Viewpoint: The missing pillar of EU’s start-up strategy is risk

The European Commission’s start-up and scale-up strategy introduces several positive but long-overdue initiatives, including a plan to simplify the task of creating new companies across the EU, known as the 28th regime, and insolvency reform. Yet taken together, they still fail to address Europe’s core constraint: systemic risk aversion across founders, investors, corporates and public buyers.

This diagnosis is not new. For decades, the Commission has recognised Europe’s conservative procurement practices, weak equity culture and risk-averse entrepreneurial and investment environment.

The policy response, however, has essentially remained the same: more public money, channelled through the European Investment Bank Group or distributed via grants.

If this approach has failed to close Europe’s innovation gap or reduce risk aversion over past decades, as repeatedly acknowledged by the Commission, there is little reason to believe it will now succeed merely by rebranding existing instruments.

The unintended consequence is an ecosystem increasingly optimised for grant-dependent start-up founders and public-capital-dependent investors, rather than for market-driven entrepreneurs and genuinely risk-taking private capital.

As a result, abundant private capital continues to flow into public markets and real estate instead of start-ups or scale-ups.

At the most recent European Startup Nations Alliance Forum, a representative of the European Investment Fund (EIF) noted that EIF-backed capital already represents roughly 25% of all venture capital invested in Europe. When national public investors and development banks such as Bpifrance and KfW are included in the analysis, it becomes clear that Europe’s venture capital market is structurally dependent on public money.

If public capital already dominates the system, why would adding more of it suddenly make Europe less risk averse? Public funding is shifting from a catalyst to a structural liability.

Despite this scale of intervention, Europe continues to lag the US in start-up creation, start-up funding, and scale-up financing. China closed much of the gap in under a decade, while India and other ecosystems are now rapidly accelerating.

De-risk innovation

Founders are risk averse because failure is costly and reputationally lasting. Investors are risk averse because due-diligence costs and perceived risks are high and exits are scarce. And corporates and public buyers are risk averse because early deployments often carry personal or career downside.

In this environment, adding public capital does not reduce risk aversion; it often amplifies it, creating incentives where founders wait for grants, investors mainly wait to deploy public capital and corporates avoid buying from start-ups without public subsidies.

International evidence consistently shows that lowering perceived risk directly increases both entrepreneurial entry and investment.

Six practical priorities for a risk-first start-up policy

The principles behind my book Zero Risk Startup apply directly to public policy by systematically reducing risk and aligning incentives, ensuring that innovation becomes a rational economic decision rather than an act of personal courage by entrepreneurs or investors.

Here are six key initiatives, non-exhaustive, designed to reduce risk and unlock private capital across Europe’s start-up ecosystem:

1. Open infrastructure as a de-risking tool

The Commission channels billions of euros in public grants to laboratories and testing facilities, yet access for early-stage entrepreneurs remains fragmented, slow and costly. Funding for new research infrastructure should therefore be conditional on a minimum number of days per year of free, supervised access for highly innovative early-stage start-ups (excluding consumables). This will materially reduce start-up technical risk at a negligible cost to the taxpayer, without affecting the intrinsic value delivered by universities or research institutions.

2. Success-based R&D funding instead of unconditional grants

Israel’s innovation model, led by the Israel Innovation Authority, demonstrates that public support can de-risk innovation without privatising success. Europe could transition grants into contingent repayment instruments: forgiven if innovative start-ups fail, but partially repaid via royalties if they succeed, thereby creating a self-sustaining public innovation funding model.

3. The Start-up Risk Passport: a one-stop EU de-risking package

The Commission should issue a standardised Start-up Risk Passport to all Commission-approved innovative start-ups, integrating legal, technical, regulatory and funding risk assessments with continuous AI-driven support for founders.

This would reduce perceived risk, speed up investment decisions and lower barriers for founders and investors, while enabling the evaluation and selection of innovative companies and consortia applying for EU funding to be grounded in consistent, evidence-based data rather than subjective personal assessments.

4. Start-up first procurement with real incentives

Public procurement, including at the Commission level, remains one of Europe’s most underused de-risking tools. A mandatory start-up procurement quota, modelled on the US Small Business Innovation Research programme, could require a fixed share of EU tenders to be awarded to start-ups under seven years old, with the Commission leading by example. Securing a first public customer is the strongest de-risking signal for private investors.

5. Smart guarantees for equity investments

To encourage private risk-taking, equity investments in Commission-approved innovative start-ups should benefit from partial guarantees similar to those long used for debt. Portfolio-level guarantees, covering a limited share of losses for investors with three or more investments, would reduce risk without distorting incentives. The EIF’s experience with mutual guarantee schemes provides a solid basis for implementation.

6. Co-investment funds that reward angels

Europe urgently needs true co-investment funds alongside business angels, with asymmetric exits that favour early private risk-takers, not fund managers. Too many so-called angel co-investment schemes primarily de-risk venture capital fund managers while leaving business angels (the first line of capital) sidelined.

Conclusion

By advancing the 28th Regime, the commissioner responsible for start-ups, research and innovation, Ekaterina Zaharieva, has demonstrated the political courage needed to meaningfully improve Europe’s start-up ecosystem. Turning that courage into lasting impact now requires confronting Europe’s core structural weakness: persistent risk aversion.

The measures outlined in this article will require only a fraction of current EU spending, yet could unlock significantly greater private investment and innovation. If Europe wants to close the gap with the US and China, and avoid being overtaken by emerging ecosystems, it cannot continue relying on approaches that have repeatedly failed.

To avoid reaching the end of the upcoming tenth Framework Programme for research and innovation with the same unresolved structural problems in Europe’s start-up and scale-up ecosystem, the Commission must make risk reduction, not the amount of public capital, its central policy priority.

Paulo Andrez is the author of Zero Risk Startup and president emeritus of the European Business Angel Network. The views and opinions expressed in this article are his own and do not reflect the positions of any organisations, institutions or affiliations with which Andrez is associated.