There is a number that has been floating around European policy circles for the better part of two years: €1.4 trillion. That is roughly how much Europe is estimated to be falling short on investment every single year - not in total, not over a decade, but annually, right now. For comparison, the entire GDP of Spain is around €1.4 trillion. Europe is leaving that much on the table, every year, while watching the United States and China build the companies that will shape what people can afford, what jobs exist, and which governments get to set the rules.

The argument that kicked off a furious online debate recently came from Marek Rosa, the Czech entrepreneur behind GoodAI, who posted a tight diagnosis on LinkedIn: the real problem is not regulation, not a lack of money, not electricity prices. It is ambition. "The capital exists," Rosa wrote. "The will to bet it doesn't."

That post drew nearly 200 reactions and a pile of sharp pushback. And in the collision between those two positions - ambition as culture versus ambition as structure - sits one of the most important economic questions Europe has not yet answered.

The Background

To understand what is actually at stake here, it helps to know what venture capital is and why it matters. Venture capital - VC for short - is money that investors put into early-stage companies in exchange for ownership stakes. These bets are high-risk: most startups fail. But the ones that succeed can return ten or twenty times the original investment. The entire American technology industry was built on this model. Apple, Google, Amazon, Meta - all were venture-backed in their early years. The returns funded the next generation of bets.

Europe, by contrast, runs a different model. Its wealth sits largely in banks, bonds, and pension funds - steady, conservative vehicles designed to protect existing wealth rather than create new wealth. Pension funds are pools of money set aside to pay future retirees. In the United States, pension funds pour over 10 percent of their assets into private markets, including venture capital. In Europe, the equivalent figure is less than 0.1 percent.

That single data point explains an enormous amount. Pension funds in Europe collectively manage more than €3 trillion in assets. If just one percent of that were redirected into venture capital, it would inject roughly €37.5 billion into European startups every year - more than doubling the current total. That is not a political fantasy. It is math.

The gap showed up in a landmark 2024 report by Mario Draghi, former president of the European Central Bank, who was commissioned by the European Commission to diagnose why Europe was losing ground economically. His verdict was bracing. No European company with a market value above €100 billion has been built from scratch in the past fifty years. All six US companies now worth over a trillion euros were venture-backed. Europe, Draghi warned, faced an "existential challenge."

What Is Actually Happening

In 2025, global venture capital investment in artificial intelligence alone hit $258.7 billion, accounting for over 60 percent of all VC activity worldwide, according to the OECD. The United States captured 75 percent of that - $194 billion - while the entire EU27 attracted $15.8 billion, or about 6 percent. The UK, roughly the size of Italy, pulled in almost as much as the EU at $13.8 billion.

Europe's total venture haul in 2025 was around €66 billion, a modest 5 percent increase on the year before. Strip out AI investment, and the underlying market actually contracted by 5.7 percent, falling to €42.7 billion. The headline number was holding up only because of a surge into AI companies like Paris-based Mistral, which raised close to $2 billion led by Dutch chip-machine manufacturer ASML, and Freiburg-based image lab Black Forest Labs.

AI was the leading sector for European startup investment for the first time in 2025, with around $17.5 billion in funding, up from just over $10 billion in 2024. That sounds like progress. But in North America, venture investment soared 46 percent in the same year, driven by mega-rounds into AI companies. The gap is not closing. It is widening, at speed.

Meanwhile, European returns lag. The annual return on European venture funds in recent decades has averaged 8.6 percent, compared to 14.6 percent for US funds, according to research cited by CEPR. European funds return a multiple of 1.66 times invested capital on average; US funds return 1.79 times, emerging market funds 1.83 times. Lower returns make it harder to attract institutional money, which in turn limits the size of funds, which limits the size of bets, which limits the scale of companies. The cycle compounds.

