In September 2025, Europe’s top artificial intelligence lab, Mistral, closed a €1.7bn Series C funding round. While media coverage focused on the size of the round, the most relevant detail was who wrote the check. ASML, the Dutch semiconductor equipment manufacturer, took an 11% equity stake in the company.
This transaction is one clear illustration of a broader pattern in European finance. In this case, Europe’s largest hardware company stepped in as a venture capital investor while the €15trn managed by European pension funds and insurers remained mostly on the sidelines. When an industrial equipment manufacturer fills the gap for software scale-ups, it shows how the growth capital deficit can function as an ownership chokepoint.
This pattern is visible across Europe's deep-tech sector. In Germany, Freiburg-based Black Forest Labs raised $300m at a $3.25bn valuation for its AI image models. That round was co-led by American investors, with essentially no European institutional capital involved. Even though European AI startups raised over $21bn in 2025 overall, the large late-stage checks come primarily from Silicon Valley and Singapore.
Anatomy of the Capital Wall
Europe does not have an innovation problem; it has a growth capital problem. European universities, research grants, and early-stage funds create startups at a rate comparable to the United States. The deficit occurs later, around Series B and Series C, where domestic checks above €50m are rarely available.
The scale of this deficit is significant. According to the Jacques Delors Centre citing European Central Bank data, EU pension funds allocate roughly 0.02% of their assets to venture capital, compared to almost 2% for US public pensions. Writing in Les Échos, economist Philippe Tibi calculated that out of Europe’s €15trn institutional savings pool, the total share allocated to venture capital is below 0.05%. In the US, institutional funds deploy 1% to 3% into this asset class. Much of the small European allocation that exists flows into US funds rather than domestic ones, which is why the structure of the vehicle matters as much as the size of the mandate.
In his 2024 report on European competitiveness, Mario Draghi highlighted that nearly 30% of European unicorns founded between 2008 and 2021 relocated their headquarters abroad. This development largely reflects the limited availability of domestic growth capital.
Crucially, this cannot be attributed to poor asset returns. Data from Invest Europe and Cambridge Associates shows that European venture capital has matched or outperformed US venture capital over 10-year and 15-year horizons. The issue is not asset performance, but institutional allocation behavior.
How US Rules Reach European Firms
When European deep-tech, defence, or quantum companies rely on American growth capital, they do not only sell equity. They also take on the compliance obligations their investors carry.
The mechanism is contractual rather than direct. US investment funds face strict civil liability under the US Treasury Department's OFAC framework for the conduct of their portfolio companies, including where the fund had no knowledge of it. Because the American investor carries that exposure, it requires its European portfolio companies to run corresponding US sanctions and trade compliance programs. The obligation travels through the investment agreement and the board seat.
A separate and stronger channel runs through technology rather than ownership. Under the Export Administration Regulations, a foreign-made product falls under US jurisdiction if US-origin controlled content exceeds 25% of its value, or if it was produced using certain US technology, software, or equipment. This second test, the foreign direct product rule, applies even when the item never enters US commerce and no US person is involved.
The reach of this extraterritorial jurisdiction was outlined in March 2024, when the US Department of Justice, the Commerce Department, and OFAC jointly published a Tri-Seal Compliance Note. This document detailed the mechanisms used to hold non-US entities accountable under American sanctions and export control laws, even for transactions taking place outside US borders.
This dynamic leads to secondary effects, with scale-ups preemptively adapting to US rules. European scale-ups with Silicon Valley growth funds on their boards adjust their hiring, supply chains, customer bases, and market access to remain aligned with Washington’s regulatory parameters long before formal legal enforcement occurs. By failing to finance domestic companies past Series B, Europe cedes governance and strategic control over its critical technologies.
Rethinking Long-Term Savings
European governments have recognized this failure and attempted national solutions. France’s Tibi initiative has directed over €15bn into domestic tech funds since 2020, with a new phase targeting €15bn by 2030. Germany launched its WIN initiative to mobilize €12bn by 2030, while Finland uses its state-owned fund Tesi to co-invest alongside private funds.
However, these piecemeal national efforts are small relative to the total European savings gap. The main political debate has shifted to the European Parliament, where policymakers are addressing the legal scope of fiduciary duty.
Within the current IORP II review, MEP Boeselager proposed incentivizing or requiring a 2% venture capital allocation for occupational pension schemes managing over €1bn. Industry associations like PensionsEurope resist mandatory quotas, preferring softer "comply or explain" mechanisms. Nevertheless, this debate addresses the core question for European policy: whether directing private retirement capital toward strategic domestic assets is a legitimate tool of economic statecraft or an unnecessary risk for savers.
Parallel discussions are taking place in the ECON committee on EuVECA and AIFMD frameworks. Unlike physical trade chokepoints or maritime bottlenecks, Europe’s growth capital gap is a result of regulatory choices, meaning it is politically reversible. The question is not whether Europe can build the technologies of the future, but whether it is willing to own them. Until domestic pension capital is allowed to anchor scale-ups, Europe will continue to generate world-class ideas while leaving their long-term direction to others.
