We explain why we have a 'funding gap' in Europe

It is that time of year again.

The Atomico State of European Tech report is out, and the industry is doing what it always does: celebrating the record number of new unicorns while simultaneously whining about the eternal "funding gap".

We treat this gap like a complex mystery. It isn't. It is actually very simple.

To understand why this happens, you have to look at one specific statistic: over the last five years, 60% of every new unicorn created in Europe had a US lead investor. This number is key because in venture, the "lead investor" is the one who sets the price. This means that for the majority of our best companies, the valuation is not being decided by European market logic, but by American market logic.

This matters because US funds operate on a completely different mathematical model than European funds. US funds are often massive, managing billions of dollars that they are structurally required to deploy. Because of this sheer size, a modest 3x or 5x return is mathematically irrelevant to them; it simply doesn't move the needle on a multi-billion dollar fund. They need a single investment to return 100x to pay for the entire fund.

This creates a massive distortion in how they price companies. If you are chasing a 100x outcome, the "entry price"—what you pay for the shares today—is almost irrelevant. Whether a startup is valued at $400 million or $800 million creates a negligible difference if the goal is for that company to be worth $50 billion. Therefore, US investors are not buying the company based on its current assets or revenue, they are paying a huge premium for the option that it might become a global monopoly. They are buying a probability, not a business.

For a European founder, taking this money feels amazing. It feels like you have won. But here is the trap: by accepting that high valuation, you have accidentally priced yourself out of your own market. Think of it like real estate. If you value your house at $10 million because a foreign billionaire might buy it one day, you have just made it impossible for anyone in your local neighborhood to buy it. European buyers are practical. They buy businesses based on real profits and revenue, not on lottery-ticket potential. They simply cannot afford the price tag the US investor stuck on your company.

This is exactly why we have a "liquidity gap." It is not that there is no money in Europe; it is that our startups have become too expensive for Europe to buy. Once a founder takes that US check, they have burned the bridge to a local exit and the only way out is to keep raising money from Americans until they can eventually be sold to a US tech giant or listed on the US stock market. We haven't built a European success story; we have built an export product.

So why do we keep pretending this is gap is a mystery and a tragedy?

Because the "funding gap" is a useful story. If VCs admitted this was a pricing problem, the solution would be to lower their valuations. Nobody wants that. But if they frame it as a "gap," the solution is for the government to step in and fill it. Keeping the mystery alive provides the perfect argument to lobby for billions in taxpayer subsidies.

So next time you read these reports, ask yourself: Who benefits from the narrative that Europe is broken?