Public Money, Private Capital: Can Europe Build a Venture Ecosystem — or Just Fund It? — 0100 Weekly Brief
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Europe is attempting one of the most ambitious state-backed venture capital experiments in modern history.
The European Investment Fund (EIF) launched a new €15 billion fund of funds to back growth-stage investors across the continent, with the goal of ultimately unlocking up to €80 billion in scale-up financing.
At the same time, Germany’s WIN initiative has been targeting €12 billion in additional institutional capital for venture investing, France’s Tibi program has mobilized billions from insurers and pension funds, and the European Commission’s new Scaleup Europe Fund is deploying another €5 billion into strategic technologies.
Collectively, these initiatives show us a change in Europe’s approach to venture capital. Rather than merely supporting private markets, policymakers are increasingly attempting to shape and accelerate them directly.
Why? European venture investment totaled roughly €66.2 billion in 2025, approximately 22% of US venture investment, while the disparity becomes bigger at later growth stages, with European funding remaining near 10% of US levels.
Meanwhile, the EU accounts for only around 5% of global venture capital raised, compared with 52% in the United States and 40% in China. And the consequence is visible in the numbers. Europe creates more startups than the United States, but still produces around 80% fewer scaleups and 85% fewer unicorns.
The Missing Layer Beneath European Venture Capital
One of the most important differences between the American and European venture ecosystems is not entrepreneurial quality; it is the composition of institutional capital.
In Europe, pension funds and insurers account for only around 7% of venture capital investment, compared with approximately 20% in the United States. Some estimates suggest the disparity is even larger.
European pension funds collectively manage more than €3 trillion in assets, yet only around 0.12% is allocated to venture and growth capital. Other analyses place direct venture exposure closer to 0.02%, versus nearly 2% in the US.
Europe does not lack savings. Europe lacks an institutional framework for comfortable underwriting long-duration technology risk at scale.
The American venture ecosystem was not built primarily on government financing; it was built on pension capital. US pension funds now represent some of the largest LPs in global venture capital, with allocations frequently approaching 3% of total assets.
Europe never developed the same allocation culture. As a result, public institutions have increasingly become the system’s stabilizing force. Today, the EIF supports roughly 25% of all venture capital deployed in Europe and backs nearly half of all VC-backed startups in a typical year.
That statistic alone captures the current structure of European venture markets. Europe is increasingly relying on public capital to create the confidence that private capital has been unwilling to provide on its own.
The Chicken-and-Egg Problem
Private venture ecosystems typically become self-sustaining only after institutional investors develop long-term confidence in the asset class. In other words, the market needs confidence to grow, but that confidence usually emerges only after decades of successful exits, deep liquidity cycles, and consistently demonstrated returns.
Europe is now trying to compress that entire cycle into a much shorter period of time. Public capital is being deployed to accelerate the creation of a mature private market. The optimistic interpretation is that this intervention may ultimately solve the problem itself.
If current programs produce strong returns, institutional investors such as pension funds and insurers may gradually increase venture allocations, creating a self-reinforcing cycle that reduces long-term reliance on state-backed funding.
There is some evidence that it can work. Some recent European studies indicate that public investment has historically crowded in, rather than displaced, private capital. Regions supported by the EIF have often experienced statistically significant increases in private investment activity over time.
Early signs of institutional participation are also beginning to appear. European pension fund venture mandates increased by approximately 64% in 2025, reaching roughly $485 million.
But scale changes the nature of the experiment. A €15 billion fund of funds operating alongside multiple national programs, strategic technology funds, and public deeptech vehicles represents a level of coordinated intervention that Europe has never attempted before. Which raises a more difficult question.
At what point does public capital cease to catalyze the market and begin to substitute for it?
Europe’s Scaleup Problem Is Not Just Financial
More capital alone will not fix Europe’s scaleup problem. Because the underlying issue is not only financial.
European startups still operate inside a highly fragmented system of legal regimes, tax structures, labor laws, and equity compensation rules. A company scaling from Berlin into Paris or Madrid often faces entirely different operating conditions in each market.
That fragmentation remains one of Europe’s biggest weaknesses. The EU’s proposed “EU Inc” framework is an attempt to solve part of this problem by creating a single startup incorporation structure across Europe, effectively a European equivalent of Delaware. The fact that this conversation is only happening now says a lot about how incomplete the European single market still is for startups.
Talent remains another major challenge.
Around 62% of European startups say hiring is their biggest obstacle to growth, and even among Europe’s largest technology companies, profitability remains fragile. Only two of Europe’s ten most valuable startups are currently confirmed profitable, while many early-stage firms continue operating with less than a year of runway.
