EU moves forward on $5.8B scale-up fund to keep startups from leaving

The European Union has stepped up efforts to grow its homegrown tech sector and reduce dependence on US firms, advancing plans this week for a €5 billion ($5.8 billion) fund to help startups scale in Europe rather than seek capital or buyers abroad.

Analysts welcomed the initiative, but said its success will depend on whether it can spur wider private investment in European tech companies.

The European Commission this week selected Swedish investment firm EQT — one of Europe’s largest private market investors, with $311 billion in assets — to manage the fund; first investments are expected this autumn. The fund is backed by the Commission and private investors, including Allianz, CriteriaCaixa, and Novo Holdings.

The effort is part of a broader push to strengthen the EU’s tech sector following the 2024 Draghi report on competitiveness. Other initiatives include EU Inc proposals aimed at reducing red tape for startups and a Tech Sovereignty Package due May 27 that’s expected to include measures to support domestic technology firms.

The push reflects concerns that Europe has struggled to produce and retain globally competitive tech companies. Only around 8% of global scale-up firms are headquartered in the EU, according to European Commission data, compared to roughly 60% in North America. And many promising startups are acquired by larger US firms before they reach the scale needed to compete globally; Google’s 2014 buyout of DeepMind is a notable example.

“Europe produces world-class deep-tech innovation and has a strong pipeline of early-stage startups, but has consistently struggled to convert that pipeline into globally competitive companies at scale,” said Richard Stevens, associate vice president of IDC’s IDC4EU European Government Consulting unit.

EU-based startups face a variety of barriers, including fragmented capital markets across member states. That can make it difficult to assemble larger funding rounds in the the $58 million to $347 million range tech firms need to compete with US and Chinese peers, said Stevens. Varying regulatory environments across EU member states are another factor.

“The cumulative effect is that many of Europe’s most promising technology companies either relocate to the US to access deeper capital markets, or get acquired by non-European players before they reach their full strategic potential,” said Stevens.

European tech startups suffer from a “poor culture of private funding for entrepreneurship” in the EU, said Forrester senior analyst Dario Maisto, who focuses on cloud computing and digital sovereignty. Public funding mechanisms often reward administrative compliance rather than commercially viable businesses, he said.

Stevens said the €5 billion target would make the Scaleup Europe Fund the largest dedicated scale-up investment vehicle assembled in Europe — and the appointment of EQT as fund manager sends an important signal. 

“The EU’s decision to structure this on commercial terms, with market-standard governance and a competitive selection process, reflects a deliberate move away from traditional grant-based instruments toward a model designed to mobilize private capital at scale. That is significant,” he said. 

The €5 billion should be considered a starting point, analysts said, with significantly higher levels of capital needed to put the European technology sector on par with the US — where deployed venture and growth capital annually runs into the hundreds of billions of dollars – and China – which benefits from state-backed investments.

“The €5 billion mark is a drop in the sea,” said Maisto, “but it will help build a more stable scale-up ecosystem if implemented well.”  He warned that the EU is attempting to address structural problems primarily through funding, even though bureaucratic processes still risk undermining its efforts.

Stevens said the scale-up fund’s value will be measured by its ability to keep high-potential European companies “anchored on the continent” and attract co-investment from institutional and corporate investors.

He also pointed to the potential for a “self-reinforcing ecosystem effect” in sectors including AI, quantum computing, clean energy, biotech and space technology — areas where Europe already has strong technological capabilities and where IDC expects strong  growth over the next five years.

“A €5 billion fund cannot close the gap with the US and China alone, but if it catalyzes broader structural changes in how European capital is deployed and attracts momentum from the surrounding investment community, it could be genuinely transformative,” said Stevens.