European VCs vs US VCs | Venture Capital | Momenta

Bridging the Innovation Gap: 

While Europe Lags—and How VCs Can Bridge the Gap

As Industrial Impact® venture capitalists, we at Momenta are acutely aware of the growing economic disparity between the U.S. and Europe. A recent analysis by Matthias Benz in NZZ highlights this gap, revealing that while the U.S. has surged ahead in productivity and innovation, only Switzerland has managed to keep pace. This divide presents a critical opportunity for European VCs to catalyze a more dynamic startup ecosystem and drive industrial transformation. As of today, the European Innovation Council has just announced its 2025 Work Programme, committing €1.4 billion to accelerate deep tech across Europe. This latest development underscores the urgency for European venture capitalists to harness public support and bridge the innovation gap.

The Transatlantic Innovation Divide: A Closer Look 

Benz's analysis provides compelling data that underscores the economic disparity:

• Economic Growth: U.S. per capita GDP is now 16% higher than Germany’s, adjusted for purchasing power, reflecting a more robust recovery and resilience in GDP growth.
• Productivity: The U.S. has regained its productivity lead over Germany, where growth has stalled, limiting Germany’s competitiveness.
• Corporate Dynamism: 66 of the world’s top 100 most valuable companies are now based in the U.S., up from about 54 two decades ago.
• Investment Trends: Post-pandemic, U.S. corporate investment surged, while German corporations have been more reluctant to invest, limiting industrial innovation in the region..

Yet, while Europe faces these challenges, recent data from Cambridge Associates and analysis by Dan Gray reveal that European venture capital has been quietly outperforming the U.S. in returns, with higher net annual gains over the past 5, 10, and 20 years. Craig S. Smith, writing in Forbes, also points out that Europe’s digital startup ecosystem has been growing twice as fast as that of the U.S., driven by increased public support and a shift in mindset among founders and investors. With the European Innovation Council’s increased investment and programs like the STEP Scale-up scheme, the region is signaling that it’s ready to close critical funding gaps and foster more scalable, high-impact innovation.

Europe’s Strengths and Untapped Potential 

Despite these challenges, Europe excels in several areas with significant potential:

• Cleantech Leadership: Europe is a leader in cleantech, with companies like Denmark’s Agreena advancing regenerative agriculture. The EIC has recognized the need to accelerate these efforts, dedicating €250 million in 2025 to support early-stage tech in cleantech, AI, and future mobility.
• Specialized AI Applications: European startups are pioneering in med-tech AI, industrial IoT, and climate tech, as shown by Germany’s Orbio Earth.
• Deep Tech and Advanced Manufacturing: Europe is making strides in deep technology and advanced manufacturing, with initiatives like the EU’s Horizon Europe program supporting innovation in AI, quantum computing, and robotics. EIC’s Pathfinder and Accelerator schemes will bolster such efforts, injecting over €360 million into groundbreaking projects that drive industrial transformation and European tech independence.

Momenta’s Take: Leveraging Europe’s Innovation Momentum for Global Impact

At Momenta, we believe that early-growth startups are the spark of industrial innovation—an effort we scale alongside established leaders like Rockwell Automation, Advantech, and Semtech, our Limited Partners and co-creators. Since 2012, this approach has guided 120 investments across 60 global startups, generating over $100 million in value with 18 exits through our Digital Industry funds.

With a portfolio spanning the U.S. and Europe, each region offers unique strengths. Europe’s deep technical talent and industrial R&D create a robust foundation for high-impact growth in cleantech, industrial IoT, and deep tech. The EIC’s 2025 budget, especially its €300 million STEP Scale-up scheme, creates further pathways for European startups to access the scale-up funding needed to achieve global competitiveness and impact. At the same time, the U.S. provides a dynamic landscape for scaling transformative technologies. By investing in groundbreaking companies across these critical regions, Momenta is advancing the next wave of industrial innovation and shaping the future of technology worldwide.

To support Europe’s unique potential, we see several strategic actions for European VCs:

• Champion a Unified Market: A more integrated regulatory framework will empower industrial startups to scale across Europe. The EIC Work Programme 2025 sets a model for pan-European support that simplifies cross-border scaling for tech startups, paving the way for a more cohesive European market.
• Foster a Risk-Tolerant Investment Culture: VCs can support transformative industrial tech and digital startups by embracing calculated risks. The EIC’s willingness to fund high-potential startups with investments of €10 to €30 million reflects a commitment to risk-tolerant, high-impact growth.
• Strengthen University-Industry Partnerships: Collaborating across academia, corporations, and startups can accelerate commercialization in crucial industrial sectors.
• Invest in Pan-European Innovations: Prioritize industrial tech startups with the potential to scale beyond national borders.
• Advocate for VC-Friendly Policies: Engage policymakers to create a more favorable landscape for industrial startups.
• Expand US-Europe Collaborations: Strengthen transatlantic ties through cross-border partnerships, joint venture funds, and accelerator programs. Cross-border collaboration can give European startups access to U.S. capital, industry connections, and market reach—key factors for scaling successfully.

The Time to Act is Now

Europe’s strengths lie in its technical talent, deep industrial R&D, and a growing culture of founder-driven ambition. The EIC Work Programme 2025 provides a framework for pan-European support, simplifying cross-border scaling for tech startups and promoting a more integrated European market. By embracing the challenges highlighted in Benz’s analysis, VCs can play a critical role in fostering sustainable growth and positioning Europe as a competitive force in industrial tech.

The opportunity is here, but the time to act is now. European VCs have a rare moment to shape a lasting legacy of innovation, industrial growth, and economic resilience across the continent. Together, we can make Europe a leading force in the next wave of industrial innovation.

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