The funding gap between US and international startups is real but misunderstood. A founder's guide to navigating ecosystem differences across the US, UK, and EU.
July 10, 2025 10 min read
A European founder recently told me about their Series A. They had strong metrics, a clear path to profitability, and traction across three markets. European VCs offered $8 million at a $40 million valuation. A US fund offered $15 million at $75 million. Same company, same pitch, nearly double the valuation.
This is not an anomaly. It is the consistent reality of building startups outside the United States. Understanding why this gap exists, and when it matters, is essential for any founder thinking about where to incorporate, where to raise, and where to build.
The Funding Gap Is Larger Than You Think
The numbers are unambiguous. In the first nine months of 2025, US tech companies raised $177 billion in private investment, nearly double the same period in 2024 and approaching 2021 peak levels. European startups raised $51 billion for all of 2024, down 5% from the previous year.
Each year, US startups attract 6-8 times more venture capital than EU startups. Even combining the entire EU and UK, US funding runs 3-4 times higher.
The gap widens at later stages. For rounds over $15 million, Europe underfunds its growth-stage companies by approximately $375 billion. Only 18% of UK VC funding goes to Series C and beyond, compared to 42% in the US.
This creates a structural problem. European companies can raise seed and Series A locally, but when they need $50 million or $100 million to scale globally, they often have no choice but to seek American investors.
Why The Gap Exists
The funding disparity stems from structural differences in capital allocation, not from any shortage of talented founders or viable companies.
Institutional investor participation differs dramatically. In the EU, institutional investors provide only 30% of VC funds compared to 72% in the US. American pension funds allocate approximately 11% of portfolios to private equity and venture capital. European pension funds allocate 4.3%. As of 2025, just 0.1% of European pension fund allocation went to VC funds.
This matters because pension funds and endowments provide the long-term, patient capital that allows VCs to take bigger swings. Without this institutional backing, European VCs have smaller funds and more conservative investment mandates.
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Exit markets differ substantially. The median post-valuation at IPO for VC-backed European companies listing on domestic exchanges between 2015 and 2025 is $45.9 million. For European companies going public in the US, it is $631.1 million. That is not a typo. The difference is roughly 14x.
The UK had just 18 IPOs in 2024 compared to 216 in the US. Fewer exits mean lower returns for VCs, which means less capital flowing into the asset class, which means smaller funds and lower valuations.
Market size creates different scaling economics. The United States is a single market of 330 million consumers sharing one language, one currency, and one regulatory framework. A European startup targeting equivalent scale must navigate 27 different regulatory environments, multiple languages, and varying payment preferences.
This difference affects investor math. A US startup can capture a massive market without leaving home. A European startup must become an international operation just to match that potential.
The UK Exception (Sort Of)
The UK occupies an interesting middle position. In 2024, UK startups raised $13.6 billion across 1,879 deals. The UK has overtaken China to become the world's second-largest startup ecosystem by funding. London alone sees more venture investment than any other European city.
But the UK shares Europe's growth-stage problem. Only 6% of UK startups achieve late-stage exits, compared to 15% in the US. About 25% of late-stage UK startups are considering relocating or opening US offices to access better funding opportunities.
The UK tech ecosystem is now worth over $1 trillion with 150+ unicorns. London AI startups raised a record $3.5 billion in 2024, making it Europe's top AI hub and third globally behind New York and the Bay Area. The talent and innovation are world-class. The capital markets are not.
What US Founders Get Wrong About International Markets
American founders often misunderstand international ecosystems in ways that cost them opportunities.
They assume US playbooks translate directly. The "blitzscaling" approach that works when you have unlimited capital and a single massive market fails when you have less capital and must adapt to multiple markets simultaneously. International founders often build more capital-efficient businesses by necessity, not choice.
They underestimate international talent. Europe produces world-class engineers, designers, and product leaders. Salaries are often lower than US equivalents, meaning the same funding buys more runway. Many successful US startups quietly hire significant portions of their engineering teams in Europe, Canada, or Latin America.
They ignore international market opportunities. Some categories are larger outside the US. Fintech in the UK benefits from more progressive regulation. Healthcare startups in Europe can build with less compliance burden than US HIPAA requirements. E-commerce in Southeast Asia is growing faster than anywhere else.
They misread the competition. International startups that do reach scale have often survived more capital-constrained environments. They may be more profitable, more efficient, and better at international expansion than US competitors who have never operated outside a single market.
The Delaware Question
Given these dynamics, should international founders incorporate in Delaware from the start?
The practical answer is often yes, if you plan to raise from US investors. Most American VC funds and angel investors only invest in US-registered companies, specifically Delaware C-Corps. Participation in accelerators like Y Combinator requires US incorporation.
The Delaware flip, where a company moves registration from its home jurisdiction to the US during Series A or B, is common but adds legal costs and complexity. Starting as a Delaware C-Corp avoids this friction.
One founder explained their reasoning: "At the time we incorporated, it wasn't easy to give stock options to employees of a Portuguese company. A number of founders warned us that if we were planning to raise funding in the US we would likely have to incorporate there anyway."
Another noted: "We initially planned to start a German entity first and do the Delaware flip later. We realized just how cumbersome the bureaucracy would be, and that investors would be discouraged by having to sit through hours of notary speed-reading of contracts in German."
Over 70% of international startups raising capital from US investors incorporate a Delaware C-Corp. This has become the default path for companies with global ambitions.
