Europe creates global value. Now regulators need to help us keep the rewards
Before OpenAI, there was DeepMind. The company, founded in London in 2010, made early breakthroughs in pursuit of the AI dream to build systems that think just as well, maybe better, than humans. But it’s an expensive business to be in, and when Google presented a $650M takeover offer in 2013, DeepMind’s founders were advised to accept.
If you work in European tech, you can probably relate. We build great companies, and at a faster rate than ever, but we don’t always keep them. In the State of European Tech 2025, we found that while Europe generates 17% of new global enterprise value, we capture just 10% of exit value. In the case of DeepMind, our ecosystem continues to benefit from its talented alumni, but ongoing value will primarily accrue for Alphabet, not Europe. Last year, DA Davidson analysts estimated the combined value of Alphabet’s AI accelerator chips unit and DeepMind to be over $700B, a more than 100x uplift on its exit value.
A new report from France and Germany’s finance ministries, released this week, diagnoses the problem: capital, as we have long known, and the fact Europe’s ambitious startups don’t have access to enough of it.
More revealing, though, is how the report frames the challenge. European savers are a conservative bunch, the Financing Innovative Ventures in Europe (FIVE) report says, but it’s crucial for “Europe’s prosperity and sovereignty” to get more of their pension capital invested in tech. It’s encouraging to see European politicians continue to signal urgency around this issue, along with Ursula von der Leyen’s public commitment at Davos to EU-INC and the delivery of the 28th Regime.
We calculate that Europe has underfunded its technology companies to the tune of $375B over the past 10 years, and our capital needs are only growing. At a minimum, Europe needs to invest an additional $1T over the next decade to stop the funding gap from widening. A more ambitious target to match the pace of leading markets like the US could require over $2T.
The funding gap already hits scale-ups hardest, with US companies twice as likely to have raised $50M or more than their European counterparts. Global investors have woken up to the European tech investment opportunity, with almost half of funding for European late-stage start-ups coming from US and Asian investors. Local investors are missing out on opportunities to capture value created in Europe, and being on the cap table matters beyond just returns: it anchors a company’s centre of gravity while supporting global ambitions, and makes sure spillover benefits like value, IP, talent and knowledge feed back into the European tech flywheel.
Unlocking pension capital could make up a significant chunk of the funding shortfall. Today, just 0.01% of pension fund AUM is invested in European venture, compared to three times as much in the US. Matching US investment levels could provide an estimated additional $210B for European tech companies over the next decade.
The political and regulatory tailwinds essential to unlocking this capital are now coming together. The recommendations in the FIVE report include rolling out more mandatory workplace pension schemes, as well as a Europe-wide shift to defined contribution, not defined benefit, schemes. This is already underway in the Netherlands, where regulatory change is freeing pension funds to invest in higher returning assets. The UK’s proposed NOVA and Venture Link schemes are also seeking to help address the funding gap. The establishment of an EU-INC will also help ease conditions for raising and investing capital across borders, unlocking additional scale and liquidity across early and later stages. The case for doing all this is strong: over a 10-year horizon, the European VC index returned 17.2%, outperforming US VC (13.1%), US public equities (13.7%), and European public equities (7.8%).
If successful, the ripple effect would be transformative. Companies would be more able to scale from home, drive local job creation and GDP growth, and feature in the investment portfolios of everyday working people. Scale-ups may no longer choose to leave for their IPOs.
There’s a huge opportunity here in Europe. If we back European tech to win, it won’t just be tech CEOs and investors who benefit, it could be everyday people securing a comfortable and sustainable retirement, too.
Camilla Richards is Partner and Head of Investor Relations at Atomico. Read more on Atomico’s call to Fund the Future here.
