What a journey for Europe: long and complex. Since the launch of the Capital Markets Union in 2015, the focus has shifted. What began as a response to the financial crisis, aimed at stabilising the banking system, has evolved into a broader ambition: creating a true single market.
This change is not just about words. It reflects a deeper understanding that Europe’s economic strength now depends on its ability to channel both public and private capital across borders, especially to support startups, scaleups and key industries.
As Europe adapts to a rapidly evolving global landscape, it is time to ask how far we have come, what is still missing, and how a new investment approach based on integration, shared risk, and long-term thinking can help speed up progress.
From legacy to leadership: Europe’s innovation test
Europe has a strong legacy. Our region hosts more early-stage companies than any other and stands as an undisputed global leader in cleantech innovation. Deep tech is dominating the conversation in a region where change is gradual, but incremental innovation is a reality.
Yes, significant investments have been made with public and private support on green and digital transitions. Nevertheless, no EU founder has been able to build a company with a market cap of 100 billion euros in the past fifty years. As specified by Oliver Coste in his book Europe, Tech and War, in Europe, entrepreneurs seek funds, while investors seek entrepreneurs in the US.
We are all aware that our companies are listed overseas, our talent is moving away, and we have not yet been able to establish solid space and defence industries. It was recently disclosed that Airbus, Thales and Leonardo’s efforts to build a unified European space company to compete against global players such as SpaceX will be delayed for over three years.
As highlighted in Building a Competitive Europe: The Role of Startup and Scaleup Ecosystems, Volume: Investment, addressing market fragmentation and, by extension, financial fragmentation collectively is essential to driving meaningful change.
Understanding the power of shifting narratives: From banking to single market
All the latest major reports refer to the need for a more unified market to reach competitiveness. From Enrico Letta’s to Mario Draghi’s recommendations, to the EU Competitive Compass and the EU Savings and Investments Union, the necessity to join forces is of utmost importance.
The European startup ecosystem was particularly thriving in the mid-2010s. European companies raised €16.5 billion in 2015, up roughly 50 per cent compared to 2014. This was almost 10 years after the 2008 financial crisis, a time when Europeans experienced uncertainty both in the market and in the technological field. However, this was also a time when new policies and EU strategies started to become more solid on this matter.
The European Fund for Strategic Investments (EFSI), which aims to unlock €315 billion of investments, was launched alongside the Digital Single Market Strategy in May 2015. European cities started to make themselves known as startup hubs, and their recent worldwide rankings speak for themselves: Paris (4th), London (6th), Stockholm (15th) and Munich (17th).
At the time, the Capital Markets Union and its narrative were still focused on changes in macroeconomic conditions, and the discussion therefore revolved around banking. In spite of some adjustments in EU policy priorities, geopolitical events and other major changes such as Brexit and the Covid-19 pandemic, the Capital Markets Union was still focused on financial stability and investor-related topics, with terms such as ‘banking’ and ‘crisis’ dominating the discourse. This made sense, including for founders. It was notably during those years that many fintech companies populated the European scene. Among them, Monzo was created in the UK and Stripe started expanding to emerging markets.
With this approach, the Capital Markets Union’s narrative gradually evolved from banking concepts to market integration. Terms such as “single,” “members,” and “states” are now more common, highlighting a unified financial framework as a key point of cohesion.
A legacy of efficiency and next steps to accelerate the process
Europe is now producing unicorns at the same pace as the United States. This comes as no surprise considering the legacy of our industries from the 1960s and 1970s, our scientific acumen and the talent of our people.
Nine trillion euros in cash could be deployed if pension funds were allowed to invest legally and with fewer restrictions in venture capital. Did you know that? Our support as citizens towards new initiatives to allocate more money to the tech scene in general would make a difference as well, since small and innovative companies cannot rely solely on traditional bank financing. European households actually have a sufficiently high savings rate but prefer cash over long-term market investments, and as a result they end up with 2.7 times lower financial assets.
Our legacy is there, but many capital policy levers need to be addressed to bring us to the right investment landscape that fuels innovation made in Europe. Here are some key recommendations published in our Investment Volume that call for consideration:
European pension and insurance funds invest significantly less in venture capital compared to the US due to regulatory constraints. Regulatory reforms can unlock more capital for startups and drive innovation.
Policies should encourage private investment in startups through tax benefits such as income tax deductions, capital gains tax exemptions and loss relief.
Public funding should prioritise startups and gradually shift from grants to convertible loans. This would enable a reinvestment cycle, ensuring sustainable funding while giving startups repayment flexibility.
Public-private co-investment models should be expanded. These models attract private capital, share risks and focus on strategic sectors like green and digital innovation.
Acknowledging stagnation should not mean embracing a negative narrative. Instead, we should focus on the legacy we are building, marked by a strong unicorn rate, bold cross-border collaboration and a new wave of determined innovators. In uncertain times, innovation remains our best path forward.
Read the orginal article: https://www.eu-startups.com/2025/09/the-capital-challenge-building-europes-future-on-its-innovation-legacy/
