Europe ventures forward: Getting the scaleup of cleantech right

Europe's venture capital ecosystem faces a persistent and widening financing gap that threatens the continent's competitiveness in strategic sectors, particularly cleantech. The Jacques Delors Centre analysis identifies a fundamental structural problem: while Europe produces innovative companies, those seeking scale encounter severe obstacles accessing capital domestically. This funding constraint has triggered a brain drain, with high-potential European scaleups increasingly relocating to the US, where a mature, vibrant innovation finance ecosystem provides abundant risk capital to emerging companies.

The European VC sector is fundamentally undersized relative to requirements. Compared to other major jurisdictions, European VC consists of fewer and smaller funds, a condition perpetuated by institutional investor behavior. EU-based institutional investors rarely allocate capital to venture capital vehicles and predominantly favor established, larger funds domiciled in the United States. This capital allocation pattern starves European VC funds of the scale and resources necessary to support larger growth-stage companies, creating a vicious cycle that reinforces competitive disadvantage.

Public policy interventions to date have proven insufficient. The EU has largely avoided direct state investment in startups—a marked departure from historical US strategy and current Chinese practice, where government-controlled VC funds actively support industrial policy objectives. Instead, European policymakers have injected public capital into private VC funds, ceding investment decision-making authority to private managers. This indirect approach has failed to meaningfully close the scaleup financing gap, particularly in capital-intensive cleantech sectors where risk profiles exceed private investor appetite. The Series B funding gap—where European rounds average 20% below US equivalents—exemplifies this structural imbalance.

The policy framework requires three targeted reforms to unlock European capital markets for cleantech and strategic tech scaling. First, regulatory changes should permit EU institutional investors (pension funds, insurers, asset managers) to independently deploy capital into VC funds, broadening the investor base and increasing fund formation. Second, the European Investment Fund should explicitly strengthen sustainability and climate impact criteria for VC support, ensuring public capital targets mission-aligned investments. Third, the European Investment Bank should substantially expand direct equity investments in high-risk cleantech scaleups that private investors view as unsuitable, filling the gap between early-stage VC and later-stage institutional capital. The recent establishment of the Scaleup Europe Fund—positioned as a multi-billion late-stage vehicle targeting strategic technology sectors—signals institutional recognition of this imperative, though successful deployment will depend on execution alignment with cleantech priorities and risk tolerance calibration.