Europe's next wave: How is the startup ecosystem developing in Europe?

The USA secured an early lead in the startup sector by consistently focusing on high-tech while Europe relied on its traditional industry for a long time. But the tech gap shrank – and Europe caught up rapidly. From a global perspective, the share of unicorns based in Silicon Valley fell from 80 to 20 per cent over the past fifteen years. Until the development of freely accessible AI models represented a new turning point: the ChatGPT moment suddenly attracted founders to America's Valley, as tech investor Michiel Kotting observed. “In the past three months, I have seen the pendulum swing back towards the USA as a founder magnet,” he said during the panel discussion 'From Seed to Tree: Europe's Path Through the AI Forest' on the morning of the first day of the conference.

Heiko Bergmann, an expert in entrepreneurship and the management of small and medium-sized enterprises at the University of St.Gallen, sees good opportunities for startups in Europe if they apply AI in a qualified manner to entrepreneurial processes and products – and thus enable an increase in efficiency or new offers. Europe's bureaucracy is often cited as a disadvantage compared to the USA – but the bigger issue is the fragmentation of the markets, adds Bergmann, emphasising: “Startups in Europe can scale more slowly than in the US because each country has its own language and different rules. However, artificial intelligence could reduce this hurdle in the future."

Investment climate in Europe: where is the big money going?

But how can startups in Europe get the capital they need to successfully launch their ideas on the market? This key question was addressed by several panels at the START Summit. Europe is not yet the most popular haven for venture capital, said Peter Specht, general partner at Creandum, a leading early-stage investment firm that has supported companies such as Spotify, Depop, Bolt, Neo4j, Pleo, Factorial and Trade Republic. 2For the early phase, we are in a very good position in Europe. It becomes difficult with the procurement of capital for growth financing in the range of several hundred million. That's where investors from the USA and Asia come into play.” Specht's idea: “We should allow pension funds to invest in scale-ups. This would inspire many European startups."

For years, it was easier to achieve high valuations in the US – a clear advantage for startups. In addition, American venture capital firms were more willing to take risks and invested larger sums with more risk. “While the economic outlook until recently was poorer for Europe than for the US, the tide now seems to be turning in Europe's favour with the erratic economic and tariff policies in the US,” says HSG expert Heiko Bergmann. “Startups have to face many uncertainties when developing a product. It's not surprising that they pay attention to solid framework conditions such as political and economic stability, which have so far been available in many European countries and the USA."

The race for the best talent, data and contacts

To succeed in the race for the best AI technologies, European startups need more than just access to capital. High-tech talent and data are also crucial to their success. This aspect was emphasised by Luke Pappas, a partner at New Enterprise Associates (NEA) in California, on the ‘Clash of the Capital – US versus EU’ podium: “In addition to capital, startups need smart employees and unique data to be able to grow successfully." Company founders should initially rely on their local contacts when building up their company – there is no point in going to going to America if a startup there has no network and no access to talent, Pappas said at the START Summit. “I noticed that European founders often have a strong operational focus, but US investors want the big vision – these different mindsets sometimes prevent access to venture capital."

Robin Rombach, co-founder of Black Forest Labs and creator of the image and video AI generator Flux, expressed the view that Europe's ecosystem is strong in talent development, thanks to excellent universities. In particular, locations such as London, Paris, Berlin, Zurich, Amsterdam, Munich and Stockholm offer a good ecosystem with proximity to universities, skilled workers and investors. This is also confirmed by HSG professor Heiko Bergmann: “In my view, the European startup ecosystem offers very good opportunities for founders. Compared to the US, Europe has a stronger focus on the circular economy, renewable energies and sustainable technologies. These topics have currently been pushed into the background by politics, but in the medium term, solutions will be developed here that promise great efficiency advantages and will also pay off economically.” Another advantage of the European ecosystem is the high density of successful SMEs and larger companies that are open to working with startups. “This is also evident from the fact that concepts such as venture clienting originated in Europe. In addition, personnel costs for high-tech talent are often lower in Europe today than in the USA,” says Bergmann.

Invest more boldly in growth

Conclusion: Europe's startup ecosystem is at a turning point. Despite structural hurdles such as market fragmentation and access to capital, the continent is increasingly offering attractive conditions for founders. The focus on sustainable technologies, access to excellently trained talent and close links with established companies create a stable foundation. Even if Silicon Valley is currently regaining its appeal in the wake of the ChatGPT moment, Europe can score points in the long term with its diversity, innovative strength and increasing AI competence – provided it succeeds in dismantling regulatory barriers and investing more boldly in growth.

Image: Panel 'From Seed to Tree: Europe's Path Through the AI Forest' with Peter Specht, Michiel Kotting und Robin Rombach (Copyright: START Global)