Europe faces persistent challenges in funding and scaling innovative technology companies compared to the United States, despite ongoing efforts to address the gap. Venture capital investment figures highlight the disparity: over the past decade, the US invested between 0.5 and 1 percent of its GDP in venture capital, while the largest European economies managed only about a tenth of that. Even the best-performing European countries—including Sweden, the Netherlands, Switzerland, and the UK—have not exceeded 0.2 percent of GDP in such investments.

The European Union’s internal market, large in size, theoretically offers potential for business growth similar to that in the US and China. However, entrepreneurs encounter barriers due to the complexity of navigating 27 different national legal frameworks covering corporate, insolvency, tax, and labor laws. This fragmentation complicates efforts by startups to scale efficiently across the region.

In response, the European Commission has taken steps to improve the situation by launching the Scaleup Europe Fund and proposing a new “28th regime” for corporations, informally called “EU Inc.” The fund, managed by Swedish investment firm EQT and initially seeded with €1 billion from the EU, aims to raise up to €5 billion to bridge the financing gap for technology companies. The new corporate framework would allow startups to incorporate once and operate throughout the EU, simplifying administrative and legal hurdles.

While these initiatives represent progress, their potential impact remains uncertain. The Scaleup Europe Fund addresses the specific challenge of Europe’s bank-dependent financial system, which lacks the large pools of private wealth seen in the US, or the state-backed investments typical in China. According to Victor Englesson, partner at EQT and co-head of the fund, building “trillion-euro companies” in sectors like cloud computing, artificial intelligence, and robotics requires substantial capital, and a virtuous investment cycle where successful founders reinvest wealth into the ecosystem is essential.

Currently, much of Europe’s entrepreneurial potential is funded by US venture capital, which often encourages companies to incorporate and scale in America. The EU’s corporate regime proposal aims to counter this trend by providing a more attractive legal framework at home. However, the initial proposal has been weakened after negotiations with member states, losing features such as a single EU-wide company registry and a harmonized insolvency process. Rules on employee stock options, a key incentive for startup growth, have been restricted to smaller companies, potentially discouraging expansion.

European Parliament discussions further risk diluting the proposal due to concerns about overriding national legal traditions. Some experts warn that in its current form, “EU Inc” may be insufficiently harmonized to entice founders to use it, potentially encouraging companies instead to incorporate outside the EU, for example in Delaware, USA.

Members of the European Parliament, including Eva Maydell, argue that the initiative could become a landmark project on par with the euro or the single market if policymakers demonstrate sufficient ambition. She suggests that Europe should strive to offer an even more attractive legal and economic environment than the US to transform the continent’s entrepreneurial landscape.

Despite political challenges, there is growing confidence among European entrepreneurs. Many now aspire not only to replicate successful US business models locally but to compete globally and enhance European economic autonomy. Analysts emphasize that if EU leaders are serious about strengthening competitiveness, they will need to deliver reforms that meet the expectations and practical needs of startups and scale-ups.