The 2024-2025 Regulatory Shifts
Recent changes affect these calculations.
The Corporate Transparency Act now requires most US entities to file Beneficial Ownership Information reports. Companies formed before January 1, 2024 had to file by January 1, 2025. New entities must file within 90 days of formation. Non-compliance carries fines of $500 per day and potential criminal charges.
March 2025 brought significant amendments to Delaware's General Corporation Law, impacting fiduciary duties and conflicted transactions. Some high-profile companies including Tesla have left or announced plans to leave Delaware. Nevada and Texas are actively competing by offering attractive incentives and establishing specialized business courts.
None of this changes the fundamental calculus for most startups. Delaware remains the default. But the landscape is shifting and founders should monitor developments.
Different Ecosystems, Different Strengths
Each ecosystem has genuine advantages that founders can leverage.
US Advantages:
Largest venture capital market by far
Deep, liquid exit markets
Single massive domestic market
Strong culture of risk-taking
Extensive support infrastructure (lawyers, accountants, recruiters who understand startups)
UK Advantages:
Second-largest funding market globally
World-class AI and fintech talent
English language and common law system
Time zone bridges US and Asia
Progressive financial regulation
EU Advantages:
Deep engineering talent at lower cost
Strong B2B sales culture in Germany
Privacy-first regulatory environment (attractive for certain products)
Access to 450 million consumers with eventual regulatory harmonization
Government grants and non-dilutive funding often more available
Strategic Implications:
Raise in the US when you need maximum capital or the highest valuation
Build teams in Europe when you need capital-efficient talent
Incorporate where your investors require
Expand into markets where you have genuine competitive advantage
US Investor Interest in European Startups
The participation of US investors in European deals is rising again after dipping to 19% in 2023. American VCs see attractive entry points because European valuations are lower.
One US investor explained: "Valuations, especially within AI tech in the US, are impossible to get into now. Whereas in Europe, multiples are lower, providing a better entry point."
This creates opportunity for European founders. US capital is available if you can access it. The question is whether you want to play by US rules (faster growth, higher burn, pressure toward US market focus) or build more sustainably with European capital (slower growth, better unit economics, more optionality).
For companies validating a SaaS idea, this choice matters early. Your investor base shapes your growth expectations and strategic options.
Building Across Borders
The most sophisticated founders think in terms of ecosystem arbitrage: raising capital where valuations are highest, building teams where talent is most accessible, and targeting markets where competitive dynamics favor them.
This might mean:
Delaware incorporation for US investor access
London or Berlin engineering hub for cost-effective talent
US go-to-market for largest revenue opportunity
European data residency for compliance-conscious customers
The complexity is real but manageable. Companies do this successfully all the time.
The Funding Strategy Matrix
Where you raise should depend on your specific situation:
Raise in the US when:
You are building a category where winner-take-all dynamics apply
You need $50M+ for your growth round
Your primary market is the US
Speed of scaling matters more than capital efficiency
You want the highest possible valuation
Raise in Europe when:
You are building a capital-efficient business
Your primary market is European
You want investors who understand your regulatory environment
You prefer more patient capital with less pressure
You are pre-product-market-fit and do not need massive scale capital
Raise in both when:
You are scaling globally and need both capital and local knowledge
You want geographic diversification in your investor base
You are building infrastructure that serves multiple markets
The Structural Shift Underway
Several trends are reshaping these dynamics:
Remote work enables geographic arbitrage. Companies can now hire world-class talent anywhere without relocating headquarters. This reduces the pressure to be physically present in the Bay Area.
Secondary markets are maturing. London, Berlin, Stockholm, and Tel Aviv produce real companies with real outcomes. The ecosystem infrastructure (lawyers, recruiters, office space) exists at scale.
AI is democratizing access. The tools to build products are becoming available everywhere. The advantage of being in Silicon Valley for talent access is eroding.
Climate concerns are shifting founder preferences. Not everyone wants to move to California. Quality of life considerations increasingly factor into location decisions.
None of this eliminates the US capital advantage. But it makes alternative paths more viable than they were a decade ago.
Practical Advice for International Founders
If you are building outside the US, here is what actually matters:
Do not apologize for your location. Frame it as an advantage. Lower burn rates, stronger unit economics, access to underserved markets. The best investors understand this.
Build relationships with US investors early. Even if you raise your seed locally, start meeting US VCs two years before you need them for your Series B. The relationships take time.
Get your legal structure right from the start. The Delaware flip is possible but adds friction. If US capital is part of your plan, incorporate correctly from day one.
Focus on metrics that translate. Revenue, retention, and growth rates mean the same thing everywhere. Lead with numbers that prove market traction regardless of geography.
Consider your go-to-market carefully. Some products can be built anywhere and sold to the US market. Others require physical presence. Know which category you are in.
For founders working on MVPs, these strategic decisions come early. Where you incorporate, where you raise, and where you build your team all shape your trajectory.
The Bottom Line
The US venture ecosystem remains dominant. The funding gap is real, structural, and unlikely to close soon. European and UK startups face genuine disadvantages in accessing growth capital.
But these disadvantages are not insurmountable. The most successful international founders understand the differences, plan accordingly, and use each ecosystem's strengths strategically.
The best approach depends on what you are building, how much capital you need, and what tradeoffs you are willing to make. There is no universal right answer, only the answer that fits your specific situation.
If you are building a startup and need help navigating these decisions, from technical architecture to go-to-market strategy, we work with founders globally to build products that can scale regardless of geography.
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