Europe’s Start-Ups Have a Capital Problem, Not an Ideas Problem
European venture investment has recovered, but companies seeking substantial growth capital still depend heavily on foreign investors. New funding initiatives aim to address the shortage, with implications for founders, venture funds and family offices.
European technology companies are attracting more investment, but the capital available to them becomes increasingly constrained as they grow. Venture-capital transactions across Europe reached €35.3 billion in 2025, an increase of 11% and the second-highest annual total on record, according to Invest Europe. Yet companies progressing beyond early-stage financing still struggle to raise the sums needed to expand internationally.
The European Investment Bank (EIB) has traced this problem through the financing histories of companies that reached the scale-up stage. Its research found that EU scale-ups had raised approximately 50% less capital than comparable businesses in San Francisco by their tenth year. More than four out of five EU scale-up financing deals involved a foreign lead or sole investor, compared with just 14% in San Francisco.
Foreign investment can give European businesses access to substantial capital, international customers and experienced investors. The concern for Europe’s financial markets is that relatively few domestic institutions can lead large financing rounds, leaving promising companies dependent on funding decisions made elsewhere.
Switzerland faces similar pressures despite its established research institutions, life-sciences industry and venture-capital market. Investment in Swiss start-ups increased by 23.9% to CHF 2.95 billion in 2025, according to the Swiss Venture Capital Report, before falling 15.5% year on year to CHF 1.25 billion in the first half of 2026.
The difference between financing a new business and supporting one that is ready to expand helps explain why stronger investment totals have not resolved Europe’s capital shortage.
The Funding Gap Widens as Companies Grow
Young companies typically finance their first years through founders’ capital, business angels, seed funds and early-stage venture investors. Those investments support product development, recruitment and the first commercial customers.
A business that establishes a viable product may subsequently need much larger sums to enter foreign markets, build production facilities, finance clinical trials or expand its sales organisation.
For software companies, expansion may involve substantial spending on engineering, distribution and customer acquisition before revenues cover those costs. Biotech and other research-intensive businesses often face longer development periods, regulatory approvals and expensive manufacturing requirements.
Investors participating in these later rounds must have sufficient capital to support companies through several financing cycles, while accepting that commercial success may take years.
Europe has developed a broad market for smaller venture investments, but its growth-stage financing capacity remains limited compared with the United States.
The EIB’s scale-up research found that American companies receive substantially more venture capital over their development. The gap persists across industries, establishment years and economic cycles, suggesting that it reflects the structure of European financial markets rather than the performance of one technology sector.
A shortage of investors capable of leading large rounds also affects how financing is arranged. Lead investors negotiate valuations, conduct extensive due diligence and establish the terms on which other participants invest. Companies may have several interested investors without finding one willing to commit enough capital to complete a major funding round.
European founders frequently turn to American and other international funds for that leadership.
Europe Has Capital, but Much of It Goes Elsewhere
Europe’s private-capital industry has grown considerably. Invest Europe reported that private equity and venture-capital firms raised €147 billion in 2025, while total industry capital under management reached €1.367 trillion by year-end.
Those figures include buyout funds and other private-equity strategies, which account for a substantial share of the industry’s assets. They cannot be treated as money available for venture-capital investment.
Buyout managers generally acquire established companies with operating cash flows, whereas venture funds finance businesses whose revenues, profitability and future market positions remain uncertain. Their investment processes, fund structures and risk profiles differ.
Institutional investors also face constraints when allocating to venture capital. Pension funds, insurers and other long-term asset owners must consider illiquidity, valuation uncertainty, regulatory requirements and the concentration of returns among a relatively small number of successful investments.
A venture portfolio may contain businesses that fail entirely alongside a handful whose value increases substantially. Investors need sufficient diversification, a long investment horizon and access to managers capable of selecting and supporting those companies.
Europe’s fragmented national markets can complicate that task. Different legal systems, investment regulations and tax arrangements increase the work involved in cross-border fundraising and investing.
The European Commission has identified these barriers as part of its efforts to deepen the region’s capital markets. Its 2025 Startup and Scaleup Strategy specifically calls for greater institutional investment, larger venture funds and more consistent rules for companies operating across the European Union.
The measures respond to a financing problem that becomes particularly evident when a company seeks a round worth €100 million or more.
Switzerland’s Venture Market Has Recovered Unevenly
Swiss start-ups attracted CHF 2.95 billion in venture investment across 354 financing rounds in 2025, reversing two years of declining investment.
Biotechnology accounted for CHF 946.4 million, a new sector record, while investment in information and communications technology increased from CHF 315.9 million to CHF 773.6 million.
The recovery was particularly visible among younger businesses. Seed investment rose 23.8% to CHF 298 million, while early-stage financing increased 73% to CHF 1.116 billion.
Investors were again willing to finance young companies after the difficulties of 2023 and 2024, although total Swiss venture investment remained below its 2022 peak.
By the first half of 2026, investment had slowed to CHF 1.25 billion, down 15.5% from the same period a year earlier. The number of financing rounds remained broadly stable at 123, suggesting that the decline in capital invested was not matched by a comparable reduction in deal activity.
The annual recovery and subsequent slowdown show why aggregate financing figures need to be examined by stage. A market can attract substantial seed investment while remaining short of capital for companies preparing to expand internationally.
Switzerland has a strong position in biotechnology, pharmaceuticals, engineering and specialised software, where research institutions and experienced technical founders regularly produce investment opportunities.
These sectors also create demanding financing requirements. Developing medical treatments, establishing industrial production or bringing a complex technology to international markets can require successive rounds that exceed the capacity of smaller venture funds.
Large international investors consequently remain part of Switzerland’s venture-financing market. Their participation can support expansion, but Swiss fund managers and family offices must compete with investors operating at a much larger scale.
