For decades, Europe’s technology startup scene has lived in the shadow of Silicon Valley. Even European cities known for technology innovation, like Berlin and Amsterdam, have struggled to break out on a global scale.
Is this dynamic finally shifting? Some experts, including experienced venture capitalists like Target Global co-founder Shmuel Chafets, believe so.
“In recent years, the startup economy has truly gone global, opening up opportunities closer to home for European entrepreneurs and investors,” Chafets says.
Innovators are choosing to launch, grow, and sell their businesses in Europe rather than relocating to Asia or North America for a number of reasons, Chafets and others say. Here’s what’s behind their thinking, and why no one should bet against the European tech scene anytime soon.
The EU Is Embracing Industrial Policy
European Union policymakers are belatedly embracing “Europe-first” industrial policy in response to major U.S. legislation like the CHIPS and Inflation Reduction Acts. The overarching aim of this policy is “strategic autonomy,” according to the Council of the European Union.
“Strategic autonomy is about reducing the EU’s dependence on others, for example for critical materials and technologies, food, infrastructure and security,” the Council says. “It is also an opportunity to develop markets, products and services and boost competitiveness in the EU.”
This posture is already benefiting “hard-tech” startups in Europe and could boost the continental software and computing industries as well. In the long run, it may set up Europe as a third “pole” of AI innovation, complementing North America and China.
The European Workforce Remains the Envy of the World
The European workforce is highly educated, impeccably skilled and remarkably diligent, despite its deserved reputation for work-life balance. Companies choose to locate in Europe to take advantage of this immense talent pool, one that (as we’ll see in a moment) is poised to grow rather than shrink in the years ahead.
Lower-Cost, High-Quality Education & Lifestyle Amenities Are Attracting Talent From Across the Pond
Few North Americans (or Europeans, for that matter) realize that it is now significantly cheaper to live in Europe than in the United States or Canada.
“Basic expenses for a single adult with no children in the U.S. is $2,508, compared to an average $1,746 per month in Europe,” Says Patrick Villanova, a cost of living expert at Yahoo! Finance.
This is in spite of the fact that Europe offers what many consider to be superior lifestyle amenities — accessible, affordable cities surrounded by ample parkland rather than suburban sprawl — and first-rate educational institutions. It’s no wonder Europe is an increasingly popular landing spot for U.S. expats frustrated by their home country’s high cost of living.
The Cost of Capital Is Falling As the Investment Scene Grows
The factors above are helping to support a voluntary relocation (or expansion) of entrepreneurial and funding resources into Europe from abroad. At the same time, prevailing interest rates are falling on the continent, reducing all-important capital costs for early-stage companies.
Consumer Solutions Remain an EU Strong Suit
The European Union has long been a hotspot for consumer-oriented startups, like Target Global-backed Crisp and Tourlane. This has been true across multiple business cycles but is all the more relevant today, as other geographies (namely the United States) muscle in on the business-facing startup space.
Such diversification may prove crucial in future business cycles and in light of an increasingly assertive and capable Chinese startup ecosystem.
They’re Bullish on Europe. Are You?
Investment firms like Target Global are very bullish on the European tech scene. So are countless entrepreneurs who’ve chosen to launch and grow their businesses in the European Union or the United Kingdom — many of whom originally hail from other parts of the world.
Is it too strong to say that Berlin, Amsterdam, Paris, Warsaw or London today find themselves in the same position as San Jose or San Francisco did in the 1980s and 1990s? Some would say yes, but history tells us not to bet against ascendant tech scenes benefiting from exactly the right mix of macroeconomic forces, national policy, and migration trends. Investors and innovators ignore Europe at their peril.
