# The big round problem

By Elias Agardh

At the beginning of a startup’s life, Europe works (at least on the funding side). A strong team with a can raise a pre-seed in Stockholm or Berlin or Paris without leaving the continent, and seed capital/funds has grown every year for over a decade. Series A is harder than it was at the peak of the 2021 hype, but it is harder everywhere. The share of seed startups reaching an A within two years has basically fallen by half on both sides of the Atlantic, i.e not a Europe only problem. The disadvantage arrives at the later stages and it’s not a shortage of actual money, moreso how that money is deployed.

Total venture fund capital sitting in EU-domiciled funds is somewhere near €150 billion while the American figure is around €930 billion. This mainly traces back to where European savings live. European pension funds put something like 2 to 3% of their assets into venture. American funds put 8 to 10%. The money that should be compounding inside European technology is instead parked in government bonds and public equities, earning a “respectable” return for retirees and doing nothing for the European ecosystemes.

A fund that raised €200 million cannot lead a $40 million Series A. It cannot defend its pro rata through three more rounds without running out of reserves. So it gets diluted precisely in the rounds where value concentrates, which means its returns are worse than an American fund holding a comparable company, which means its own investors have one more reason to stay at 2% next time. The cycle is feeding itself.

About 70% of late-stage capital going into European tech now comes from outside Europe, most of it American. Atomico's framing of the same phenomenon is sharper: Europe generates about 17% of new global enterprise value and captures about 10% of exit value.

A founder will and should always take the best offer on the table, which is usually the American one, because it is larger, faster, and comes attached to a partner who has seen the specific problem before. Taking the worse offer out of regional loyalty would be a strange thing to do with other people's money and your own at stake. An American fund flying to Munich to lead a round is doing exactly what a good investor should do, which is find mispriced quality wherever it sits. A European fund writing a small check into a round it would rather have led is behaving rationally within the size it was able to raise. Every individual decision is correct.

The fix that would actually work is boring and slow. It involves pension regulation, the mandates that trustees operate under, and the risk budgets they are permitted to carry. It also involves public markets deep enough that a European company at scale has somewhere to list at home, because an ecosystem where every good outcome ends in a Nasdaq listing or an American acquirer will keep recycling its winnings into the wrong continent.

If your customers, your acquirers, and your later capital are going to be American, incorporate where that capital expects to invest. pro-europe but only incorporating in a European country is madness if you are to build a global business. The Delaware c-corp hate in our startup ecosystems as Stockholm and Berlin right now is absolutely insane. But still build in Europe if that is where your engineers are and your costs are lower, which for a lot of companies it plainly is. Just do not organize the company around the assumption that the capital will follow you home.
Europe has spent two decades getting very good at starting companies and has not yet decided that it wants to own them. Until the savings move, the companies will keep moving instead.