Europe’s Venture-Capital Gap: What Founders Should Do Differently Before Their Next Round.
Europe’s venture-capital gap becomes apparent when promising startups need substantial funding to grow. Founders can still do a great deal to reduce its effect.
Starting earlier, defining the next fundable milestone, demonstrating demand across borders, building an investor syndicate before asking for money, and preparing credible alternatives to equity can all improve the chances of success. A round should move the company from its current state to a more valuable and fundable one. It should do more than pay for an optimistic number of months.
Europe has no shortage of founders, technical talent, or early-stage companies. It does have too few large, connected pools of patient risk capital to finance every promising company through the later stages of growth. That distinction matters. The conclusion that “investors are simply not interested in Europe” gives a founder little to work with. Understanding where capital becomes scarce, and why, makes it possible to design a stronger fundraising process.
This guide covers the venture-capital gap, the limits of recent European policy, and the preparations founders should make before their next raise. It complements our articles on turning a business model into a pitch deck, protecting the cap table from dead equity, and evaluating conflicting startup advice.
THE GAP IS REAL, BUT IT IS NOT ONE GAP
Behind the phrase “Europe’s venture-capital gap” there are three separate, connected constraints:
- Fund scale. The European Commission found that, between 2016 and 2024, only 12 EU venture funds raised more than USD 1 billion, compared with 157 in the United States.
- Growth-stage capital. In 2024, EU growth-stage venture investment was 84% lower than in the US: USD 21.3 billion compared with approximately USD 133 billion.
- Market and exit depth. Fragmented national markets, limited exit routes, and low institutional participation make it harder for investors to deploy capital at scale and, eventually, generate returns.
These figures originate from the European Commission’s EU Startup and Scaleup Strategy staff working document. They compare the EU with the US rather than all of geographic Europe, yet they show where the constraint is most acute.
The European Investment Bank reached a similar conclusion from company-level evidence. By their tenth year, the EU scale-ups in its study had raised 50% less capital than comparable companies in San Francisco. More than four out of five EU scale-up deals involved a foreign lead or sole investor. The EIB’s scale-up gap study also connects limited access to finance with the exit and relocation of European startups.
The implication is that while European startups can still raise capital, larger cheques change the probability, timing, and composition of a round. And as the round grows, so does the risk of relying on one local fund, one warm introduction, or one attractive headline valuation.
POLICY MOMENTUM IS REAL; IT IS NOT YET A TERM SHEET
In August 2026, the European Commission completed the legal steps to establish the Scaleup Europe Fund, a public-private deep-tech fund with a target size of EUR 5 billion. EQT now serves as investment manager, and the Commission expects the first investments in the coming weeks. That moves Europe’s policy response beyond another diagnosis of the problem: the Commission’s current Startup and Scaleup Strategy also addresses regulation, market expansion, talent, and infrastructure.
The market evidence still remains mixed. In the EIF Equity Survey 2025 1,201 fund managers reported improving sentiment and resilient dealmaking, while continuing to identify fundraising, exits, and scale-up finance as serious constraints. More than half had increased, or were considering increasing, their exposure to the EU. Investor interest exists, but the mechanisms needed to turn it into growth capital remain underdeveloped.
A NINE-STEP ROUND-READINESS PLAN
In a constrained market, fundraising preparation must belong in the company’s operating plan. In our experience, founders and boards should execute the following nine actions before starting the next round.
1. DEFINE THE NEXT FUNDABLE STATE
Start by describing the state of the company that the capital shall create, rather than with “we want to raise EUR 5 million”. Depending on the company and its stage, this might mean repeatable sales in three markets, a regulatory approval, a production-ready system, positive contribution margin, or a defensible data asset. The milestone should remain valuable even if the market for the next round is poor.
We recommend writing a single sentence:
This round takes us from current evidence to next fundable evidence by date.
Then examine what sits between the two points and list those activities that will produce stronger customer, commercial, or technical evidence.
2. WORK BACKWARDS FROM RUNWAY, NOT VALUATION
Build the round around the cash required to reach the milestone, with a realistic fundraising buffer and a downside case. A later-stage process in Europe (and elsewhere!) may involve several jurisdictions, more co-investors, and more extensive due diligence. A company that starts with limited runway may be negotiating from a position of distress before the investor syndicate has formed.
The board should review at least three scenarios: the base case, a slower-sales case, and a delayed-round case. Each one should specify what management will do when the company reaches defined cash thresholds. A desired valuation is not a financing strategy. The latter requires a clear connection between runway and milestones.
3. PROVE A MARKET LARGER THAN YOUR HOME COUNTRY
Putting the word “Europe” on a pitch-deck slide does not prove that a European market exists. Instead, gather and document evidence that customer acquisition, pricing, onboarding, and retention can work across national borders.
For example, run the smallest experiment that exposes a meaningful difference between the home market and the next one. The difference may involve language, procurement, regulation, channel economics, or buying behaviour. A credible customer cohort in a second market provides more useful evidence than a long list of countries the company intends to enter. It shows that management can turn market expansion from an investment risk into a repeatable execution capability.
4. BUILD THE INVESTOR MAP BEFORE THE PROCESS
It is good practice to classify potential investors by stage, cheque size, sector, geography, willingness to lead, desired ownership, and relevant portfolio conflicts. It is critical to separate likely lead investors from followers. Be clear on who can lead the round, who can follow, and which investors have worked together before.
