To Compete in the Global Economy, Europe Needs to Boost Its VC EcosystemSKIP TO CONTENTHarvard Business Review LogoHarvard Business Review LogoEntrepreneurship|To Compete in the Global Economy, Europe Needs to Boost Its VC EcosystemSubscribeSign InLatestMagazineTopicsPodcastsStoreReading ListsData & VisualsCase SelectionsHBR ExecutiveSearch hbr.orgSubscribeLatestPodcastsThe MagazineStoreWebinarsNewslettersAll TopicsReading ListsData & VisualsCase SelectionsHBR ExecutiveMy LibraryAccount SettingsSign InExplore HBRLatestThe MagazinePodcastsStoreWebinarsNewslettersPopular TopicsManaging YourselfLeadershipStrategyManaging TeamsGenderInnovationWork-life BalanceAll TopicsFor SubscribersReading ListsData & VisualsCase SelectionsHBR ExecutiveSubscribeMy AccountMy LibraryTopic FeedsOrdersAccount SettingsEmail PreferencesSign InHarvard Business Review LogoEntrepreneurshipTo Compete in the Global Economy, Europe Needs to Boost Its VC Ecosystem by Josh LernerJanuary 20, 2026HBR StaffPostPostShareSavePrintSummary.   Leer en españolLer em portuguêsPostPostShareSavePrintGovernments worldwide recognize the importance of promoting high-potential start-ups and the institutions that fund them. Europe is no exception. In 2024, Mario Draghi, a former President of the European Central Bank and one-time Italian Prime Minister lamented in an influential report on European competitiveness that “no EU company with a market capitalization over EUR 100 billion…has been set up from scratch in the last fifty years, while all six U.S. companies with a valuation above EUR 1 trillion have been created in this period.”Josh Lerner is the Jacob H. Schiff Professor of Investment Banking at Harvard Business School. His most recent book is The Architecture of Innovation: The Economics of Creative Organizations (Harvard Business Review Press, 2012). He is the author of “Corporate Venturing” in the October 2013 issue of HBR.PostPostShareSavePrintRead more on Entrepreneurship or related topics Venture capital, Entrepreneurial finance, National competitiveness, Financial markets, Economic systems, Government policy and regulation, IPOs, AI and machine learning and InnovationPartner CenterStart my subscription!Explore HBRThe LatestAll TopicsMagazine ArchiveReading ListsCase SelectionsHBR ExecutivePodcastsWebinarsData & VisualsMy LibraryNewslettersHBR PressHBR StoreArticle ReprintsBooksCasesCollectionsMagazine IssuesHBR Guide SeriesHBR 20-Minute ManagersHBR Emotional Intelligence SeriesHBR Must ReadsToolsAbout HBRContact UsAdvertise with UsInformation for Booksellers/RetailersMastheadGlobal EditionsMedia InquiriesGuidelines for AuthorsHBR Analytic ServicesCopyright PermissionsAccessibilityDigital AccessibilityManage My AccountMy LibraryTopic FeedsOrdersAccount SettingsEmail PreferencesHelp CenterContact Customer ServiceExplore HBRThe LatestAll TopicsMagazine ArchiveReading ListsCase SelectionsHBR ExecutivePodcastsWebinarsData & VisualsMy LibraryNewslettersHBR PressHBR StoreArticle ReprintsBooksCasesCollectionsMagazine IssuesHBR Guide SeriesHBR 20-Minute ManagersHBR Emotional Intelligence SeriesHBR Must ReadsToolsAbout HBRContact UsAdvertise with UsInformation for Booksellers/RetailersMastheadGlobal EditionsMedia InquiriesGuidelines for AuthorsHBR Analytic ServicesCopyright PermissionsAccessibilityDigital AccessibilityManage My AccountMy LibraryTopic FeedsOrdersAccount SettingsEmail PreferencesHelp CenterContact Customer ServiceFollow HBRFacebookX Corp.LinkedInInstagramYour NewsreaderHarvard Business Review LogoAbout UsCareersPrivacy PolicyCookie PolicyCopyright InformationTrademark PolicyTerms of UseHarvard Business Publishing:Higher EducationCorporate LearningHarvard Business ReviewHarvard Business SchoolCopyright ©2026 Harvard Business School Publishing. All rights reserved. Harvard Business Publishing is an affiliate of Harvard Business School.

Europe’s competitive positioning within the global economy faces a critical challenge: the scarcity of large, homegrown companies, particularly those with valuations exceeding EUR 100 billion, over the past fifty years. This deficit is starkly highlighted by former European Central Bank President and Italian Prime Minister Mario Draghi in a 2024 report, which observed that while six U.S. firms have achieved a market capitalization surpassing EUR 1 trillion since 1974, not a single European firm has reached this level of success originating from a startup. Josh Lerner, Jacob H. Schiff Professor of Investment Banking at Harvard Business School, emphasizes this issue through his research and writing, including his book “The Architecture of Innovation: The Economics of Creative Organizations” (2012) and his earlier HBR article “Corporate Venturing” (2013), and argues that strengthening the continent’s venture capital (VC) ecosystem is paramount to addressing this disparity.

Lerner’s analysis centers on the fundamental economics of innovation and creative organizations. He posits that the absence of European unicorns – companies with valuations of over USD 1 billion – is not merely a coincidence but a reflection of structural weaknesses within the continent’s financial landscape, specifically concerning VC investment. The core of the problem lies in the relatively small size and limited capacity of European VC funds compared to their U.S. counterparts. U.S. VC funds, often fueled by a deeper and more readily available pool of capital, have historically been significantly larger, enabling them to invest in a greater number of high-potential startups and support their growth through multiple funding rounds. This scale advantage allows U.S. VC firms to tolerate higher failure rates – a natural consequence of investing in nascent ventures – and still generate substantial returns, ultimately attracting further investment.

Furthermore, Lerner identifies shortcomings in the regulation and governance of European VC investment. European regulations, often designed with a more cautious approach to risk-taking, can inadvertently stifle innovation by imposing stricter requirements on VC funds, limiting their ability to deploy capital quickly, and increasing the administrative burden associated with fundraising and investment decisions. This contrasts with the comparatively more flexible regulatory environment in the U.S., which allows for greater entrepreneurial dynamism and quicker capital flows. The concentration of VC activity in a smaller number of larger funds within Europe also contributes to this disparity, reducing the diversity of investment strategies and potentially limiting the opportunities for smaller, early-stage ventures.

The scarcity of capital available for VC investment in Europe is closely linked to the structure of financial markets. European banks and institutional investors tend to be more conservative in their lending practices, and the overall financial system is characterized by a lower proportion of equity financing compared to the U.S. This can make it more difficult for European startups to secure the substantial amounts of capital needed to scale their operations and compete effectively in the global marketplace. Lerner’s research suggests that a concerted effort to increase the availability of VC funding, combined with regulatory reforms to promote greater risk-taking and competition, is essential for Europe to develop a more robust and dynamic ecosystem capable of producing the next generation of global technology leaders. The transition requires a fundamental shift in the perception of risk within European financial markets, moving away from a highly regulated, cautious approach towards one that embraces innovation and supports the growth of high-potential startups.