Europe’s startup financing disadvantage becomes more pronounced when companies need large amounts of capital to expand, according to new OECD analysis. Early funding is broadly comparable with the United States, but later rounds diverge, leaving some European firms with a longer route from invention to a large business.
The OECD’s October 8 policy brief draws on about 190,000 innovative startups founded in the EU and US between 2000 and 2025. It reports that patenting EU firms took roughly 1.5 years longer to reach scale after their first patent filing.
The analysis uses financing and valuation thresholds to identify scaling companies: at least $50 million raised for one group and a valuation above $1 billion for another. These measures capture particular types of innovative ventures, not the growth prospects of every small business.
Experienced founders and earlier appointments of external chief financial officers were associated with faster scaling. Those relationships do not establish that hiring a particular executive will itself produce growth.
A prototype and an expanding company need different resources
Early investment can pay for product development, initial testing and the first customers. Expansion can require spending on manufacturing, distribution, support or additional markets before the resulting sales generate enough cash.
A company that has demonstrated a product therefore faces a different financing question from one that is still trying to prove the technology works. It must explain how additional spending will turn into repeatable sales and what happens if customers take longer to arrive.
Consider a hypothetical equipment supplier moving from a small demonstration run to regular production. It may need to order components and hire staff before receiving payment for delivered machines. A growing order book can increase its funding requirement rather than immediately relieve it.
Our explanation of why profitable businesses can run out of cash examines the timing problem. A sale recorded in the accounts does not necessarily put money into the bank that day.
Equity investors provide money in exchange for ownership. A loan creates repayment obligations. Neither source removes the need to establish the cost of winning customers, delivering the product and supporting it after the sale.
Europe is trying to build larger investment funds
The European Investment Bank Group’s July announcement of the European Tech Champions Initiative 2.0 shows how policymakers are approaching the later-stage financing problem.
The initiative set a fundraising target of up to €15 billion and an ambition to mobilize as much as €80 billion in total investment. These are different amounts: capital raised for the initiative and the larger investment it hopes to attract. They are targets, not a statement that €80 billion has already reached companies.
The proposed structure directs capital through investment funds, including large funds and mid-sized growth funds. A fund of funds invests in other funds, which then select individual businesses. A public announcement about its capacity is not a financing commitment to every startup seeking expansion money.
Larger funds can participate in rounds beyond the capacity of smaller investors. They also need businesses that can justify a larger investment, with credible demand, suitable management and terms acceptable to the people supplying the money.
Cross-border sales involve more than a larger marketing budget
Expanding into another market may require different customer contracts, distribution arrangements and service capabilities. Management must determine which parts of its operating model can be repeated and which need local adaptation.
A software business can make its product available online internationally while still needing staff to handle procurement requirements or customer support. An equipment business has additional questions about delivery, maintenance and replacement parts.
The European Commission’s startup and scaleup strategy, launched in May 2025, addresses regulation, financing, market access, talent and infrastructure. Its scope recognizes that access to money is only one condition for expansion.
For founders, that means distinguishing a funding shortfall from a business-model problem. Additional capital can finance a sales team or production line. It cannot, by itself, establish that buyers will pay a price that covers the cost of serving them.
Investors face a related choice. A company may need more time to commercialize a sound invention, or it may be spending money without evidence of repeatable demand. The same financing amount can have different consequences in those two situations.
The Commission has said it will report on implementation of its strategy by the end of 2027. The financing targets and policy commitments will ultimately need to be assessed against what companies can raise, how quickly they can expand and whether that expansion produces a sustainable operating business.
