WHY EUROPEAN STARTUPS DON’T SCALE: BARRIERS, DATA AND HOW TO OVERCOME THEM

Europe has no shortage of innovation. It produces world-class founders, cutting-edge research and globally competitive technology companies. Yet one challenge continues to hold back the European startup ecosystem: scaling.

At South Summit Madrid 2026, one message emerged repeatedly during the discussion From Startups to Scaleups: The European Competitiveness Agenda: Europe's problem is no longer creating startups, it is helping them become global scaleups.

The session's throughline, from Lucien Burm of the Dutch Startup Association, was blunt: Europe already has the capital, the talent and the technology to lead. What it doesn't have yet is a way to turn that potential into scale before its best companies leave for somewhere else. Miguel Alcala, Head of BBVA Spark, frames the opportunity in similarly sweeping terms: Europe, in his view, is not playing catch-up with the US or China, it already leads in some of the most relevant sectors of the technology ecosystem, from space to energy to lifestyle tech.

The challenge is not a lack of ambition but the environment in which founders operate. A startup in Silicon Valley can launch into a relatively unified domestic market of more than 330 million consumers. A company based in Madrid, Berlin or Paris faces different legal, tax and regulatory requirements almost every time it expands into another European country.

Instead of operating in a genuine single market, startups often have to rebuild processes every time they cross a border. The result is slower growth, higher costs and fewer companies reaching global scale.

A 2025 survey of more than 2,500 European founders, investors and operators — Atomico's State of European Tech — puts a current number on the same trend: 15% of founders say they've already moved their company's headquarters to another country, and a further 42% considered it before staying put. Of those who left, 57% chose the US. The same survey found that Europe captures just 10% of global exit value despite generating 17% of new enterprise value — proof that the losses don't stop at relocation; they continue all the way through to the exit.

The clearest sign of the problem is that many successful startups eventually consider leaving Europe. Lucien Burm, President of the Dutch Startup Association, shared a striking statistic during the discussion: "37% of startups expected to leave within the next two years. Now it's 47%. Almost half expect to leave."

This is more than a warning. Burm pointed to Dutch unicorn Mews as an example of companies that have kept only a small part of their operations in their home country after expanding internationally.

It’s not an isolated case. According to the European Commission’s own EU Startup and Scaleup Strategy, published in May 2025, nearly 30% of Europe’s unicorns relocated outside the EU between 2008 and 2021, and only 8% of the world’s scaleups are based in Europe today. The Commission frames this as the second “valley of death” startups face on the continent: the first happens when an idea fails to become a marketable product; the second, far more common in Europe, happens when a working company fails to scale.

Europe often finances the riskiest stage of innovation, but once companies begin scaling globally, investment, headquarters and highly skilled jobs frequently move elsewhere.

Although Europe has more than 450 million consumers, startups rarely experience it as one market. Different employment laws, tax systems and administrative requirements create significant friction for companies expanding across borders.

Alcala makes a related point: companies trying to scale across Europe end up wasting enormous resources simply managing that complexity, resources that should go into hiring or product instead.

Resources that could be invested in hiring, product development or international expansion instead disappear into compliance.

The capital side of the story is just as fragmented. The EU’s financial system is still overwhelmingly bank-centred — bank assets equal roughly 300% of GDP, compared with 85% in the US — and its stock markets are worth just 55% of GDP versus 147% across the Atlantic, with the EU accounting for only 11% of global IPOs. European pension funds, meanwhile, accounted for just 7% of the region’s venture capital funding between 2013 and 2023, a fraction of the role they play in other major markets, according to the European Commission.

Many employment rules were designed for established companies rather than fast-growing startups.

Where employers may be required to continue paying sick leave for more than a year. For startups operating with limited runway, obligations like these can become a significant financial burden and discourage hiring.

The third challenge is cultural. Compared with the United States, European founders often operate in an environment where profitability and caution are rewarded more than aggressive expansion.

As Burm summarised, "we need to be faster and think big. That's Europe's main problem." While the gap is narrowing, Europe still tends to prioritise sustainable growth over rapid scaling.

Despite these challenges, many European companies have successfully scaled internationally.

One characteristic they share is thinking globally from day one rather than waiting until domestic growth slows. They build products, technology infrastructure and operating models that can support multiple markets from the beginning.

As Alcala puts it: "There is plenty of capital, there is talent, there is technology, there are good founders. We have all that we need to make Europe lead the global tech ecosystem.

Successful scaleups also centralise operations wherever possible, using shared technology and avoiding duplicated legal or financial structures in every country. Many accelerate expansion by partnering with organisations that already have a presence across multiple European markets.

Many are already solving one piece of this on their own: 59% of European startups already run fully distributed teams, and 78% of engineering teams work remotely, according to the European Commission. In effect, they are building their own single market for talent even where the regulatory one doesn’t exist yet.

Helping more startups scale will require structural reforms, not simply asking founders to work harder.

Europe needs a truly integrated digital and capital market, where expanding from Spain to Germany is no more complex than expanding from California to Texas.

That means reducing regulatory fragmentation, improving access to growth capital and creating policies that better reflect the realities of high-growth businesses.

As Burm explains it, greater integration would create more investment into startups and lift the borders between countries — opening a market of 450 million people that should raise both valuations and ticket sizes.

Larger markets create larger companies. And larger companies attract the investment rounds that too often end up elsewhere.

Brussels has at least started moving on this. The European Commission has proposed a “28th regime”: a single set of company, insolvency, labour and tax rules that would apply across the whole Single Market, on top of — not instead of — national systems, with the goal of letting a founder set up and operate a company anywhere in the EU within 48 hours. It’s expected in the first quarter of 2026.

Europe already has exceptional founders, world-class research and breakthrough technologies.

The challenge is no longer generating innovation. It is creating the conditions that allow European startups to scale globally without leaving Europe.

Until expanding across European borders becomes significantly easier, many of the continent's most promising companies will continue building their future somewhere else.