May 27 2024: France is championing a renewed effort to integrate the European Union’s fragmented capital markets to provide the necessary scale for supporting its burgeoning startup sector, reducing reliance on dominant U.S. venture capital, according to ministers, CEOs, and investors.
Currently, a patchwork of local regulations and oversight keeps Europe’s financial markets confined within national borders, hindering the development of deep capital markets comparable to those in the U.S. As a result, startups in France and other EU countries often turn to U.S. venture capital for growth, due to the lack of substantial local investors.
Challenges with the Current System Matthieu Rouif, CEO of the French startup Photoroom, which recently secured $43 million from the UK fund Balderton and Silicon Valley’s Y Combinator, highlighted the missed opportunities for Europe. He pointed out that significant wealth has been generated through tech innovation over the past two decades, but Europeans largely lack access to these gains.
The French central bank notes that the top ten venture capital firms are all U.S.-based, overshadowing their European counterparts in fundraising capabilities. In 2023, European startups were expected to raise $45 billion, far behind the $120 billion anticipated in the U.S., according to a report by venture capital firm Atomico.
France’s Strategic Push To address this gap, the French government is advocating for the next European Commission to prioritize the long-delayed plans for an EU capital markets union. This union would harmonize financial regulations and supervision across the 27-nation bloc. While there is a general consensus among EU governments to move forward, some countries remain hesitant to cede regulatory control of their financial markets.
French Finance Minister Bruno Le Maire emphasized the urgency, citing Mistral AI, France’s response to OpenAI, which needs substantial funding in the coming months. Le Maire warned that without progress on the capital markets union, companies like Mistral AI might seek funding elsewhere.
Public Sector Involvement and Market Unity François Villeroy de Galhau, Governor of the Bank of France, suggested that public sector investors, like the European Investment Bank, should take on more risk than private investors to support startups. Additionally, a unified market would make it more appealing for European venture capital firms to list their funded companies in Europe rather than the U.S.
Antoine Moyroud from Silicon Valley venture capital fund Lightspeed, an investor in Mistral AI, expressed disappointment that Europe’s value creation isn’t as rapid as in the U.S. Meanwhile, Louis Dussart of RTP Global noted that European startups listing domestically could benefit from a more stable investor base compared to the U.S., where investors are more likely to divest from foreign firms during downturns.