By Filippo Renga and Filippo Frangi
Superficially, European innovation and venture capital activity looks to be ticking along quite healthily. However, as Politecnico of Milan’s Filippo Renga and Filippo Frangi point out, the rather disquieting truth is that too few new companies are being founded in the region, which could portend problems ahead.
Beyond the demographic winter that Europe is already discussing, a second, quieter winter risks taking shape: an entrepreneurial one. When new firms stop being born in a sector or a region, that sector and that region begin to fade. Europe’s competitiveness debate has focused on scaling and capital, but the deeper risk is upstream: fewer founders, fewer experiments, fewer engines of renewal.
What is the entrepreneurial winter?
On the surface, Europe’s innovation narrative looks reassuring. Venture capital flows have stabilised after the post-pandemic correction; European VC reached roughly €52 billion in 2025, up 3.8 per cent year on year1. The European Commission launched its Startup and Scaleup Strategy in May 2025, and a multibillion-euro Scaleup Europe Fund is expected to start investing in spring 20262. Headlines about AI unicorns and deep-tech rounds reinforce the impression that the worst is behind us.
When new firms stop being born in a sector or a region, that sector and that region begin to fade.
Look one layer beneath the funding charts, however, and the picture changes. Data show that the rate at which Europeans actually create new companies has plateaued, while the gap with the United States and China keeps widening. According to the European Commission’s own assessment, roughly 30 per cent of European unicorns founded between 2008 and 2021 have relocated outside the Union, and only about 8 per cent of global scaleups are now headquartered in Europe. The Draghi report on European competitiveness named low startup activity, fragmented capital markets, and an unfavourable environment for venture investment among the structural drivers of the EU’s relative decline3.
This is the paradox of the moment: a noisy spring of announcements coexists with a silent winter of business creation. And, like every winter, its effects compound slowly, almost invisibly, until they become very hard to reverse.
Why new firms matter
It is tempting to treat startups and creation of new companies as a niche topic, matters for venture investors, accelerator websites, and pitch competitions. The economic literature suggests otherwise. A long line of research, from the OECD’s work on business dynamism to the studies behind the Schumpeterian view of growth, shows that young firms account for a relevant share of net job creation and productivity gains4. They introduce new business models, force incumbents to adapt and innovate, and promote the birth and development of talents.
The analogy with demography is not rhetorical. Just as a society without enough new births inevitably ages and shrinks, an economy without enough new firms inevitably loses its capacity to renew. The stock of existing companies on its own can hardly adapt fast enough to climate transition, digitalisation, AI-driven business model shifts, and changing consumer expectations. The value of entrepreneurship is not only financial. New firms anchor people, skills, and supply chains in their regions. They give graduates a reason to stay, attract returning expatriates, and provide local incumbents with partners for experimentation.
The European map with lights and shadows
Comparative data across major European countries reveal a striking unevenness. The United Kingdom alone accounted for over 30 per cent of the European total, with France and Germany around 14 per cent each. Northern and Western Europe together absorbed roughly 88 per cent of the value invested5. Mediterranean economies, despite their industrial base, attract a much thinner share. The result is a continent that looks innovative when viewed from London, Paris, Stockholm or Berlin, and noticeably less so from many of its other regions. The differences cannot be explained by population size or GDP alone; they reflect the cultural capacity of each country to generate business, not just to host it.
Beyond geography, the structural weakness is shared. European founders consistently report the same friction points: a fragmented single market that forces 27 separate compliance journeys, slow visa procedures for international talent, thin pools of late-stage growth capital, and exit options dominated by non-European acquirers and stock exchanges6. Each of these factors, taken alone, looks manageable. Combined, they raise the cost, psychological and financial, of starting and scaling a company in Europe to a level that the region’s peers do not face.
Three forces deepening the winter
Three forces, in particular, are amplifying the entrepreneurial winter and deserve closer attention from policymakers and corporates alike.
The first is cultural risk aversion. In much of Europe, failure still carries a stigma that the United States learned to convert into a credential decades ago. Surveys by the Global Entrepreneurship Monitor consistently show that fear of failure is a more frequent obstacle for would-be entrepreneurs in Europe than in North America7. This cultural layer interacts with weak safety nets for founders, tax regimes that discourage stock options, and education systems that rarely treat entrepreneurship as a mainstream career path.
The second is the structural composition of Europe’s economy itself. The continent’s productive base is dominated by established industrial firms, mid-sized champions, and family-owned businesses operating in heavily regulated sectors, a fabric that has delivered decades of strength and stability, but that is probably not fully suited to nurturing new entrants. Mid-sized and family firms tend to optimise for continuity, intergenerational control, and incremental innovation rather than disruptive bets. Dense sectoral regulation, while protective of quality and workers, raises the fixed cost of entry in ways that hit young firms disproportionately.
