Rethinking innovation financing in Europe and empowering startups for the future

The European Union allocates €225 billion to innovation funding, but startups – the real drivers of innovation – receive only 5% of this. As highlighted in the report Startup backed by the EU's Framework Programmes , this imbalance raises urgent concerns about Europe's ability to remain competitive in a global market driven by agility and creativity. Too much funding supports consortia of research institutes and large companies, which are often mired in bureaucracy and lack the urgency to commercialise their results. Instead, the incentives for academia lie in writing papers and filing patents, to the point of preventing others from commercialising their innovations. Many research institutes thrive on a cycle of grants without delivering tangible social or economic benefits, while startups face a maze of obstacles: complicated application processes, multinational consortium requirements and restrictions on individual applicants. These obstacles deter the very innovators who are poised to drive Europe's economic growth.

Funding universities rather than startups creates additional obstacles to bringing innovations to market. Grant agreements grant universities intellectual property, making it harder for researchers to create successful companies. Technology transfer offices complicate matters by demanding large stakes in spin-offs, which stifles entrepreneurial efforts. Meanwhile, direct grants to startups are insufficient—while they fund R&D, they exclude commercialization, the critical step in bringing innovations to market. Without the resources to scale, startups are left adrift once they have developed breakthrough ideas. Europe’s underdeveloped venture capital ecosystem compounds this problem, with European venture capital funds raising six times less funding than those in the US. This disparity hurts Europe’s economic growth—while its GDP equaled that of the US in 2008, the US economy is now almost twice as large.

However, efforts to improve grant funding are already underway, with the European Innovation Council (EIC) emerging as a strong instrument to support high-impact startups. Furthermore, the Draghi report and recent statements by European Commission President Ursula von der Leyen signal a shift in EU budgetary priorities, with more resources expected to be allocated to startups and the EIC. These developments suggest that policymakers are beginning to recognise the vital role that startups play in driving economic growth and technological advancement. If these commitments translate into concrete action, Europe could see a significant shift towards a more startup-friendly funding landscape.

By addressing structural inefficiencies in grant funding and increasing investment in venture capital, Europe can unlock its full potential as a global innovation leader. With a growing focus on startups in the next EU budget and a growing venture capital ecosystem, the continent is well-positioned to accelerate its economic growth. If these trends continue, Europe could transform its innovation landscape, ensuring that innovative ideas are not only developed but also successfully commercialised, creating new global champions.

Founder & CEO at Dealflow.eu