This is the machine that Rosa's LinkedIn post was trying to diagnose. The original argument was that low ambition causes the capital problem. Many of the 47 comments pushed back: the capital problem causes the low ambition. Labour laws that make it expensive to fire workers make every hire a bigger bet, keeping European companies smaller and more cautious. A fragmented stock market - 27 national exchanges instead of one deep US-style pool - means founders have fewer credible exit paths. Without exits, investors cannot recycle gains into the next generation of startups.

The Money Trail

Follow where Europe's existing wealth actually sits, and the picture becomes stark.

Europe is not poor. European households and institutions hold roughly €50 trillion in savings. The problem is where those savings go. Most of it parks in bank deposits and government bonds - instruments designed to preserve capital, not grow it. The fraction reaching venture capital is, by any measure, negligible.

EU pension funds managed around €2.7 trillion in assets in 2023 but contributed just 5 percent of the capital raised by European VC funds. In the US, pension funds contribute more than 50 percent of VC fundraising. That asymmetry means American venture funds have access to enormous pools of patient, long-duration capital. European venture funds have to scrape together money from a much smaller set of willing investors, limiting how large any fund can get.

The allocation figure is almost comically small: roughly 0.12 percent of the more than €3 trillion in assets managed by European pension funds reaches venture and growth capital. Nordic funds are the most active, putting around $400 million to work - with 70 percent of that staying within their home markets. Southern and Central/Eastern European pension funds, held back by tighter regulations, contribute just $30 million across the region.

The structural incentives are misaligned in subtle ways. European pension systems still rely heavily on pay-as-you-go models - current workers fund current retirees - leaving fewer investable assets sitting in pools that could back startups. Those that do have investable assets face a patchwork of national regulations that make it difficult to pool capital across borders. A French pension fund cannot easily co-invest with a German one under a shared legal framework. A startup that needs a $500 million growth round - the kind that turns a promising company into a global category leader - often finds that Europe simply cannot assemble that check.

So the company moves. Or raises from US funds, which get the equity upside. Or stays small.

McKinsey estimates that in the five years to 2025, US firms invested €2 trillion more in digital technologies than their European counterparts. From January 2024 through September 2025, the annualized startup and scale-up investment gap ran to more than €300 billion. That is not a rounding error. That is the difference between building the next generation of valuable companies in Europe versus watching them get built somewhere else.

What People Are Doing About It

Governments are beginning to move, though slowly and with the fragmented coordination that characterizes most EU policy efforts.

France has run a program called Tibi - recently expanded to Tibi 2 - that encourages institutional investors to commit to technology funds. Germany has its ZuFinG II initiative, aimed at making it easier for insurers and pension funds to put money into private markets. Italy has introduced tax exemptions for pension funds investing in venture capital.

At the European Parliament level, MEP Damian Boeselager has proposed a "calibrated mobilisation requirement" that would oblige pension schemes with more than €1 billion in assets to allocate at least 2 percent to venture capital. The proposal is contested - mandating investment allocations is a politically sensitive idea - but it signals the urgency now attached to the problem.

The European Commission's Competitiveness Compass, launched in 2025 and directly inspired by the Draghi report, has mobilized over €1 trillion across innovation, clean tech, and security initiatives. As of September 2025, only 11 percent of the 383 recommendations in the Draghi report had been fully implemented, with another 20 percent partially done. The machinery moves slowly.

Meanwhile, individual funds are getting larger. Atomico raised $1.24 billion, Lakestar raised $1 billion, Northzone continues building US-scale vehicles for European startups. PitchBook data shows that eleven new unicorns - companies valued at over $1 billion - were minted in Europe in Q1 2026 alone, putting the continent on pace for its strongest year since 2021. Later-stage valuations rose sharply, suggesting money is concentrating in perceived winners. The market is bifurcating: a few companies getting very large rounds, and everyone else struggling to raise at all.

