Fuel for the Engine

The Flight and the Chasm

Eli: Early 2014. Mt. Gox, then the biggest crypto exchange, has just gone bankrupt after a hack. Michael Gronager is on the flight back to Europe, and he writes fifty lines of code: a first proof of concept for a tool that traces crypto. He told the venture firm Accel how he got there. Before all this, he'd been planning and running public research infrastructure projects across Europe. And he'd come to think the purpose of those education and research systems was "for people to build companies and that those who could do, should."

Mara: A listener asked us this. Europe has world-class universities, brilliant talent and enormous economic power. So why does it struggle to create global tech giants? And are regulation, risk aversion and lack of investment holding it back? Today's angle is the European scale-up trap.

Eli: Those fifty lines became Chainalysis.

Mara: Start with the scoreboard. Market capitalization is just what the stock market says a whole company is worth. On that scoreboard, the gap with America is stark. No company founded in the EU in the past fifty years has reached a hundred billion euros. That's roughly 112 billion dollars.

Eli: Which most people pin on culture. Europeans supposedly fear failing.

Mara: Not on the surveys. Researchers at Cambridge asked, back in the early 2000s, how willing people were to give a failed business owner a second chance. Finland and Sweden came out on top. The US landed below them.

Eli: Then there's the one that made it. Spotify, co-founded by a Swedish entrepreneur, went public in 2018 at about 33 billion dollars. Its biggest rival was Apple Music. Quartz pointed out that Apple makes plenty selling iPhones and doesn't need to make money from music at all. In the quarter to the end of June 2018, Spotify's operating loss widened to 90 million euros.

Mara: So Europe's rare giant fought a rival that could treat music as a side business.

Eli: Spotify got big, and bled money doing it.

The Seed Paradox and the 27 Walls

Mara: Spotify shows how hard the long stretch is. The early stretch is where Europe is strong. Seed money is the first small check that turns an idea into a company. Later rounds are the far bigger checks that turn a company into a contender. And at seed, Europe isn't behind. In 2025, pre-seed, the earliest money before that first check, and seed investment in the EU came to about 3 billion dollars. That's a little more than the US put in.

Eli: So the shortage-of-startup-money story fails at the very first check.

Mara: At the first check, yes. The European Commission's own digital strategy work found plenty of startups being created, but "only a small share had scaled up or became unicorns," those billion-dollar private companies.

Eli: And founders describe what happens after the idea. In testimonies the European Commission gathered, one founder set up a startup in Spain. It took three and a half months and five physical visits to different offices. The notary wanted them there in person to verify their identity, even though they held a valid EU electronic identity certificate. The delay meant missing two crucial grant deadlines. Setting up the same startup in the UK, they wrote, takes an hour at most.

Mara: So the cost isn't only time. It's money the company never sees.

Eli: Then there's moving. Another founder had a Dutch company, a BV, a private limited company, and relocated to Spain. One of the BV's requirements is a director living in the Netherlands. So the company had to close. The founder's summary was short: "Opening and closing the company was costly."

Mara: Same founder, same business, and the company dies over a home address.

Eli: Growing is no easier. One entrepreneur operating in six countries, Belgium, the Netherlands, Luxembourg, Germany, Austria and Switzerland, had to set up six different companies just to employ people in each. Different legal counsel for each country. And it starts, they said, "with getting a bank account, which can often not be done fully online."

Mara: Six companies, six sets of lawyers, one product.

Eli: Every one of these founders had already started a company. The trouble came after. How much of that trouble comes from the rulebook itself is the next question, Mara.

The Rulebook Dilemma

Mara: That rulebook has two big chapters: GDPR, Europe's data protection law, and the newer AI Act. Both are precautionary. A company has to show it complies up front, so the cost arrives early. Estimates Mario Draghi cited in his 2024 report put annual GDPR compliance at up to 500,000 euros for a small or mid-sized firm.

Eli: A fixed bill like that weighs most on the firm with the least revenue.

Mara: That's one reading. Draghi, Christian Klein and Cecilia Bonefeld-Dahl hold that precautionary rules and compliance paperwork hit young firms hardest and discourage risk-taking.

Eli: The other camp reads the same rulebook as protection against something worse.

Mara: Anu Bradford makes that case in a paper. She argues laws like GDPR are more likely to help innovation than hurt it, by cutting uncertainty and complexity. Her point is the alternative: "an EU with twenty-seven disparate approaches towards data protection would, no doubt, present even greater barriers for data transfers across Europe." Margrethe Vestager and the European Commission stand on that side too.

Eli: So one rulebook instead of twenty-seven. We just heard what twenty-seven looks like.

Mara: Which brings back Gronager. Rules are one cost on that road, and the two camps still disagree on how heavy it is. What neither reading has touched yet is the money to grow.

Eli: Rules can slow a young company down. What stops a grown one is a separate question.

