Fuelling Europe’s future: How venture capital drives innovation and growth

With billions invested in start-ups that tackle climate change and drive digital advances, Europe's VC industry is not just keeping pace—it's powering the EU's ambitions and setting the stage for a brighter future.

Eric de Montgolfier is the CEO of Invest Europe.

Innovation has never been more in focus, or more essential, for a successful and sustainable Europe.

The good news is that innovation is embedded in venture capital’s DNA, and that Europe’s VC industry is stepping up to the challenge. Across the continent, funds are being raised and invested in start-ups that improve lives and livelihoods, boost competitiveness, address climate change and the energy and digital transitions, and increase employment and wealth for European citizens.

Invest Europe’s focused venture capital report shows how the European start-up ecosystem is growing and evolving. It also demonstrates all the ways in which the industry touches and benefits Europe’s economy and society, from investment into start-ups that promise a better tomorrow for us all, to employment and job creation, and returns to long-term investors.

Venture capital funds invested in excess of €143 billion over the past decade into more than 26,100 start-ups across the continent, including a total of €16.5 billion across venture segments and VC-backed growth in 2023. Last year’s figure does reflect a slowdown on the levels recorded in 2021 and 2022, but nonetheless is higher than any pre-COVID year and is more than three times higher than the level recorded in 2014.

Fundraising has also grown exponentially, with VC firms raising €14.2 billion in 2023, representing 3.7x growth over ten years in France & Benelux, 3.4x in the Nordics, and 6.3x in Southern Europe. That increased supply of capital means that, at the end of 2023, VC funds had some €53 billion in dry powder available for investment, providing sizeable firepower to support more innovative start-ups.

The recent challenges of the global venture capital industry have been well documented, but it is clear – when viewed through a longer-term lens – European VC is on an upward trajectory.

The demand for venture capital among long-term investors is in large part due to the strong financial rewards it produces. European VC funds delivered annualised returns of 11.49% since records began back in 1986 to the end of 2023, clearly beating the MSCI Europe index on 8.05% for the same period (as well as the ACWI global benchmark). Over the past decade, performance has accelerated as the industry has come of age and the legacy of the dot.com crisis has receded. European funds generated net returns of almost 21% per annum over the ten years to 2023, outperforming funds from North America and the rest of the world.

There are far-reaching social returns also. Companies supported by venture capital employ over 1 million people in Europe and created 18% more jobs in 2022, streets ahead of the overall European job creation rate of 2%. Those jobs are coming in businesses across the continent, and in sectors that are naturally driving European innovation and advances, such as Information Communications Technology (ICT) and Biotech & Healthcare.

Our venture capital report shines a light directly on dynamic start-ups that are driving innovation and resulting in benefits that cascade through the economy and society. They include Endotronix, a digital health and medtech pioneer committed to tackling heart failure among millions of people around the world, and Evotix, a purpose-driven software business helping over 500 companies to improve their health & safety operations; and Shockwave, which exemplifies the ability of European VC firms to identify medical technologies with the potential to revolutionise heart disease treatment and improve patients' lives globally.

Europe has world-class universities and research institutions, talented and skilled engineers and scientists, gifted entrepreneurs, great European and global businesses, and a deep pool of institutional investors. But it could be making more of its natural attributes. Particularly if it is to compete with North America and Asia in scaling its technology champions, drive the green and digital transitions, and strengthen European sovereignty in transformative digital, clean energy, and defence technologies.

To that end, innovation must be prioritised, and the speed and scale of action must match the ambition. With Mario Draghi’s report calling for a “new industrial strategy for Europe” and the designated Commissioner for the Savings and Investment Union being tasked by President Von der Leyen with exploring how we can increase the availability of venture capital  it is fortunately clear that the forefront of EU policymakers see an urgent need for increased private investment not only to meet internal goals, but also to prevent Europe from falling further behind the US and China in terms of competitiveness.

We agree that venture capital is central to all these ambitions. The industry has grown rapidly over the last decade. It has created many excellent start-ups and brought many benefits to Europe's economy and society. With the right incentives, it can go much further. More capital can be attracted from pension funds and long-term investors who seek both returns and positive environmental, social and governance outcomes. This will drive more innovation, more world-leading start-ups and multiply the benefits for Europe as a whole.