European AI startups are losing ground to the United States, and their own investors are to blame. Only 5% of global risk capital is obtained in the EU, according to the European Commission. The United States, on the other hand, attracts more than half, while China takes 40%. However, Europe is not capital poor: households save 1.4 billion euros per yearalmost double that in the United States. Still, very little of that money reaches startups, despite a host of incentives like the one in the UK. EIS tax relief for business angels.
Even when funding is available, European venture capital firms are slow and cautious. Funds spend weeks on diligence and hesitate once valuations exceed $10-15 million. Regulation is often cited as an obstacle, and to some extent it is. However, US funds that support European startups operate under the same regulatory frameworks, but their capital keep flowing freely.
The obstacle is not the law itself. It is investors who interpret the rules conservatively, rather than acting decisively.
Conservatism over conviction
Historically, European investors have avoided risks. Banks, insurers and pension funds have long dominated the market, driven by capital preservation. In Germany, the Medium mentality – a focus on stable, long-term businesses – has led family industrial companies to seek generational stability. While that conservatism has created resilience, it also sets the tone for capital markets. This cautious approach helps explain why net investment in the country fell 6.3% between 2019 and 2024.
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The venture industry came to Europe later than the United States, and when it did, funds from the continent poured money into it. e-commerce, fintechand food delivery. In the case of deep tech, most European venture capitalists simply lacked the experience (and often the courage) to invest in real breakthroughs. As a result, in the pre-AI era, the most valuable companies here were players like Revolut, Klarna, Delivery Hero, Spotify, Farfetch, Adyen and N26. They are all extremely solid businesses, but all relatively simple, with a fit between product and market evident from the initial stage.
AI requires high upfront costs, particularly in energy, and investors willing to accept uncertainty. Many European funds are not prepared for that. They may write a small check for an early-stage startup, but they often step aside for subsequent rounds. Lacking the technical conviction to see how early research translates into future markets, they view AI as riskier than it really is, and back away.
A system built for slowness and caution
The other big obstacle is speed. European venture deals often move at a bureaucratic pace. I’ve seen a fund take 40 days to complete diligence on a year-old B2B startup that barely had 20 transactions a month. For a founder, that’s frustrating: In Silicon Valley, the same round would have closed in less than a week.
Slowness also has cultural roots. Offices often get dark in August – Try to find something open in France or Italy, and then again during winter holidays and on weekends. When you’re struggling to compete in a global market, those gaps matter.
The cost of inaction
Europe is being excluded from growth stages and becoming a feeder market, full of promising ideas that become American companies.
The numbers back this up. In the second quarter of 2025, only 5.7 billion dollars entered European startups in the growth stage through 75 deals. That represents about 10% of global late-stage venture funding, the smallest proportion at any stage. Mega rounds marked slightly last year, but are still well below 2021 highs.
Examples abound. Graphcore was once hailed as the UK’s hope for AI hardware and raised more than 600 million dollarsbut it was acquired in 2024 by SoftBank for approximately the same amount – well below its previous valuation of $2 billion. In France, Navya, a pioneer in autonomous shuttles, requested receivership in 2023 after struggling to secure follow-on funding. And in Sweden, Uniti, a bold commitment to electric vehicles in urban mobility, went bankrupt when the capital was exhausted.
what should change
To achieve a different outcome, European venture capitalists must act less as gatekeepers of private capital and more as angel investors. Given the valuations of AI startups, the risk premium associated with these deals may have disappeared, but taking risks is more productive than sitting in the dry dust.
AI founders want conviction, flexibility, and controls that arrive in days instead of months. They want funds that understand that multiple small, bold bets will outperform a slow, “perfect” deal that drags on forever.
Smaller and medium-sized funds have an advantage here. Free from institutional mandates, they can structure deals creatively: SAFE, convertibles, secondaries, and even equity-debt hybrids. What matters is the willingness to be agile and seize promising opportunities.
Europe’s choice
The AI scene in Europe has the talent, the research base and even the money, even if it is poorly allocated at the moment. What it lacks is urgency. As long as their venture capital ecosystem clings to caution, the best AI startups will continue to accept foreign checks and, with them, the talent and leverage that comes with scale.
The choice is simple. Either European investors learn to act at the speed of startups, or the continent will continue to be a laboratory for others to harvest. You can build the next generation of global companies, but only if your capital sheds the instinct to hesitate when it matters most.
The AI race is not waiting, and neither should Europe.
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