The third is financial polarisation. Capital is not absent from Europe; it is concentrated. A handful of late-stage AI and deep-tech rounds increasingly absorb the lion’s share of headlines and funding, while seed and pre-seed activity remains thin in many countries. The CFA Institute, drawing on Dealroom data, has documented how European firms rely far more on non-EU investors as they grow, with consequences for the eventual location of staff, research, and headquarters8. Without a dense base of early-stage activity, the funnel that should feed future scaleups simply runs dry.
Beyond imitation: A distinctly European approach
The instinctive reaction to Europe’s innovation gap is to copy the United States: more aggressive venture capital, more permissive labour markets, more West Coast-style consumer platforms. This is a debate worth having, but it is also a trap. The U.S. model emerged from a specific combination of deep capital markets, a unified domestic market of 330 million people, a particular research-funding architecture, and a cultural appetite for winner-takes-all dynamics. None of these conditions can be replicated quickly in Europe, and several of them carry social trade-offs that Europeans do not necessarily want to accept.
A more promising path is to build on what Europe already has. The continent hosts world-class manufacturing clusters, advanced healthcare and pharmaceutical players, leading sustainability and circular-economy expertise, and a research base that consistently ranks among the strongest in the world. These assets favour a different kind of entrepreneurship: deep-tech and industrial spin-offs, industrial B2B platforms embedded in regulated sectors, social entrepreneurship, and smaller ventures that combine technology with strong domain knowledge.
These reforms could let Europe compete on its own terms, through ecosystems that are sustainable, resilient, and grounded in long-term value creation, rather than through a race it cannot win on the U.S. playing field.
Several recent initiatives suggest the direction. The European Innovation Act, expected in 2026, the proposed 28th regime for pan-European incorporation, and the Scaleup Europe Fund are attempts to address scale at a level that the U.S. model achieves through a single market. Technology transfer strategies, linking research organisations to founders and entrepreneurship approaches, are gaining policy attention as a way to convert Europe’s scientific output into companies, not just papers. If properly implemented, these reforms could let Europe compete on its own terms, through ecosystems that are sustainable, resilient, and grounded in long-term value creation, rather than through a race it cannot win on the U.S. playing field.
What corporates, universities, and regions can do now
Reversing an entrepreneurial winter is not the responsibility of EU institutions alone. Three groups of actors carry particular weight.
Large corporates should treat startup collaboration as a strategic, not decorative, activity. Twelve years of work by the Startup Thinking Observatory at Politecnico di Milano in Italy show that Open Innovation is by now a widely used approach among large companies9. We often say: “Startups need customers first. Without customers, funding means nothing.” The next step is to move from pilots to genuine partnerships: venture clienting that gives young firms paying customers, co-development arrangements with clear IP terms, and corporate venture vehicles that share, rather than capture. Predatory behaviour and so-called innovation theatre, activity for its own sake, with no measurable outcome, accelerate the very winter we are trying to avoid.
Universities and research organisations hold one of the most underused levers. Incubators across Europe have shown that converting research and student ambition into companies is possible at meaningful scale, but the funnel is narrow. Closing the early-stage and proof-of-concept gap, through patient capital, EU Incs capable of operating freely around Europe, founder-friendly IP rules, and a stronger entrepreneurial track within research and doctoral education, also with patient corporate parenting, would do more for Europe’s innovation capacity than any branding campaign.
Finally, regions and cities need to take entrepreneurship as seriously as they take infrastructure or tourism. That means measuring new firm creation alongside GDP and employment, supporting local angel networks, attracting and retaining international founders through clear pathways, and tying public procurement to opportunities for young companies. The map of Europe’s startup density is clear; ecosystems that did not exist a decade ago (Lisbon, Tallinn, Warsaw, Athens) now host vibrant communities. The same can happen elsewhere if regional leaders decide that an entrepreneurial winter is not an acceptable future.
Conclusion
The risk of an entrepreneurial winter in Europe is not a forecast; it is a description of what is already happening in too many regions. The good news is that the levers are known: a deeper single market, more patient capital, healthier collaboration between corporates and startups, and a cultural shift that treats founding a company as a respectable, even desirable, path. Spring will not arrive by itself, but if Europe leans into its own industrial and scientific strengths, it can grow an entrepreneurial ecosystem that is recognisably, and resiliently, its own.
About the Authors
Filippo Renga, Coordinator for EU and International activities; Digital Innovation Observatories – Politecnico of Milan, Co-founder of the Digital Innovation Observatories of the School of Management of the Politecnico di Milano, where in 2001 he initiated and directed the Observatories on Mobile, Digital Innovation in Tourism, Fintech & Insurtech and Smart AgriFood. He is also coordinator of the EU and International Activities of the Research Center and Paths of Excellence at the Cremona Campus of the same university. He is also co-founder of five startups with a turnover to date of over €150 million.