Europe’s Response Is Taking Shape
The European Commission and European Investment Bank Group have introduced several initiatives intended to increase the amount of growth capital available to European companies.
The European Tech Champions Initiative (ETCI), managed through the European Investment Fund, invests in large venture-capital funds capable of financing technology companies at later stages.
By 30 September 2026, ETCI had invested €3.5 billion in funds that had backed 51 European companies, including 15 businesses classified as unicorns.
A second phase, ETCI 2.0, is being developed with public and private institutional investors. Its purpose is to increase the capacity of European funds to lead larger rounds rather than relying on foreign managers.
The European Commission has also established the Scaleup Europe Fund, targeting €5 billion for investments in growing technology businesses. The initiative is designed to support companies in areas including artificial intelligence, quantum computing, clean technology, biotechnology and space.
Unlike programmes that invest through venture-capital funds, the Scaleup Europe Fund is intended to make direct investments in companies seeking substantial growth capital.
These programmes may increase the number of European investors able to support large financing rounds, although their eventual contribution will depend on deployment, fund performance and whether private investors commit additional capital.
The broader reforms matter too. In March 2026, the Commission advanced its EU Inc. initiative, intended to provide a more consistent corporate framework for businesses operating across the European Union.
Simpler company structures and fewer regulatory differences could reduce the cost of expanding across borders, but neither would eliminate the risks associated with venture investing.
Investors still need businesses capable of generating attractive returns, as well as credible routes for eventually realising those returns.
Why Exits Matter as Much as Funding
Venture-capital managers generally invest through funds with a defined lifespan. They need to sell their holdings or distribute proceeds from successful investments to return capital to their investors.
Acquisitions and stock-market listings provide the principal routes for doing so. Europe’s limited supply of large domestic growth investors can influence both outcomes. Companies that depend on international financing may eventually seek foreign buyers or public listings in markets where investors are more accustomed to valuing fast-growing technology businesses.
The EIB’s research found that EU scale-ups were more likely to pursue foreign listings or acquisitions, while some relocated abroad as they expanded.
Selling to an international buyer can produce substantial returns for founders and early investors. It may also transfer future investment decisions, management functions and intellectual-property ownership outside the country where the business was established.
For European venture funds, successful exits are particularly consequential because the proceeds help managers establish track records and raise new funds.
Swiss investors saw evidence of improving exit activity in 2025. The Swiss Venture Capital Report identified nine trade sales valued at more than CHF 100 million, a record number.
Transaction values alone, however, do not establish the returns received by every investor. The proceeds depend on entry valuations, ownership dilution, preferred-share rights and the terms negotiated during successive financing rounds.
What Family Offices Can Bring to the Market
Family offices can participate in venture capital through fund commitments, direct investments or co-investments alongside specialist managers.
Their ability to invest over long periods may suit companies developing technologies that require several years of financing before generating substantial revenues.
Direct participation also carries responsibilities that investors in diversified funds can delegate to professional managers. Evaluating a technology business requires an assessment of its management, competitive position, capital requirements and prospects for commercial adoption.
Follow-on financing deserves particular attention. An early investment may provide an attractive entry valuation, but maintaining ownership through subsequent rounds can require considerably more capital.
Families investing directly should establish whether they can support later funding rounds, how much dilution they would accept and whether the company’s financing plans depend on investors that have not yet committed funds.
A venture fund spreads those decisions across a portfolio and provides access to specialist investment teams. Its performance depends heavily on manager selection, however, and commitments may remain illiquid for many years.
Co-investments offer another route for families seeking exposure to particular companies, but concentrating additional capital in an individual business increases the importance of due diligence and portfolio limits.
The opportunities are not confined to early-stage technology. Growth-stage businesses may already have paying customers, established products and measurable revenues, allowing investors to assess commercial performance rather than relying principally on development forecasts.
Their valuations and financing requirements are generally larger, and a substantial investment does not remove the possibility of losses.
Where the Investment Opportunity Lies
European companies entering international markets can require very different amounts of capital from those needed during their early development.
For family offices reviewing venture allocations, the relevant comparison is therefore between investment stages, financing requirements and the managers available to support each one.
Seed funds may offer access to promising technologies before their commercial potential becomes widely recognised, but a substantial proportion of young businesses will fail. Growth-stage investments provide more operating evidence, often at higher valuations and with continued demands for capital.
The choice also affects liquidity. Venture investments rarely provide regular distributions, while the timing and value of exits depend on market conditions and the ability to attract buyers.
Europe’s new financing initiatives could create larger domestic funds and more opportunities to participate in later rounds. Swiss family offices considering commitments will need to assess whether the managers involved can source investments, negotiate reasonable terms and support businesses through to an eventual sale or listing.
The shortage of growth capital has opened opportunities for investors able to make long-term commitments. Whether those investments produce attractive returns will depend on the companies selected, the prices paid and how much additional financing they require before reaching profitability or an exit.
1. Which financing stage are we entering?
Establish whether the investment supports product development, commercial expansion or a later-stage business with established revenues. Review the company’s operating history and financing needs at that stage.
2. How much additional capital will the company require?
Ask for a funding plan covering future rounds, expected cash expenditure and the milestones management intends to reach before raising more money.
3. Who will lead subsequent financing rounds?
Assess whether existing investors have the capacity to provide follow-on capital and whether the company has access to larger domestic or international funds.
4. What could reduce our ownership or returns?
Review dilution, liquidation preferences, shareholder rights and the terms of convertible instruments. Compare the proposed valuation with the company’s commercial performance.
5. How and when could we realise the investment?
Examine potential acquisition markets, comparable transactions, prospects for a public listing and the fund’s expected holding period. Check how a delayed exit would affect the family’s liquidity plans.