In Central and Eastern Europe, countries like Estonia, Latvia, Lithuania, and Poland are emerging as relative bright spots - lower costs, strong engineering cultures, and governments more openly friendly to startup formation. Vietnam and Singapore, as Rosa's post noted, are now offering AI talent salaries of $300,000 to $350,000. Southeast Asian nations with average incomes under $5,000 a year are finding ways to compete for the same researchers that Europe keeps losing to California.

The Bottom Line

Europe is not short of money. It is short of a system that routes money toward high-risk, high-return bets at scale. The capital sits in pension funds, insurance companies, and savings accounts - instruments built to protect, not to grow. Fixing that requires changes that are structural rather than motivational: deeper capital markets, harmonized cross-border investment rules, and institutional frameworks that make it rational for a pension manager in Munich or Milan to back a startup in Tallinn. The cultural debate - are Europeans simply less ambitious? - obscures the more actionable question. The plumbing is broken. The will to fix it is there, slowly. Whether the pace matches the problem is a different question entirely.

Timeline

  • September 2024 - Mario Draghi publishes his landmark report on European competitiveness, identifying an annual investment shortfall of €800 billion and warning Europe faces an "existential challenge"
  • October 2024 - The Letta report on the EU Single Market calls for a "fifth freedom" covering research, innovation, and education
  • January 2025 - McKinsey and the World Economic Forum estimate the required annual investment figure has risen to €1.2 trillion, driven by increased defense spending
  • October 2025 - A report by Venture Connections, European Women in VC, and Pensions for Purpose finds that European pension funds allocate just 0.12 percent of €3 trillion in assets to venture capital
  • September 2025 - The Draghi Observatory finds only 11.2 percent of the report's 383 recommendations have been fully implemented one year on
  • November 2025 - ECB President Christine Lagarde endorses domestic reform aspects of the Draghi report
  • January 2026 - OECD data confirms the US attracted 75 percent of global AI venture capital in 2025, with the EU taking just 6 percent
  • January 2026 - European total venture funding for 2025 reaches €66.2 billion - only 22 percent of the US total, despite the two economies being roughly equal in size, according to CEPR analysis
  • March 2026 - S&P Global reports that European pension VC mandates rose 64 percent in 2025 to $485 million - still a fraction of the US total of $9.25 billion
  • May 2026 - PitchBook data shows Europe minted 11 new unicorns in Q1 2026, on pace for its strongest year since 2021, but with capital concentrating in AI and late-stage winners
  • June 2026 - Marek Rosa, CEO of GoodAI, sparks debate on LinkedIn by arguing that Europe's real problem is low ambition and risk-taking appetite, not regulation

Summary

Who: European technology founders, institutional investors (pension funds, insurers), venture capital firms, and policymakers across the EU.

What: A structural gap between Europe's accumulated wealth and its willingness to direct that wealth into high-risk, high-growth investments - particularly in artificial intelligence and technology. Europe's pension funds allocate just 0.12 percent of €3 trillion in assets to venture capital; US pension funds allocate over 10 percent of assets to private markets and contribute more than 50 percent of VC fundraising.

When: The gap has been building for decades but has become acute since 2022, as AI investment supercharged US and Chinese VC activity while Europe's underlying venture market excluding AI contracted in 2025.

Where: Across the EU27 and UK, with particular starkness in Southern and Central/Eastern European markets where regulatory constraints limit pension allocations to $30 million in venture capital annually. Paris, Stockholm, and Berlin capture two-thirds of Europe's AI venture funding between them.

Why: A combination of fragmented capital markets, pay-as-you-go pension structures that leave fewer investable assets, cross-border regulatory patchwork that makes large co-investments difficult, lower historical returns that deter institutional capital, and labour laws that raise the cost of risk-taking at the company level. The result is a continent that generates strong science and engineering talent but consistently fails to turn that talent into globally scaled companies.

Written by Luís Rijo. The Spend publishes one story a day. No advice. No jargon. Just the economic logic behind the prices, the deals, and the decisions that shape what people can afford. Reach out via luis@ppc.land - thespend.net