t the legal framework itself, but rather the conservative interpretation of rules by investors, leading to indecisiveness.

      Historically, European investors have shied away from risks, with banks, insurers, and pension funds dominating the market due to a focus on capital preservation. In Germany, the Mittelstand mentality promotes a focus on stable, long-term business practices, resulting in family-owned industrial firms emphasizing generational stability. While this conservative approach fosters resilience, it also heavily influences capital markets. This mindset partially explains the 6.3% decline in net investment in the country from 2019 to 2024.

      The venture capital industry arrived in Europe later than in the US, focusing funds on e-commerce, fintech, and food delivery. In deeptech, many European VCs lack both the expertise and the willingness to invest in significant innovations. Consequently, before the rise of AI, the most valued companies were firms like Revolut, Klarna, Delivery Hero, Spotify, Farfetch, Adyen, and N26—strong businesses but relatively simple, with clear product-market fit early on.

      AI requires substantial upfront investment, especially in energy, and investors prepared to embrace uncertainty. Many European funds are not ready for this challenge; they may provide initial funding for early-stage startups but often withdraw from subsequent funding rounds. Lacking the technical confidence to recognize the long-term potential of early research, they perceive AI as riskier than it truly is and consequently pull back.

      Another significant disadvantage is the slow pace of decision-making. European venture deals frequently progress at a glacial speed. For example, one fund took 40 days to complete due diligence on a one-year-old B2B startup with merely 20 monthly transactions, a stark contrast to Silicon Valley, where similar rounds close in under a week.

      Culturally, this slowness is rooted in habits such as summer office closures in August and extended breaks during winter holidays and weekends. In the competitive global market, such delays can have serious repercussions.

      Europe is effectively shutting itself off from growth opportunities, becoming a source of innovative ideas that lead to successful American companies. This is illustrated by recent figures: only $5.7 billion was invested in European growth-stage startups in Q2 2025, making up about 10% of global late-stage venture funding—the lowest proportion at any stage. Although mega-rounds saw a slight increase last year, they remain far below the 2021 peak.

      Numerous instances underscore this trend. Graphcore, once viewed as the UK’s AI-hardware prospect, raised over $600 million but was bought by SoftBank in 2024 for about the same amount, significantly below its previous $2 billion valuation. In France, Navya, a pioneer in autonomous shuttles, declared insolvency in 2023 after failing to secure additional funding. Meanwhile, in Sweden, Uniti, an ambitious electric vehicle project focused on urban mobility, went bankrupt as funding dried up.

      For a different outcome, European VCs must adopt a mindset more akin to angel investors rather than private-equity gatekeepers. Although the risk premium associated with AI startups may have diminished, taking calculated risks is more advantageous than holding onto uninvested capital.

      AI founders seek conviction, flexibility, and timely funding—preferably checks arriving within days instead of months. They believe that placing multiple small, bold bets will yield better returns than pursuing a single, slow, and “perfect” deal.

      Smaller and mid-sized funds can leverage this situation to their advantage. Without institutional constraints, they can creatively structure deals using instruments like SAFEs, convertibles, secondaries, or hybrids of equity and debt. The key is their ability to be agile and quick to capitalize on promising opportunities.

      Europe has the talent, research infrastructure, and even the financial resources—though currently misallocated—it lacks a sense of urgency. As long as its venture capital landscape clings to caution, top AI startups will continue to seek funding from abroad, taking their talent and the benefits of scale with them.

      The choice for Europe is clear: