Europe's startup scene sees an opening against Silicon Valley

Yahoo

14-05-2025

VIENNA — Alexander Schwartz wasn't expecting two veteran innovation investors to show up at his Klosterneuburg office this spring, asking how to plot their escape from the U.S. After two decades in Cambridge, Massachusetts, the pair had decided it was time to come home.
'They told me, 'It doesn't feel right over there anymore. Some of the opportunities are just gone,'' said Schwartz, who works at Xista, an innovation hub just outside Vienna.
'But they see a window of opportunity here,' Schwartz said of Europe.
President Donald Trump's return to the White House is starting to redraw the global tech map. As the U.S. tightens immigration rules and slashes research funding, Europe's startup scene — long overshadowed by Silicon Valley — is trying to seize a rare opening. From Vienna to Brussels, investors and policymakers see a chance to catch the talent, capital, and startups that once might have defaulted to the U.S. tech hub.
Schwartz isn't seeing a sudden flood of inquiries, and he doesn't expect U.S. researchers and founders to abandon ship overnight. But as someone connected to both the startup scene through Xista and the research community at the Institute of Science and Technology Austria (ISTA), which shares a campus and some resources with Xista, he's noticing the conversation shifting.​​​​​​​​​​​​​​​​ (Some reporting for this article was conducted as part of a journalism residency funded by ISTA).
'People who would normally go to the U.S., some of those are either scared away or don't have the opportunity anymore,' Schwartz said. 'That's where we can step in and redirect that flow of talent and entrepreneurial people into Europe.'
European governments aren't waiting for the talent to find them on its own. In Vienna, officials have fast-tracked efforts to turn Austria into a safe haven for U.S.-based researchers, offering accelerated hiring, research funding, and even proposing legal tweaks to make it easier for threatened scientists to land positions. Norway has launched a 100 million kroner (about $9.64 million) fund to actively poach top academics, while France, Belgium, and the Netherlands have opened new scientific asylum programs for scholars fleeing the Trump-era chill.
For Brussels, the Trump shock has added urgency to long-simmering debates about Europe's economic independence. In March, the European Commission announced its long-awaited Savings and Investments Union strategy, a plan to deepen the bloc's capital markets and make it easier for companies — especially startups — to raise money at home rather than fleeing to U.S. exchanges. The push builds on recommendations from the Draghi report, commissioned by European Commission President Ursula von der Leyen, which warned that Europe risks falling permanently behind unless it builds stronger homegrown tech and innovation ecosystems.
Padraig Nolan, an advisory board member at the Europe Startup Nations Alliance, said Europe's deeper challenge is self-inflicted: a fragmented market and a chronic failure to help startups scale.
'The Trump curveball has really hit the reset button on the global economy, and for Europe in particular it's even more important now to stop relying on tech providers from other regions,' said Nolan, also a nonresident fellow at Strategic Analysis and Policy Advice, or SAPA, a think tank focused on European competitiveness and innovation policy.
'We have great startups here, but the problem is getting them to scale,' Nolan said. 'The successful ones often move to the U.S., where the bigger rounds of funding are, and the pathways to scale are clearer.'
Europe's over-reliance on bank loans for startup financing has long been a drag, he said, with venture capital and private equity markets still shallow compared to what companies find across the Atlantic. Even European-born companies such as Spotify (SPOT) and Stripe had to look to the U.S. to scale, Nolan said, because that's where the bigger funding rounds are.
'If Europe's pension funds were investing in our own startups instead of sending 90% of that money abroad, that would be a game changer,' he said. 'But right now, we're still not there.'
The E.U.'s new Savings and Investments Union is meant to change that by finally creating a true Capital Markets Union — something Brussels has been promising since 2014. But Nolan warned that the same old hurdles remain — political gridlock, protectionism, and national governments reluctant to see their pension funds used to back startups in other E.U. countries.
For startups trying to grow beyond their home country, Europe's tangled bureaucracy remains a major headache. Nolan pointed to his own experience as an Irish founder based in Lisbon. Even to open an office in Germany, he said, entrepreneurs still have to show up in person, navigate local bureaucracy, set up a bank account, and sit through legal procedures. Germany still requires a notary to read all the company's legal documents aloud in German — even if the founders don't understand the language.
'It's not very logical,' Nolan said.
The burden of regulation is also weighing on Europe's startup ambitions. Nowhere is that more apparent than in artificial intelligence, where Europe has moved aggressively to impose rules on companies. But critics warn the E.U.'s approach risks smothering the very innovation it aims to guide. Alexandra Ebert, who works with policymakers and OECD working groups on AI governance,, said the E.U.'s ambitious AI Act is already creating new friction for startups.
'It's not only the GDPR or the AI Act,' said Ebert, who is also chief AI and data democratization officer at the Vienna-based startup MOSTLY AI. 'There's the Data Act, the Data Governance Act, the Digital Market Act, the Digital Services Act, basically 80 of these massive regulations and directives already in effect or about to be. They regulate AI, data, and the digital economy, and it's just way too complex for an economic ecosystem to thrive in.'
Europe's bet is that stricter rules will give its companies an edge in trustworthy AI. But Ebert warned that regulation alone won't close the innovation gap with the U.S. and China. 'Europe knows it can't rely on innovation from the U.S. and China alone,' she said. 'We need to build our own competency but there's still a lot of work to do to get there.'
She sees one potential game changer on the horizon: military spending. Russia's war against Ukraine has triggered a surge in European defense budgets, and Ebert believes this could become an unexpected catalyst for innovation. In the U.S., decades of military spending helped drive breakthroughs like the internet and GPS. Ebert said the same could happen in Europe — if governments rethink how they award contracts and bring startups into the fold.
'If Europe can channel that spending into building a broader ecosystem, not just funding incumbents, it could help kickstart the kind of innovation loop we've long been missing,' she said.
Despite Europe's push to stand on its own, the U.S. still casts a long shadow over the startup world. Ebert said most companies are in a wait-and-see position, reluctant to make new investments as U.S. instability ripples through global markets.
'There's a high degree of unpredictability,' she said, 'and this usually means that money is not as freely flowing as in a very stable economy.'
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