From OpenAI to Deepseek to Perplexity, a brand new wave of AI firms have grow to be family names prior to now yr. These innovators have grow to be synonymous with the fast-moving technological revolution within the U.S. and China. In distinction, Europe typically seems to be a 3rd wheel.

The continent is burdened by innovation-dampening excessive taxes, paperwork, and sluggish development of simply 0.2% in Q2. Towards a backdrop of macroeconomic headwinds, the PitchBook Q2 2025 European Enterprise Report confirmed that fundraising hit a document low within the first half of the yr, at the same time as choose sectors like AI and defence noticed funding.

But there may be large potential for European startups to push the obstacles of know-how if the fitting insurance policies are in place. In spite of everything, Europe has a robust basis of high universities, monetary hubs, innovation centres, and a large mixed market of 500 million customers.

To place the continent again within the race for future know-how management, there must be a proactive and coordinated coverage response to scale back friction and enhance early-stage development. A number of key steps must be taken to deal with this.

1. Simplify entry to grant funding

Grant funding is important for startups, providing non-dilutive capital that extends runway and de-risks preliminary growth. It additionally lends credibility to help future funding rounds. In a latest investor survey we carried out, it was named because the primary change governments might make to help innovation.

But the grant software course of is commonly complicated and time-consuming. Startups wrestle to determine which grants they’re eligible for amidst a mountain of advanced paperwork.

To handle this, governments throughout the EU ought to be taught from rising startup hubs like Singapore. It’s nationwide champion, Singapore’s Startup SG, has efficiently streamlined entry to grant funding, enhancing consciousness and simplifying the applying course of. By adopting this mannequin, European governments can supply an analogous lifeline for startups.

2. Improve the R&D tax credit score system

R&D tax credit are important for de-risking innovation, but the method in Europe is simply too typically prolonged, opaque, and requires expensive third-party advisors. This diverts cash away from the very innovation the coverage is supposed to help.

Whereas European R&D spending is rising, its R&D depth continues to be under that of its key opponents. In 2023, the EU’s R&D expenditure as a share of GDP was 2.22% whereas the UK’s was 2.77%. That is nicely under the ratios recorded in the US (3.59%) and South Korea (4.85%).

As a begin throughout Europe, there must be a dedication to elevating funding in R&D to match the perfect performers on this planet. This might ship out a robust sign to companies that Europe backs innovation.

Secondly, nationwide treasuries might simplify the method, so startups can file claims instantly reasonably than utilizing third-party advisors. This would cut back the burden on startups, making certain 100% of the rebate is reinvested into product growth and development.

3. Promote nationwide startup tax incentive schemes throughout Europe

The Seed Enterprise Funding Scheme (SEIS) and the Enterprise Funding Scheme (EIS) have been cornerstones of the UK’s vibrant startup ecosystem for many years. These schemes considerably mitigate the excessive threat of early-stage funding via beneficiant tax reliefs. Our common interactions with UK buyers present this reduction is commonly the first cause they again startups.

Related government-backed initiatives exist throughout Europe. For instance, Eire affords the Employment & Funding Incentive (EII) scheme, which features equally to the UK’s EIS. In France, “JEI, JEIC and JEIR” (differentiated by innovation sort and funding limits) are all tailor-made to reward early-stage and deeptech funding. Germany’s “INVEST” scheme affords a grant programme for enterprise angels and is out there to everlasting residents in any EEA nation, encouraging cross-border angel investing.

Regardless of their success, these schemes stay an under-utilised device for increasing the pool of angel buyers, and governments have a big alternative to do extra. By launching nationwide consciousness campaigns, they might assist educate a wider viewers of potential buyers concerning the monetary advantages.

This might encourage extra aspiring buyers to take their first step into angel investing, supporting a broader and extra resilient funding ecosystem.

4. Introduce startup-specific tax reduction

One of many greatest struggles for brand spanking new startups, and a number one reason behind their failure, is money circulate. Nonetheless, as mentioned, many present help mechanisms, corresponding to grants and R&D tax credit, are sometimes advanced and sluggish to ship. Because of this startups beneath monetary strain want to attend a very long time to learn from them.

Governments ought to take into account offering focused tax breaks to ease monetary strain throughout a startup’s essential early levels. By delivering help when it’s wanted most, such insurance policies might help these promising ventures survive and, finally, thrive.

5. Put money into founders’ training and abilities

Whereas many startup founders are sensible innovators, they typically lack the sensible abilities wanted to scale a enterprise efficiently. It is a important hole, particularly given {that a} latest Eurobarometer survey discovered a outstanding 46% of younger Europeans aged 15-30 would take into account beginning their very own enterprise. The need to innovate is there, however the “playbooks” for entrepreneurial success aren’t broadly obtainable.

Current help buildings like accelerators, incubators, and mentoring programmes play a large function, however a extra systemic change is required. Our present training programs are largely designed for the Industrial Revolution, however to thrive within the coming AI revolution, we have to overhaul them totally.

This could contain equipping the subsequent era with the abilities wanted to construct dynamic firms. Not solely instructing an understanding of the fundraising course of, but in addition the psychological resilience required to run a enterprise, plus essential enterprise abilities like advertising and HR. By embedding entrepreneurial training from an early age, we will construct a stronger, extra modern Europe from the bottom up.

6. Make expertise acquisition simpler

Each startup wants nice individuals to develop. However when demand outstrips home provide, particularly in technical roles, startups can not compete with massive firms on hiring energy. Within the UK, there was a well-known exodus of value-generating firms transferring to the USA, Dubai and Singapore, the place a wider expertise pool and extra beneficial startup setups exist. Nice European companies like Revolut, Spotify and Dyson have needed to transfer, which means the worth has been realised in different international locations reasonably than in Europe.

Governments might assist sort out a few of these points by simplifying visa routes for expertise exterior the continent or making a fast-track system for important startup hires. This might assist to create a extra stage enjoying area, making certain firms can usher in high world expertise after they want it most.

I don’t fake to have all of the solutions, however I hope this text will get individuals excited about how we will shake issues up and cement Europe’s place as a world startup chief.