European scale-up gap - Too few good companies or too few good investors?

Start-up and scale-up firms are key drivers in promoting innovation and fostering a competitive economy. While there is evidence that the European ecosystem for start-ups has improved, the scale-up gap between the European Union (EU) and the United States (US) remains large. We analyse the reasons behind this gap and we focus on the supply side. We find access to finance is paramount for the existence and the size of scale-ups in EU, even after controlling for other supply factors, such as skilled personnel. Had EU had the same rate of venture capital investments relative to GDP as in the US, our estimates would predict 20 percentage points increase in the share of scale-up firms in the EU. We conclude that the way for Europe to increase its ability to nurture scale-up firms is to reap the benefit of a fully integrated financial market.

Authors: Ambrosio Federica, Brasili Andrea, Niakaros Konstantinos