Why European Founders Must Rethink Where They Build Their Startups

Jan de Vries · 2026-07-29

Over the past two years, anti-tourism protests have spread across southern Europe. In July 2024, demonstrators in Barcelona protested over-tourism with the slogan "go home," while around 10,000 people marched in Mallorca over rising housing costs. Similar protests have also taken place in the Canary Islands, Portugal and Italy. The backlash reflects an underlying tension: European governments increasingly see expats and digital nomads as a new tax-generating source of revenue. Conversely, many residents associate their arrival with higher rents and housing scarcity. These opposing views raise a more fundamental question. Why can't many Europeans afford the same apartments as foreign professionals? And why can't European businesses consistently pay globally competitive wages? ### The Tension Is Not New Europe has spent decades trying to attract talent and build innovation ecosystems. When I worked in venture capital, almost every country wanted to create its own Silicon Valley. Many governments invested heavily in building domestic startup ecosystems. Yet only a handful produced globally significant innovation hubs. Some venture funds explained Europe's failure to build its own innovation engine in cultural terms. Americans and Israelis were supposedly more willing to take risks, which made the venture model work better in those markets. I always found that explanation troubling. It implied that some nationalities were naturally better suited to entrepreneurship than others. I don't think that's true. People everywhere are fundamentally the same. Math holds a better explanation. ### The Simple Math Behind Startup Decisions In mathematics, there is a remarkably simple formula to explain why people choose to follow a particular course of action or refrain from doing so: > Probability of success × potential upside > probability of failure × cost of failure. The same logic can be used to explain crime rates, investment decisions or entrepreneurship. Let's assume entrepreneurs everywhere are equally talented and willing to build companies. In the United States, the potential upside is immense. You can build a billion-dollar company and make a fortune. In Europe, the upside is severely capped, simply because progressive taxation eats away at your margins. With everything else remaining equal, the ultimate decision to build comes down to just one variable: the sheer scale of the upside. ### Where European Scale-Ups Go to Stall The environment to build is changing faster than at any point in the past two decades. The traditional pipeline of building a local startup just to flip it to an American buyer through mergers and acquisitions is broken. Governments now treat digital services as sovereign assets rather than borderless businesses. We witnessed an example recently when the U.S. government imposed emergency export controls on Anthropic's newest AI models. Because the company had no practical way to verify user nationality in real time, it temporarily suspended global access. This illustrates how geopolitical decisions can instantly disrupt software infrastructure across borders. Governments across Europe increasingly want critical digital infrastructure to remain local. Yet restricting foreign platforms only works if domestic alternatives are genuinely competitive. Otherwise, protectionism simply reduces productivity, since businesses and citizens no longer have access to the best tools. ### The EU Inc. Proposal: A Step Forward? While initiatives such as "EU Inc." aim to unify Europe's startup ecosystem, access to growth capital remains one of its biggest structural challenges. Many startups still struggle to secure the later-stage funding needed to become global businesses. Building competitive European alternatives requires conditions that make ambitious founders want to build them in Europe in the first place. That leaves founders with a practical challenge. They must rethink not only where they scale, but also how they build their teams. ### What Founders Can Do Now Top talent is waking up to the reality that a single-country approach won't cut it anymore. Here's what founders should consider: - Look beyond your home market for funding and team members - Structure your company to be flexible across jurisdictions - Build remote teams that can operate from anywhere - Stay informed about regulatory changes that could impact your business The EU Inc. proposal is a promising step, but it's not a silver bullet. Until Europe offers the same upside potential as the U.S., founders will continue to face tough choices about where to build their companies.