EU start-ups cite access to markets and funding as main reasons for relocating

Access to the markets and funding needed to scale-up are the primary factors pushing European start-ups and scale-ups to relocate abroad, according to a new study from the European Investment Bank (EIB) and the European Commission.

The study draws on interviews with founders and chief executives of deep tech, digital, cleantech and biotech start-ups and scale-ups that relocated within the last 15 years, mostly to the US.

Many cited access to a large single market in the US as a reason, along with the higher corporate uptake of innovative technologies, which means higher revenues and faster development cycles thanks to extensive real-world testing. While on paper the EU boasts the world’s largest single market, it remains fragmented due to differing national regulations and consumer behaviours.

Funding opportunities are another key pull factor. The US in particular has a high concentration of experienced investors willing to back high-risk innovations and able to offer larger ticket sizes. However, they prefer or require the companies they back to be based in the US, and this is “the most significant immediate trigger for relocation,” according to the report.

While investors in the Middle East are less likely to have such requirements, business in the region is largely based on trust, so company founders may need to relocate in order to build relationships, the report says. It also points to favourable regulatory conditions and tax regimes in countries such as the United Arab Emirates and Saudi Arabia.

Interviewees also cited Europe’s restrictive regulations, complex taxation systems, cultural resistance to change and rigid labour laws as issues that should be addressed if more start-ups are to remain and grow in Europe.

Europe isn’t completely unattractive to innovative companies, however. Each of the firms interviewed for the study relocated only partially, retaining their technical and R&D capabilities within the EU. There is “strong satisfaction” with the technical talent available in Europe, but a shortage of sales talent and experienced talent for scaling up companies, according to the study.

Political priority

Europe’s failure to retain its most promising companies is a long-standing issue and a cause of concern as the bloc seeks to become less dependent on other regions for key technologies. Between 2008 and 2021, nearly 30% of European unicorns, which are start-ups valued at over $1 billion, relocated their headquarters. The Commission has made tackling the EU’s fragmented markets and regulations a priority in recent years in a bid to reverse this trend.

András Inotai, acting head of a Commission taskforce on start-ups and scale-ups, said in a social media post that the study would shape upcoming initiatives such as an EU-wide company status, known as the 28th regime, and the European Innovation Act, both due to be presented in the first few months of 2026.

The Commission is also working to implement the so-called savings and investments union, to harmonise capital markets and mobilise European citizens’ savings. Meanwhile, a new Scaleup Europe Fund will soon begin making investments of up to €100 million, significantly more than current EU instruments, in an attempt to fill Europe’s growth finance gap.

The EIB is contributing to this effort with its TechEU initiative, which will provide €70 billion in debt financing and equity investments for innovation by 2027, and the European Tech Champions Initiative, which invests in large-scale venture capital funds backing companies during late-stage growth.

Recommendations

The report includes several recommendations for how Europe could retain more high-growth companies, based on the feedback from founders and executives.

In addition to creating a pan-European legal entity such as the 28th regime, it calls for a one-stop shop to provide centralised information and support to start-ups and scale-ups and a regulatory framework that favours innovation.

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When it comes to funding, it suggests targeted tax incentives for early-stage companies and tax relief for more risk-tolerant investors. Capacity-building programmes should equip investors with the necessary skills and knowledge to support high-risk ventures.

Companies also want to see more relaxed rules on hiring and firing to provide more agility and a unified approach to hiring across the EU. To attract top talent, they suggest offering entrepreneur and start-up visas and more employee incentives such as stock options.

Structural issues

The fact that the study was built on interviews with founders gives it “political weight and operational relevance,” said Vasco Pereira da Silva, head of policy at sector lobby group Allied for Startups. He told Science|Business that it gives institutional backing to what founders and start-up organisations have been saying all along: that “Europe’s scale-up gap is not just about funding, it is also a structural market and legal gap.”

Many of the founders who were interviewed said they would have preferred to stay and grow within Europe if key barriers had been addressed. “Founders do not leave because they want to. They leave because Europe makes it too hard to scale at the speed global markets require,” Pereira da Silva said.

He pointed to the fact that many were told by investors that they had to incorporate in the US as a condition for funding. “That is not a cultural choice. It is a structural one that Europe has consistently failed to address.” 

The fact that the companies kept their R&D in Europe but moved holding companies, sales teams and governance structures abroad is telling, he said. “More than losing talent when companies relocate, Europe is losing control over where value is captured.”

He believes the implementation of the 28th regime will be the litmus test of whether Europe is ready to deliver real change. Start-up organisations are pushing for a regulation, which would apply immediately in its entirety across the EU, rather than a directive, which would give member states more flexibility.

According to Jerome Leclanche, managing partner at European dual-use investment fund Seven Capital, Europe has an opportunity to capitalise on the current climate of uncertainty in the US. By implementing the 28th regime, welcoming US talent through accelerated programmes and incentivising private capital, “we will finally be able to reap the rewards from the incredibly high-quality talent we create in our world-class education ecosystem,” he said.

Today, larger ticket sizes and higher tolerance for risk in the US create an environment where capital moves faster and companies can innovate faster, he said. “This creates more and bigger winners, which increase the risk tolerance and ticket sizes and perpetuates the virtuous cycle.”