France is making efforts to drive the European Union (EU) towards capital market integration to address the issue of its burgeoning startups relying on American venture capital. French government officials, CEOs, and investors express that this initiative will offer scale advantages to European capital markets, reducing dependency on US-dominated venture capital.
Currently, regulatory and legal differences make European financial markets operate mainly on a national basis, preventing the formation of a deep capital market comparable to that of the United States.
For startups in France and other EU countries, this means they almost inevitably have to rely on American venture capital—private equity used to fund early-stage companies with potential—due to a lack of sufficient local large investors.
Matthieu Rouif, CEO of French startup Photoroom, said at the Viva Technology event in Paris that while the influx of American funds is welcome, it represents a missed opportunity for Europe. Photoroom recently raised $43 million from UK fund Balderton and Silicon Valley's Y Combinator.
"The past 20 years have seen enormous wealth creation through tech innovation, and the fact that Europeans haven't been able to partake in it is a major issue," he said at the Viva Technology event in Paris last week.
The French central bank noted that the world's 10 largest venture capital firms are all from the US, with fundraising scales far surpassing their European counterparts.
According to a report by venture capital firm Atomico published in 2023, European startups are expected to raise $45 billion this year, compared to $120 billion in the US.
As a result, the French government is pushing the next European Commission to prioritize the long-stalled EU Capital Markets Union project to unify financial regulations and oversight across the 27 member states.
Although EU governments are gradually reaching a consensus in principle, some countries are still reluctant to relinquish control over their national financial markets in practice.
French Finance Minister Bruno Le Maire warned at the Paris Tech Show that Europe can no longer afford to hesitate. He cited the example of Mistral AI, needing to raise significant funds within the next six months. If the capital markets union doesn't progress smoothly, they will have to look elsewhere for funding.
François Villeroy de Galhau, governor of the French central bank, stated that another way to expand EU venture capital is to have public sector investors, such as the European Investment Bank, more actively involved in startup financing and taking on greater risks than private investors.
Meanwhile, for European venture capital firms, a unified market would provide greater incentives to list their invested companies in Europe rather than the US.
Antoine Moyroud from Silicon Valley venture capital firm Lightspeed expressed, "As a French citizen, it is regrettable to see that value creation in Europe is not as rapid as in the US."
Louis Dussart from venture capital group RTP Global stated that European startups listing in local markets can expect a more stable investor base, while in the US market, investors are more likely to sell off foreign company shares during economic downturns.
"If we can make Europe an attractive exit market and bring liquidity to the ecosystem, it will be a truly pivotal moment," Dussart said.
