Attention Is Just the Start: Seizing Europe’s Strategic Tech Opportunity

Europe’s large firms spend roughly half as much on R&D as a share of revenue as U.S. companies and grow only two-thirds as fast, with a return on capital four points lower (2015-2022). As a consequence, Europe has created virtually no global tech champions to challenge American titans like the MAG-7, or China’s Alibaba, Huawei, and Xiaomi. In fact, the EU has created just 14 companies from scratch in the past 50 years with a public valuation exceeding $10bn; in that time, America has created 241. Recent breakthroughs in Generative AI have thus far not changed this pattern, with Europe investing just ~7 percent of U.S. investment levels in Generative AI during 2023 ($1.7bn in Europe vs $23bn in the U.S.)

This has profound consequences for both Europe’s growth and productivity, with real disposable income in the EU growing by around half that of the U.S. since 2000. And as economic power and warfare become ever more technology-dependent, technological capacity will increasingly underpin – or inhibit – sovereign influence. To quote the 2024 report on EU competitiveness from former European Central Bank president Mario Draghi: “This is an existential challenge.”

Despite these headwinds, there is reason for optimism. Europe’s large, well-educated population, leading research institutes and strong industrial base are deeply entrenched advantages. The problems are fixable, and both public and private actors in Europe are beginning to act with urgency.

Generative AI, in particular, is a timely catalyst to translate this new momentum into concrete change. More so than in other recent technology platform shifts, leading AI companies are producing deep technical innovations. These emerging champions are pioneering new frontiers in computer science, semiconductor design and energy generation – what has sometimes been categorized as “deep tech.” And they are applying these advances to industries which have been slower to digitize, like healthcare and industrial robotics, where Europe already competes well on the global stage.

Pulling these strengths together, Europe has the opportunity to build a robust, globally competitive tech economy with European values at its core. One centered on deep, technical research, public and private partnerships, and equitable access to value creation across the European continent. In the sections below, we outline some of the areas where Europe is uniquely positioned to win, as well as how policymakers and corporate partners can support this ambition.

Europe’s edge

Europe is already producing a large and growing cohort of promising companies across the most strategic technology sectors of the next decade, including AI, robotics and energy. We identify over 650 scale-up companies today (for simplicity, defined in this paper as raising a Series C or later in private financing), addressing over €675bn in total end markets today. The number of scale-ups is expected to grow by more than 2.5x to around 1,900 by 2030.

This strategic tech pipeline includes hundreds of emerging future unicorns, alongside breakouts which have already achieved multi-billion-euro valuations, like Black Forest Labs in Germany and Lovable in Sweden.

We see the most promising opportunities in sectors which have the following two attributes:

• Transferable learnings and talent pool from current European industry (“Right to win” sectors): The best European technology opportunities will tap into the continent’s existing industrial strengths, which are different to those of the U.S. or China. This includes strong suits in both technology (e.g. application software, fintech) and other sectors (pharma, industrials & robotics, renewable energy etc).
• Geopolitical importance (“Can’t lose” sectors): Europe faces pressure to develop sovereign capabilities in certain critical technology sectors. These include energy, biotechnology and defense. We see these sectors as best-positioned for public-private partnership in the coming years, aligned with the EU’s competitiveness and sovereignty agenda.

With this framework in mind, we have identified the following sectors as particularly promising. Importantly, these are not the only sectors in which we believe Europe is likely to produce technology champions over the next decade – these markets evolve quickly.

AI application layer: Europe has a thriving ecosystem of applied AI companies, with several valued at $5-10bn in private markets. Europe has for decades produced leading software companies across business and consumer end markets. It also has a strong base of enterprise buyers across both horizontal IT use cases and industry-specific verticals. This sector alone has over 100 emerging unicorns in the pipeline.

Biotech: Europe benefits from deep scientific excellence rooted in traditional healthcare and pharmaceutical industries and is well positioned to combine this expertise with AI innovation. This has led to a robust innovation pipeline across both established and emerging treatment approaches, including biologics, small molecules, RNA-based medicines, antibody-drug conjugates, radioligand therapies, as well as gene and cell therapies. Together, this creates a clear opportunity to retain, build and scale more of these companies within Europe.

Dual-use defense and space: Defense spending commitments are up across the continent, and NATO members are now targeting 5 percent of GDP by 2035 up from 2 percent before the invasion of Ukraine. Europe’s existing defense incumbents have grown their order books meaningfully since 2021, but new technology-led entrants are needed in areas like autonomous systems, threat intelligence and space.

Energy technology: Europe has technological strength in fusion, carbon capture, utilization & storage (CCUS), nuclear and grid technologies, driven by longstanding leadership in technologies for reducing carbon emissions, which are adopted globally. Europe now also has a strategic and economic imperative to accelerate clean energy production to grow the continent’s energy supply, and decouple European output from fossil fuel prices. European companies face energy costs today which are 2-3x that of their U.S. peers. We see more than 50 potential unicorns in the pipeline in this sector.

Industrial AI and automation: Europe is a longstanding leader in production of robotics, vehicles and industrial products like chemicals. We need to translate that knowledge and now lead the way in automation technologies.