The Growth Capital Desert

Mara: Go back to Europe beating America at the first check. Follow those companies into the bigger rounds, and it flips. In 2025, early- and growth-stage rounds in the US added up to about 115 billion dollars, on one tally in the journal Intereconomics. The EU's came to 28. On that same tally, the gap widens with every stage. Adjusted for population, at the late stage and the exits, when companies sell or go public, it's twenty-six to one.

Eli: Twenty-six to one is the stretch where a startup becomes a giant, or doesn't.

Mara: So where does that money come from? Venture funds raise cash from institutions, big pools like pension funds that set aside a slice of retirement savings for high-growth bets. In the US, pension funds supply about 31 percent of venture capital. In the EU, about 7.6. The reason is how pensions are built. America leans on funded accounts that pile up assets over time. Europe's main pensions are mostly pay-as-you-go: today's contributions pay today's pensions, so no giant pot builds up to invest.

Eli: Those second-chance surveys fit, then. The founders took the risk; the retirement money didn't.

Mara: And it shows in fund sizes. European Central Bank staff put American venture funds at about 930 billion euros in 2026, roughly six times what funds based in the EU hold.

Eli: Draghi reads that as the core problem. There's a second reading. Cecilia Bonefeld-Dahl, BusinessEurope and Gronager himself put more weight on fragmentation. The single market is one market on paper, but in practice a company still faces twenty-seven sets of company, tax and administrative rules. On that view, the friction caps growth before capital supply even comes into it.

Mara: Either way, the companies end up in the same place. Draghi's report said successful EU startups all too often move to the US when they get to the point of scaling up. Between 2008 and 2021, close to 30 percent of European unicorns relocated their headquarters, mainly to the US. So the wall isn't where Europe's risk-takers start. It's where they need to grow. That's the stretch Gronager's company had to cross, Eli.

The Flight Across the Atlantic

Eli: When Gronager set up Chainalysis, he chose New York. He wanted to keep a European connection for developers, and he had family in Europe. But a nine-hour gap between Copenhagen and San Francisco made no sense, and being close to Washington was key for US government customers, with the big financial institutions nearby too. He gave two reasons for not just staying in Europe: the sales momentum in the US, and that trust with US government agencies would have been harder as a European company. "We had to be US-based."

Mara: So the company's head moves to the customers and capital; the engineers stay home.

Eli: That's the split he describes. Engineering quality across Europe, he said, is better than most of the US. But senior sales and marketing leaders come from the West Coast's long history of high-growth companies. He put that talent pool at about ten times the East Coast's, and another ten times Europe's.

Mara: Engineering in Europe, the commercial engine in America.

Eli: And the pattern isn't his alone. Draghi wrote in 2024 that high-growth EU companies prefer to raise from US venture funds and scale in the US market, where they reach customers and profits faster. European Central Bank staff added in 2026 that US and other foreign investors may make it likelier that headquarters, talent and intellectual property leave the EU too.

Mara: So Europe builds the engine and someone else supplies the fuel. Those surveys on second chances already showed the nerve was there. The evidence indicates European founders start with world-class engineering and the same appetite for risk as Americans, and that gaps in growth capital at home, plus fragmented national company law, push their companies to the US to reach scale.

Eli: Which answers the listener. Europe struggles to grow giants because its own institutions hold back growth capital while twenty-seven national systems add friction, and the winners head across the Atlantic. Risk aversion doesn't hold up against the evidence. Investment runs short at scale, not at the start. And regulation is a real cost, with its weight still argued between two camps.

Mara: Spotify got big under these same rules. Brussels wants the next one less rare.

Eli: The centerpiece is the proposed 28th regime, nicknamed EU Inc.: one optional company form that works the same across the whole union, instead of twenty-seven. ECB staff say it could reduce legal fragmentation and make scaling across borders easier. Alongside it, in November 2025, the Commission put forward the Digital Omnibus, a proposal with targeted GDPR changes it says simplify rules without lowering data protection. Then on 24 April 2026, Parliament, Council and Commission signed a Joint Roadmap to remove barriers and deepen capital markets, with a deadline of the end of 2027.

Mara: Cecilia Bonefeld-Dahl measures the problem simply: only 8 percent of European companies trade across more than one border. "There is no scalable demand," she said.

Eli: So two signals to watch. Whether member states actually adopt EU Inc., so a company can incorporate once for the whole union. And whether capital market reforms push European pension funds well above the roughly 7 to 8 percent of venture funding they've supplied in recent years. Those two will show whether the next company built on European research gets to stay home.

Mara: A good place to dig in is commercial scale-up relocation.

Eli: Follow the economy with us as founders decide where to build global firms.

Mara: That's all for this one. I'm Mara.

Eli: And I'm Eli. Thanks for listening to Angle. Until next time.