This is where the debate moves beyond venture funding.
More money can extend survival, but it cannot automatically solve regulatory fragmentation, weak liquidity markets, productivity constraints, or the difficulty of building companies across dozens of partially integrated economies.
The United States built large technology companies inside a deeply unified domestic market. Europe is trying to do it across 27 member states before fully integrating the market beneath them.
From Capital Scarcity to Trust & Capital Competition
One of the less visible consequences of Europe’s expanding venture ecosystem is that capital itself is gradually becoming less scarce.
As more public money enters the market, alongside international funds, sovereign-backed vehicles, and institutional LP participation, founders are increasingly operating in a very different fundraising environment than they were even five or ten years ago.
In earlier phases of the ecosystem, access to capital was often the primary constraint. Investors largely controlled the process, and founders competed for funding in a market with relatively limited options.
Today, many of the strongest founders, particularly in software, AI, fintech, and infrastructure, are no longer simply looking for investors who can write checks. They are evaluating who can help them scale, recruit, navigate future fundraising rounds, and remain credible long-term partners through multiple market cycles.
In other words, as capital becomes more available, trust itself increasingly becomes the differentiator.
To better understand how these dynamics are evolving at the founder-investor level, spoke with Sonia Fernández, Partner at Kibo Ventures, about why trust is becoming one of the most important currencies in venture capital today.
In our conversation, Sonia explained that one of the biggest changes in venture capital over the last decade is that founders now choose investors as carefully as investors choose founders.
“In the past, we may have thought, okay, we have the funds, so we’re the ones choosing the teams we want to invest in,” she says. “But the teams need to choose us as well, because most of the best deals tend to be competitive.”
When capital is scarce, access to funding dominates founder decision-making. When capital becomes more abundant, differentiation moves elsewhere. For Sonia, that comes down to trustworthiness, reputation, and the ability to create value beyond the initial investment.
“It’s very important to be seen as a fair and trustworthy investor, and credible and knowledgeable. That is something you build over time, but it’s also easy to lose.”
As Europe attempts to scale its venture ecosystem through larger pools of public and institutional capital, the role of investors may gradually evolve from capital providers into long-term operating partners.
🌍 Across the Ecosystem | Public Money, Private Capital, and Europe’s Venture Experiment
Founders, investors, pension funds, and policymakers broadly agree on the underlying problem: Europe has historically struggled to finance companies through the scale-up stage, particularly compared with the US and increasingly China.
But opinions diverge more sharply on how much public intervention is necessary, how long it should last, and whether state-backed capital can successfully catalyze private risk appetite without distorting the market itself.
Below is a snapshot of how these conversations are evolving across Europe’s startup, venture, and institutional investment ecosystem.
🗞️ News | UK pension providers back £200m fund aimed at supercharging homegrown startups
UK pension providers are beginning to play a more active role in venture capital, marking another important step in Europe’s broader effort to unlock institutional capital for innovation. The newly launched British Growth Partnership has raised £200 million from pension providers including Aegon UK, Cushon, and M&G to invest in British VC funds, with the British Business Bank acting as GP.
The initiative is designed specifically to help pension funds increase exposure to venture capital and high-growth companies, an area where UK institutional participation has historically lagged despite the country having one of the world’s largest VC ecosystems.
📊 Report | Venture capital is vital. But can it fund the next wave of innovation?
A new report from the World Economic Forum and Stanford Graduate School of Business highlights how venture capital has evolved into a critical pillar of the global innovation economy, with nearly $3.5 trillion in assets under management globally.
But while venture funding has expanded dramatically over the past decade, the industry is now facing a growing liquidity challenge. Companies are staying private significantly longer, IPO activity remains subdued, and an estimated $3.2 trillion in unrealized value is currently locked inside venture portfolios. According to the report, nearly 1,920 venture-backed unicorns globally remain privately held, collectively representing more than $9 trillion in valuation.
🗣️ Opinion | Venture capital is moving beyond code because the next tech boom will be built, not programmed
A recent article from TNW argues that the traditional software-driven VC model is beginning to lose some of the structural advantages that defined the last two decades. As AI lowers barriers to building software products and competition intensifies, defensibility is increasingly moving away from code itself and toward infrastructure, distribution, and execution in the physical world.
In contrast, deep tech sectors such as aerospace, energy, robotics, semiconductors, and industrial systems require significantly higher levels of capital, longer development cycles, and deeper technical expertise, characteristics that historically limited venture participation but are now becoming attractive barriers to entry.