Build these relationships before the company needs money. Share concise operating updates, ask for informed views on the sector, and record what each investor would need to believe before investing.
5. QUALIFY FOLLOW-ON CAPACITY, NOT JUST THE FIRST CHEQUE
Ask potential investors how they reserve capital, what ownership they target, how much they can invest in subsequent rounds, and what they typically do when a portfolio company misses its plan. An investor may be able to write the first cheque but lack the capacity—or the willingness—to support the next one.
Learn how the investor makes decisions: who has the final say, how many partner meetings normally take place, and what evidence led to the rejection of the last three opportunities. Careful qualification saves management time and helps establish whether the proposed syndicate can support the company through a slower market.
6. MAKE CAPITAL EFFICIENCY AUDITABLE
Calling a company capital efficient is easy. Showing how it achieves that efficiency is harder.
Connect expenditure to milestones, customer cohorts, gross margin, sales efficiency, product delivery, and cash consumption. Explain which costs grow with revenue, which increase in steps, and which can be delayed without undermining the investment case. Investors do not expect a credible management team to promise that nothing will go wrong. They expect it to spot deviations early and adapt without sacrificing the next important milestone.
7. MAKE DUE DILIGENCE BORING
Prepare the data room before starting investor outreach. Include company records, the cap table, option grants, historical accounts, the management model, tax filings, customer contracts, pipeline definitions, intellectual-property assignments, employment agreements, security material, and regulatory evidence. Above all, ensure that the figures in the pitch deck, financial model, management accounts, and board reports agree with one another.
Fix what you can and document what you cannot. A well-prepared data room will not create investor demand on its own. An incomplete or inconsistent one can slow momentum in a multi-party process.
8. DESIGN A CAPITAL STACK, NOT A COLLECTION OF PATCHES
Grants, customer prepayments, venture debt, and public programmes can all complement equity. Match each form of capital to the risk it is designed to finance. Grants may support research. Customer prepayments can validate demand. Debt may extend runway when the company has a credible ability to repay it. Equity is generally better suited to financing uncertainty and growth that cannot reasonably be funded from operating cash.
Not every available instrument belongs in the financing plan. Debt should not conceal a failed equity process, and grants should not postpone customer validation. Appreciate that each instrument brings restrictions, reporting requirements, and timing risks. Model their combined effect before committing to any one of them.
9. DECIDE YOUR RELOCATION RED LINES IN ADVANCE
International capital can be valuable, but it may come with expectations about the company’s headquarters, hiring, governance, intellectual property, or future market priorities. Before receiving a term sheet, decide which changes would improve the business and which could compromise its customers, talent, tax position, or strategic control.
Relocation changes the design of the company and should never be an automatic response to a fundraising request. Obtain appropriate legal and tax advice, compare the full operational consequences, and decide while there is still enough time and negotiating room.
WHAT THE GAP DOES NOT EXCUSE
The fact that growth capital is scarce should not and does not explain every unsuccessful fundraising process. Founders should avoid four common errors:
- Blaming geography for missing evidence. Investors may be cautious because the market is difficult, but they may also have valid concerns about retention, margins, governance, or market size.
- Copying US round sizes without copying the milestone logic. Additional capital can accelerate waste just as easily as it can accelerate growth.
- Optimising only for valuation. Terms, dilution, investor capacity, and time to close may matter more than the headline number. Model the cap-table consequences before accepting a proposed structure.
- Waiting for policy to repair the market. Public initiatives can improve the ecosystem, but no programme owes an individual company a round.
THE BOARD-PACK CHECKLIST
The board should be able to answer these questions on a single page before authorising the fundraising process:
- What exact evidence will this round finance, and by when?
- How much runway will remain when the process starts, at the expected close, and at a downside close?
- Which investors can lead, follow, and support a subsequent round?
- What evidence already demonstrates demand across borders?
- Which assumptions have the greatest effect on cash needs, gross margin, and dilution?
- Which due-diligence issues could delay or reprice the round?
- Which non-equity instruments are genuinely suited to the risk being financed?
- What will management cut, delay, or change if the round closes six months late?
- Which investor requests would require legal, tax, or strategic review?
If several answers remain “to be decided”, the company is still preparing to fundraise. That distinction matters.
IN SUMMARY
Europe’s venture ecosystem has grown substantially, and the policy response is more serious than it was a few years ago. The financing gap remains structural, especially for large growth rounds and exits. Better sentiment does not mean that capital is abundant.
Founders can respond by defining the next fundable state, starting with sufficient runway, demonstrating cross-border demand, building and qualifying the investor syndicate, making capital efficiency visible, preparing for due diligence, combining appropriate sources of capital, and deciding relocation red lines in advance.
Founders cannot deepen Europe’s venture market before their next round. They can approach it with credible evidence, realistic alternatives, and enough time to negotiate from a position of strength.
CREDITS & REFERENCES
For the avoidance of doubt, Neos Chronos is not affiliated with and has no financial interest in any of the organisations mentioned in this article. All names and trademarks mentioned herein are the property of their respective owners. Please observe the Neos Chronos Terms of Use.
- European Commission: EU Startup and Scaleup Strategy staff working document
- European Investment Bank: The scale-up gap
- European Commission: EU Startup and Scaleup Strategy
- European Commission: Scaleup Europe Fund to start making investments
- European Investment Fund: EIF Equity Survey 2025
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