Euroviews. Europe can produce its own tech giants — here’s how

Why does the EU fail to produce its own Google, Amazon or Facebook? Is Europe lacking entrepreneurship, technical savvy or simply imagination?

Contrary to what many think, the EU does even better than the US at creating high-tech start-ups; however, many European firms whither on the vine due to a lack of finance.

Yet a simple solution has been lying in plain sight for decades – we simply need to grasp it. The answer, as with a great many questions, is money.

In each of the past five years, the EU has created more high-tech start-ups than the US. Nonetheless, many of them fail to scale up, while some move to greener pastures on the other side of the Atlantic.

A root cause is that Europeans are timid investors, and many of us lack the financial sophistication to invest sensibly.

In the EU, 31 % of household savings remain in currency or deposits, versus 12 % in the US, leaving less scope for stocks and bonds in the union.

Largely as a result, and relative to GDP, the EU has twice as much money in its banks as the US and only half as much in capital markets for stocks. The same goes for bonds.

This is problematic for innovation. EU firms get some 80 % of their finance from bank loans — clearly, not the way to finance risky start-ups that typically have no established track record of earnings and whose assets are largely intangible and thus unsuitable to serve as collateral.

When we look at finance for start-up firms, the situation is even worse. The US has 20 times as much venture capital as the EU — €1.3 trillion, compared to a paltry €72 billion.

Funding for firms that aren’t yet ready to go public with an IPO receives — if they can obtain any venture capital or private equity funding at all — on average, only a fifth as