Europe's €80 billion investment in public funding for venture capital and scaleups encounters structural growth obstacles.

      The European Investment Fund is in the process of creating a €15 billion fund of funds, named ETCI 2, which aims to facilitate up to €80 billion in funding for scaleups throughout Europe. Germany's WIN initiative is working towards raising €12 billion by 2030, while France's Tibi programme has committed €7 billion in private capital and designated 92 VC and growth funds with a total of €22 billion in assets. The Scaleup Europe Fund, spearheaded by the European Commission, is allocating €5 billion, and a fund manager is set to be chosen this month. With the European Innovation Council's €10 billion budget extending to 2027, the total public and publically mobilised funds for European venture and growth investments exceeds any previous efforts on the continent. The crucial question remains whether this funding will effectively address the issue it targets, or potentially create new challenges.

      The funding gap that prompted this expenditure is significant. In 2025, European venture capital investments reached €66.2 billion, roughly 22% of the investment levels in the United States. The disparity mainly exists in later stages: EU growth funding represents only about 10% of US amounts. Although Europe launches more tech startups than the US, it has 80% fewer scaleups and 85% fewer unicorns. The underlying reasons for this are well-documented. European pension and insurance funds contribute merely 7% of VC investments, compared to around 20% in the US, and sovereign wealth funds engage in less than 1% of European VC fundraising. Europe produces companies but faces challenges in financing them sufficiently as they grow, especially when they require hundreds of millions to compete on a global stage.

      The EIF, which already supports about 25% of all venture capital in Europe and funds nearly half of all VC-backed startups yearly, is a key player in bridging this gap. Its first-generation fund of funds, ETCI 1, raised €3.9 billion from Spain, Germany, France, Italy, Belgium, and the EIB Group, and supported 14 funds, each exceeding €1 billion. This portfolio includes 11 unicorns, among them DeepL, TravelPerk, and Framer. ETCI 2 aims for a substantially larger operation, planning to back approximately 100 funds ranging from €300 million mid-sized vehicles to over €1 billion mega funds, with the ability to invest up to €200 million per company, significantly higher than the €60 million limit set by ETCI 1.

      The Scaleup Europe Fund, distinct from the ETCI programme, demonstrates the Commission’s goal of steering capital towards key technologies. Its focus areas include AI, quantum computing, semiconductors, robotics, autonomous systems, energy, space, biotech, and advanced materials. Reports from Bloomberg in March noted that five managers—EQT, Northzone, Eurazeo, Atomico, and Vitruvian Partners—had been shortlisted for this fund, which combines €1 billion in public capital from the European Innovation Council with €4 billion from private investors and is expected to commence in the second quarter of this year.

      Germany's WIN initiative, which began in September 2024 with KfW Group and the Federal Ministry of Finance, is taking a different route. Rather than establishing a large mega fund, it seeks to reform the regulatory environment to access institutional capital. The program proposes raising the VC allocation for pension funds from 35% to 40%, launching a 5% infrastructure quota, and easing pension fund coverage requirements. Institutional investors like Deutsche Bank, Allianz, and Deutsche Telekom are involved. Similarly, France's Tibi programme, now in its second phase, has convinced 35 institutional investors to pledge €7 billion and has categorized funds across late-stage, publicly traded tech, and early-stage segments.

      Altogether, Europe is redefining its financial regulations to accelerate the flow of capital into technology at a speed that would have been politically unimaginable five years ago.

      However, the challenge is that Europe’s scaleup shortage is not fundamentally a capital issue, but rather a structural one, and the structural changes have not kept pace with the influx of funding announcements.

      A significant 62% of European startups identify acquiring talent as their primary scaling challenge. The fragmented single market means that expanding from one European nation to another often entails navigating various regulatory, tax, and employment guidelines, which introduce costs and complexities without yielding the market scale that American firms benefit from inherently. The EIC’s investment portfolio highlights this tension: it has supported 740 deep tech companies with a total estimated value of nearly €70 billion, and for every public euro invested, over three private euros have followed. Nevertheless, only six of these companies have valuations over €500 million, and the transformation rate from funded startup to globally competitive scaleup remains low.

      The outlook on profitability is even bleaker. Just two of Europe’s ten most valuable startups are confirmed to be profitable. Among the