The headline is simple to state and hard to close: the United States still leads in scale, depth, and exit pathways, while Europe has narrowed gaps in talent, sector specialization, and public support but remains constrained by capital fragmentation and smaller late-stage pools.

Capital, at scale, remains America’s structural advantage. Between 2016 and 2024 the cumulative VC investment gap was stark, with US-backed companies receiving several times the capital available to EU firms. The European Commission’s analysis, synthesizing PitchBook and Dealroom data, shows that the US market houses a far larger number of large funds and that later stage financing in the EU is roughly an order of magnitude smaller than in the US. This is not a one-off year effect. It is a structural imbalance in fund sizes, ticket availability, and the willingness of institutional investors to allocate at scale to venture.

That funding asymmetry produces measurable downstream effects. The US produces a much larger share of mega-rounds and public exits, which in turn replenishes the venture ecosystem with realized gains for limited partners, secondaries liquidity, and experienced founders who recycle capital into new startups. On the data side, US venture market monitors through 2025 show a bifurcated market: pockets of intense AI-driven activity buoy the top end even as overall fundraising and exit velocity cooled in other sectors during 2025. The Q3 2025 PitchBook-NVCA Venture Monitor described this dynamic and flagged continued weakness in fundraising and exits outside AI, even in the United States.

Europe’s response has been multifaceted. Public instruments, regional funds, and targeted policy measures have grown in prominence as direct interventions to close the scale-up gap. The European Commission and the European Investment Bank have leaned on instruments such as the EIC Fund and national-level programs to anchor rounds and catalyze private co-investment. Those interventions have helped increase the number of scaleups and the total tech workforce, but they have not yet generated the same depth of late-stage, privately-managed capital that characterizes US markets. The Commission’s material and supporting analysis explicitly point to a limited supply of funds able to write large checks in the EU compared to the US.

Unicorn counts provide a useful, if imperfect, proxy for ecosystem scale. Global trackers in 2025 continue to show the United States hosting by far the largest number of unicorns and the highest aggregate private valuations. European hubs have expanded their share, with the United Kingdom, Germany, France and the Netherlands producing most of the continent’s billion dollar startups. VisualCapitalist and other compendia in mid 2025 documented the concentration of unicorns in the US relative to individual European countries, while Dealroom and EU analyses reported steady increases in European unicorns as late-stage rounds resumed. Europe is making more unicorns than before, but the absolute counts and the size of those valuations still lag the US.

Where Europe has shown comparative strengths is in sector specialization, regulatory ambition, and research-driven deeptech. European VC has leaned into deeptech, climate tech, healthtech and industrial software where ties to established industrial champions and university research create advantages. Deeptech fundraising in Europe has expanded, anchored by university spinouts and national research ecosystems, and a notable share of European late-stage funding in 2024 and 2025 targeted these capital intensive domains. That industry alignment is a strategic asset for Europe, especially given rising geopolitically-driven procurement for resilience and sovereignty in areas from semiconductors to defence technologies.

Regulation is a second axis where differences matter for founders and VCs. Europe’s AI Act and broader “digital omnibus” discussions have created a compliance burden and, importantly, a market signal that the cost of deploying certain classes of AI will be higher or more controlled in Europe than in the United States. In November 2025 the European Commission proposed measures to simplify and delay parts of the AI Act implementation timeline, including more time for operators of high-risk systems, which reflects tension between regulatory rigor and the need to preserve competitiveness. These regulatory dynamics create both friction and opportunity. On one hand, heavier regulation can raise compliance costs and slow time to market for startups. On the other hand, clear rules can generate markets for compliance, measurement and governance tools where European startups can win.

Talent and research density are European selling points. The EU has a deep pipeline of STEM graduates across multiple countries and growing researcher headcounts. Strong technical universities across the continent, combined with recent public programs to support academic commercialization, have increased startup creation and supplied the labour pool that underpins deeptech. However, fragmentation of markets, tax regimes, and labour mobility frictions still blunt the continent’s ability to convert talent into single-location scaleups as efficiently as the US. The Commission’s reports note that cross-border fragmentation and different fiscal treatments remain material obstacles to a truly pan-European scaling environment.

What should founders, investors and policymakers take from these realities?

  • For founders: Europe is a stronger place to start than a decade ago, especially for capital efficient B2B, deeptech and climate-focused ventures. But be explicit about capital strategy. Scaling rapidly to capture global markets will often require US investor relationships or at least mechanisms to access larger pools of late-stage capital and public markets. Cite the fund size gap and model accordingly.

  • For investors: Europe is maturing into segments that reward patient capital and industry domain expertise. If your play is late-stage hyper-growth at scale, Europe still requires different underwriting assumptions and longer calendar horizons. Public and corporate co-investment can de-risk early tranches, but it does not substitute for a healthy private market for multi-hundred million dollar rounds.

  • For policymakers: If the objective is to produce a large number of global-scale companies, pushing capital aggregation and easing cross-border fund flows matters more than incremental tax incentives alone. The Digital Omnibus debate on AI rules illustrates the trade off between regulatory protection and growth. Policymakers must design predictable, implementation-ready rules that foster market creation for startups rather than retrofitting compliance on top of fragile early-stage firms.

Bottom line: Europe has closed important gaps in talent, specialisation and public support. It still trails the United States in sheer capital depth, the number of large funds, liquidity channels and the size of late-stage rounds. For the near term the difference is less about technical capability and more about the plumbing of capital and exits. That is a solvable problem, but solving it requires coordinated shifts in institutional capital allocation, a pragmatic regulatory cadence, and continued investment in scaleup pathways that turn European innovation into global companies.