Europe’s technology ecosystem stands at a turning point. While this ecosystem has matured significantly over the past decade, persistent structural barriers—fragmented markets, conservative corporate norms, and a slower flow of late-stage capital relative to early-stage investment—continue to constrain the region’s ability to scale global champions. However, a rare alignment of geopolitical, regulatory, and technological shifts is creating new momentum and, with it, a window to build global leadership.
This report offers an insider’s perspective of what is working and where targeted shifts could meaningfully accelerate the growth and success of start-ups and scale-ups. Produced jointly by McKinsey and Boardwave,1 the report is grounded in firsthand insights from conversations with more than 30 European tech founders, CEOs, investors, and ecosystem leaders, along with Boardwave’s annual member survey. The findings are further sharpened by an analysis of the continent’s top-performing and fastest-growing software companies: those reaching more than €100 million in annual recurring revenue (ARR) within ten years or more than €500 million ARR in 20 years.
Taken together, the research findings indicate a striking consensus: What’s missing is not raw ingredients; Europe has world-class talent, growing capital pools, and committed institutions. Rather, what’s needed is the coordinated mobilization to set in motion the continent’s innovation flywheel to catalyze entrepreneurship, attract more risk-taking investment, and reach critical mass for turning these foundations into global outcomes. This is a moonshot moment, a rare point in time where the right vision, aligned resources, and decisive action could position Europe’s start-ups to lead in the next wave of technological and industrial innovation.
To seize the moment, ecosystem players can consider a set of priority actions centered on four ecosystem levers: leadership, incentives, focus, and teaming (LIFT). These actions include key strategies for founders and CEOs. They also include critical support that institutions (including governments, universities, and corporations), investors, and industry groups may consider, providing a shared agenda to turn today’s momentum into sustained scale.
- Leadership strengthens the culture to prioritize scale and long-term growth. For founders and CEOs, that means assembling a diverse, growth-oriented management team and board of directors that can embed risk taking into company culture. For institutions, investors, and other ecosystem players, it can include providing more strategic guidance for scaling, including playbooks with best practices and support for pan-European innovation initiatives.
- Incentives align financial structures to reward long-term, innovation-driven growth. The research suggests this could include company incentives built for boldness, such as founder-friendly equity models and long-term capital that reward ambition over short-term gains. It could also include targeted university incentives, growth-oriented procurement by governments and corporations, and consistent fiscal policies across markets.
- Focus directs time, energy, and resources to areas that will matter for scale rather than localized growth. Anchoring the effort are globally minded founders who build for international scale from the outset and expand through strategic partnerships and targeted M&A. Ecosystem players can help shape the environment by supporting critical technology sectors and streamlining the foundational enablers of scale—talent mobility, administrative simplicity, and cross-border alignment.
- Teaming is about learning faster together and inspiring the next generation to follow. Integral to this, the research finds, are well-executed go-to-market (GTM) strategies—supported by the talent to drive them—and engagement with industry groups and networks to share lessons and accelerate collective progress. At the same time, ecosystem players can cultivate forums and initiatives where ideas, experiences, and scaling successes are openly exchanged, where entrepreneurship is culturally celebrated, and where tomorrow’s founders are inspired to imagine what is possible.
It’s not about breaking the US moat—it’s about building our own alongside it.
Turning Europe’s tech momentum into global scale
Amid persistent conjecture about Europe’s global competitiveness, a new wave of software companies is quietly rewriting the continent’s innovation narrative. This shift is evident not just in the number of start-ups but also in their commercial traction. Europe’s tech ecosystem— including application, digital service, and platform providers—is showing signs of improving performance.
Over the last decade, the number of European software start-ups has grown fivefold, and the region has raised over $425 billion in venture funding—ten times the previous decade’s total.2 Today, Europe is home to more than 280 software companies generating over €100 million in annual recurring revenue (ARR).3 About one-fifth of these are either emergent leaders (the term used in this research for companies achieving more than €100 million ARR within ten years) or super performers (those that have ARR greater than €500 million and were founded within the past 20 years), as shown in Exhibit 1.
These companies are not only shaping their industries but also acting as founder factories, spinning out new ventures and embedding entrepreneurial experience across the ecosystem.
Just as PayPal gave rise to companies such as LinkedIn, Yelp, and YouTube, Europe’s tech champions are beginning to fuel their own innovation pipelines. Klarna, Revolut, Spotify, and Zalando, for example, have collectively produced more than 215 spin-offs,4 and many European unicorns, such as Adyen and Deliveroo, have become household names.
Moreover, innovation clusters—which bring together founders, investors, universities, and tech talent—are emerging across Europe as global contenders to support this work (Exhibit 2). With capital, talent, and entrepreneurial ambition, Europe is building momentum for technology competitiveness.5
Despite the momentum, Europe’s innovation engine often stalls before scale-up
Fewer companies are founded in Europe than in the United States, in part due to the continent’s relatively low commercialization rate.6 The companies that do launch scale more slowly than their US counterparts. European software start-ups that reach €100 million in ARR take 15 years on average to get there, five more years than their US peers.7 They are also less likely than US start-ups to surpass key growth thresholds (€10 million, €30 million, and €100 million in ARR), with the gap widening at higher levels (Exhibit 3).8
Europe also lags in producing global software champions. While 5 to 10 percent of US firms reaching €100 million in ARR subsequently scale to €1 billion, less than 3 percent of their European peers reach that milestone. And almost none of Europe’s billion-euro software firms were founded after 2010, compared with one in five in North America, pointing to a fragile renewal cycle.9 These dynamics are part of a broader economic picture: Previous estimates suggest that €500 billion to €1 trillion in annual value could be at stake for Europe by 2030, driven by performance gaps that point to unrealized potential across priority areas, including innovation and talent.10
Conditions are emerging for Europe to reset its innovation trajectory—if players make the right moves now
Three converging forces—new technology arenas of competition, geopolitics, and an evolving operating environment—are creating unique conditions for enabling scale and helping Europe close the gap with early movers like the United States and China (Exhibit 4).
New technology arenas like AI and automation are opening leadership opportunities, with European players such as ElevenLabs, Mistral AI, and Wayve emerging as major global contenders.11 This momentum comes at a critical inflection point, similar to the early internet and cloud era, when US players converted initial advances into lasting global dominance. In parallel, geopolitical shifts are driving governments to reassess technological sovereignty, spurring new regulation and investment, and pushing corporations to prioritize local suppliers. Also, longstanding barriers to innovation, such as Europe’s fragmented landscape, have been softened by technological advances and policy reforms. Consumption-based software models and cloud technology adoption, for instance, lower the cost and complexity of enterprise adoption of new technologies, expanding market opportunities for start-ups. Use of gen AI for real-time translation and automated compliance across borders empowers smaller teams to scale more efficiently across traditional barriers or compete at scale far more easily than before. As one venture capital (VC) partner explained, “The beauty of AI is that you can build a global business very fast with a very small team, which gives immense operating leverage.” Recent tax and data sovereignty reforms may also offer European tech companies greater access to markets across the continent that previously have been dominated by US tech. Discussions to implement a “28th regime” alongside existing national frameworks promise to reshape the start-up landscape.12
For the European ecosystem to quickly capitalize on this momentum, players will need to understand how to reignite Europe’s tech innovation engine; how founders, investors, and corporate leaders can drive change; and what actions other ecosystem players may wish to consider to help accelerate scale. As one European founder put it, “It’s not about breaking the US moat—it’s about building our own alongside it.”