Quantum and semiconductor technologies: Europe has world-class computing research clusters in The Netherlands, Germany and France, and incumbent strength in power electronics, lithography and materials development. Emerging compute architectures - such as quantum systems and specialized AI chips - remain early or unproven. Yet they hold the potential for profound impact and could enable certain classes of complex computational workloads to be executed with dramatically lower energy intensity than today.

What it will take to scale in Europe

Europe has long excelled at producing innovative technologists and companies, for all the reasons discussed above. And the early stage venture capital ecosystem in Europe is as robust as it has ever been, with deal volume up more than four times in the past decade.

The challenge is that many of Europe’s most promising companies leave as they achieve meaningful scale. Between 2008 and 2021, close to 30 percent of the unicorns founded in Europe relocated their headquarters abroad, with the vast majority moving to the U.S.

More domestic scale-up capital can help curb this trend. There are far fewer European funds which can credibly lead a €100m financing round than can lead a €10m round. U.S. funds fill this gap, but this capital often comes with an expectation to move to North America. More capital is only part of the answer; the other is making Europe a more attractive home for scaled technology companies, which will require engagement from ecosystem stakeholders like policymakers, and large corporate partners.

Policy

Broad efforts to simplify and harmonize fragmented EU markets will go a long way towards enabling businesses to scale in Europe, in technology and beyond, and we support such efforts. The IMF recently estimated that intra-EU trade barriers create the equivalent of a 44 percent tariff average for goods (three times that between U.S. states) and 110 percent for services. Europe should also explore liberalizing policies around land use and construction permitting, to accelerate strategic industrial activity in areas like energy, manufacturing and defense.

As has long been shown, for example in Enrico Letta's "Much more than a market" report (2024), Europe's single market is a globally unique asset to attract and scale technology companies - provided we leverage this market strategically and tackle its persistent weaknesses. In our view, this requires three main types of actions - several of which have already been identified by the EU institutions and are in the process of being implemented:

• An ambitious “28th regime”: A pan-European corporate entity is crucial to build and scale in Europe and to attract and retain the right talent. The 28th regime should be established through a directly applicable regulation, rather than a directive, ensuring legal certainty, uniformity and speed of adoption. The framework should build on the principles articulated in the EU-Inc initiative, notably a digital-first, standardized corporate structure designed for high-growth companies. This includes standardized EU-wide employee stock option plans, a central EU-level registry that is fully digital and in English and standardized investment documentation to reduce friction in cross-border fundraising. Crucially, it should not impose limits to the size and scope of the companies that can benefit, ensuring a seamless transition from start-up to scale-up and beyond.
• Pan-European industrial collaboration: In strategic technology areas like energy, space and defense, Europe should align procurement initiatives and standards, alongside boosting funding for these unified programs. As one example, Europe currently spends just €12bn annually on space, around 11 percent the global total, and does not yet have a scaled alternative to SpaceX’s commercial launch offering. Initiatives such as the proposed EU Space Act can also support pan-European collaboration by creating a Single Market for space activities and bringing much needed harmonization across national approaches – although it must not increase the compliance burden for start-ups and scale-ups.
• Public procurement as a catalyst: Expand funding paths and reduce procurement timelines for innovative European scale-ups in strategic technologies in areas like energy, semiconductors or quantum. The EU can also look to parallel agency or sandbox programs, like the U.S. Army’s Janus program for nuclear reactor development.

Scale-up capital & corporate partnerships

While Europe has made substantial progress over the last decade in attracting early-stage risk capital, funding gaps occur further down the scaling journey. Even in proven, capital-light sectors like software and consumer internet, there are few European capital partners with the funds to support €100m+ equity checks. As a consequence, many scale-ups turn to American venture capital and private equity sources. But leading American platforms offer more than just capital:

• They support expansion to the U.S. market, which is structurally larger and more growth-oriented than Europe today.
• They offer a global perspective, given the common investing mandate across North America and Europe. This contrasts with many European funds, whose experience outside of Europe – and thus, firsthand knowledge of many technology “best practices” from North America – is limited.
• They have relationships with other U.S. startups/scale-ups and forward-looking U.S. corporates, who tend to be helpful early commercial partners for new products.

It is thus important to emphasize: Europe does not just lack scale-up capital. It lacks value-add capital for growth-stage companies.

Stronger public-private cooperation and new corporate partnerships will be key to addressing these challenges, and many good initiatives are already underway, such as the European Tech Champions Initiative and the European Commission’s proposed Scale-up Europe Fund (SEF). Initiatives like these can play a critical role in supporting Europe’s scale-up ecosystem and in building the tech champions of the future.

However, it is important to emphasize that initiatives like SEF should offer more than just capital. To be truly transformative, they should function as “anchor” capital surrounded by a network of additional capital sources, offtake partners and talent ecosystems.

This need is particularly acute for companies building in capital-intense “deep tech” fields. These companies can typically fund early stage R&D with standard equity financing, but need to assemble more bespoke mixtureses of grant, debt and milestone-based equity financing at the repeatable commercialization stage. This challenge drives the so-called “valley of death” in deep tech.

It is by providing meaningful (€100m+) equity checks alongside an orchestrated set of incremental venture capital, bank partner financing, state grants and offtake partners that initiatives like the SEF can help close this gap. This is the level of ambition we need to help make Europe’s scale-up capital competitive against global alternatives.