How Europe Can Bridge the VC Investment Gap: New Study Calls for Private Growth Capital Mobilization
The Internet Economy Foundation (IE.F), together with our partners at BVK, Schalast Tax | Law, Lakestar, and Roland Berger, have published our latest study, A new VC agenda for Germany and Europe - Why we need to mobilize private growth capital and how to do it.
The 2023 edition revisits the topic of our first venture capital study released in 2018. Considering developments across the last five years, the study reassesses the importance and need for capital investment in Europe, the obstacles the EU and Germany are facing, and it provides a five-point to foster a vibrant European venture capital ecosystem.
Over the past five years, two themes have remained consistent:
Europe continues to lag behind Asia and the United States when measuring venture capital investment relative to gross domestic product (GDP).
Within Europe, Germany is still trailing other strong economies in the same measure, namely the United Kingdom and France. Specifically, it ranks lower than the United Kingdom and France in terms of venture capital investment as percentage of GDP.
In 2022, Europe invested 0.33% of its GDP in venture capital. The continent was slightly outperformed by Asia, with 0.34%, and greatly surpassed by the United States, with 0.78%. Inside of Europe, the U.K. takes the cake with 0.85%, followed by France (0.45%), and Germany (0.25%).
Although Europe and Germany still have ground to make up, there have been improvements over the last five years. Europe has improved its GDP investment by 275% since 2018, gaining slight ground against the United States and almost closing the gap with Asia. Germany’s contribution to this increase, while applauded, is still relatively small. The U.K. increased their GDP share by 0.53%, France by 0.29%, and Germany by 0.14%.
The financing gap is not limited by the number of startup entrepreneurs or the number of investible companies in Europe — both of these numbers have increased over the past few years. Rather, the primary concern lies in the small size of European venture capital funds, which raises doubts about their viability and attractiveness to domestic institutional investors seeking to expand their portfolios. Along with other limitations, such as cautious self-promotion, limited participation from startup employees, numerous obstacles for venture capital funds, insufficient investment, and a lack of diversity, investing in innovation could be advanced so much further.
In order to effectively plug the financing gap, there are five actionable steps Brussels needs to take:
Knowledge Transfer — We must get decision makers and the wider population to understand the benefits of growth capital.
Asset Mobilization — We must stimulate capital and allow it to flow to the right places.
Tearing Down Obstacles — We must design a legal framework that is internationally competitive.
Good Ideas, Good Business — We need better support for spin-off ventures. .
Greater Diversity — We must support the involvement of women in startups and venture capital funds.
The new IE.F report is available online and for downloading as a PDF here.