The French government is leading an initiative to address the fragmented capital markets within the European Union (EU) to support the growing startup sector and reduce reliance on U.S. venture capital.
The effort aims to unify EU capital markets, which are currently constrained by national borders due to varying regulations and oversight. This fragmentation has led European startups, including those in France, to seek funding from U.S. venture capital firms.
The French Finance Minister emphasized the urgency of this situation, highlighting the need for progress to prevent startups like Mistral AI from seeking funding elsewhere. One proposed solution is to encourage public sector investors, such as the European Investment Bank, to take on more risk when financing startups.
Additionally, creating a more unified market in Europe could make it more appealing for European venture capital firms to list companies domestically rather than in the U.S., potentially providing a more stable investor base for startups.
While the U.S. funding is welcome, the result is a missed opportunity for Europe, said Matthieu Rouif, CEO of French startup Photoroom, which recently raised $43 million from UK fund Balderton and Silicon Valley’s Y Combinator.
“A huge amount of wealth has been created over the past 20 years, created off the back of tech innovation, and the fact Europeans don’t have access to that is a big issue,” he said at the Viva Technology fair in Paris last week.
The 10 biggest venture capital firms are all from the United States and dwarf their European rivals in the amounts of money they can raise for investment, according to the French central bank.
A report published by venture capital firm Atomico in 2023 estimated European startups would raise $45 billion that year, compared to the $120 billion raised in the U.S.
The French government is therefore pushing for the next European Commission to make a priority of reviving long-stalled plans for EU capitals market union harmonising financial regulations and supervision across the 27-nation bloc.
While a consensus is emerging among EU governments to move ahead at least in principle, in practice some remain reluctant to lose regulatory control of their financial markets.
French Finance Minister Bruno Le Maire warned that Europe could not afford to keep dithering, citing the example of Mistral AI, France’s answer to OpenAi.
“Mistral needs to raise money in the next six months, it’s going to be a lot of money. So either we move ahead with capital markets union or else they will go somewhere else,” Le Maire said at the Paris tech fair.
Another way to scale up EU venture capital would be to get public sector investors, such as the European Investment Bank, more involved in financing startups by accepting more risk than private investors, Bank of France Governor Francois Villeroy de Galhau said.
