When WeTransfer raised €25 million at a €100 million valuation in 2015, industry observers noted that a comparable US startup would likely have commanded 50% higher terms. Nearly a decade later, this valuation gap persists—though it’s narrowing and the reasons behind it are evolving.

Recent data from the State of European Tech 2024 shows that average valuations in Europe continue to be 29% to 52% lower than the US across all stages. The gap is particularly pronounced at early stages, where Seed and Series A currently present a 52% and 38% discount on average compared to the US, respectively.

While globalization has connected startup ecosystems worldwide, founders and investors still navigate a landscape where geography significantly influences valuation. Understanding these differences—and the legitimate economic factors versus market inefficiencies that drive them—has become crucial for founders planning international expansion and investors seeking global opportunities.

The Current Global Valuation Landscape

Regional Valuation Hierarchies

As covered in our Q2 2024 Startup Valuation Delta analysis, clear regional hierarchies emerge in startup valuations. The United States leads with median pre-seed valuations of $5.97 million, followed by Europe at $3.92 million (representing a 34% discount). The Middle East follows at $4.79 million, while Latin America and Africa show significantly lower valuations at $2.60 million and $2.69 million respectively.

This hierarchy has remained relatively stable over the past decade, though the gaps have been gradually narrowing. Data from Zapflow analyzing the period from 2013 to 2023 shows that US startups consistently boast significantly higher average deal sizes and valuations than their European counterparts at similar stages. In 2023, the median deal size was 1.8 times higher in the US ($3.2 million versus $1.8 million in Europe), while the median pre-money valuation showed a 2.4 times difference ($12.0 million in the US versus $5.0 million in Europe).

The valuation gap has shown complex patterns of convergence and divergence over the past decade. Our analysis reveals that US-based pre-seed startups typically project more aggressive financial targets, with TTM revenue of $250K going on to project almost $20M by year three. European startups begin with slightly more modest TTM revenue of $156K and project close to $10M by year three.

Some periods have seen rapid convergence. During the 2020-2021 venture boom, European startups temporarily achieved valuations closer to US levels as global capital flooded into all markets. However, the 2022 market correction revealed that European startups were more vulnerable to downturns, with many experiencing steeper valuation reductions than their US counterparts.

Economic Fundamentals: The Legitimate Factors

Market Size and Homogeneity Advantages

The most fundamental driver of US valuation premiums lies in market characteristics. The United States represents a single, homogeneous market of over 330 million consumers sharing one language, currency, and regulatory framework. This creates several advantages:

Scale Economics: As our research notes, “the US is simply a large and more homogenous market for founders.” Startups can achieve significant scale without the complexity of navigating multiple regulatory environments, currencies, or cultural preferences.

Revenue Potential: Larger addressable markets translate directly into higher revenue potential, justifying higher valuations through standard financial models. A US SaaS company can realistically target 100 million potential business customers in a single market, while European competitors must navigate 27 different countries with varying languages and regulations to reach equivalent scale.

Go-to-Market Efficiency: Marketing and sales strategies can be optimized for a single market rather than adapted across multiple jurisdictions. This reduces customer acquisition costs and accelerates growth, both key valuation drivers.

Capital Market Depth and Sophistication

The US maintains significantly deeper and more liquid capital markets than European alternatives. According to PitchBook data, the median post-valuation at IPO for VC-backed European companies listing on domestic exchanges between 2015 and 2025 is $45.9 million—just a fraction of the median for European companies going public in the US at $631.1 million.

This depth creates cascading effects throughout the venture ecosystem:

Exit Valuations: Higher public market valuations support higher venture valuations throughout the funding lifecycle, as investors price rounds based on anticipated exit values.

Investor Risk Tolerance: US investors tend to be more growth-oriented with higher risk tolerance than their European counterparts, leading to higher valuations for similar risk profiles.

Follow-on Capital: The presence of larger growth funds and abundant late-stage capital in the US creates more predictable funding pathways, reducing execution risk and supporting higher valuations.

Internationalization Costs and Complexity

European startups face inherent disadvantages in international expansion that legitimately impact valuations:

Regulatory Fragmentation: Europe’s fragmented regulatory environment creates significant barriers. The European tech ecosystem respondents identify “less bureaucracy and more regulatory reform” as critical needs, with 47% of respondents seeing regulation and policymaking as barriers to Europe fulfilling its full potential.

Market Entry Costs: Research from EU-Startups identifies finding suitable partners in new markets (54% of respondents), financial hurdles (38%), and regulatory barriers (38%) as the biggest challenges to expansion. The cost of establishing operations across multiple European countries often exceeds the cost of US national expansion.

Talent Mobility: While improving, talent mobility across European markets remains constrained by language barriers, work permit requirements, and cultural differences that increase hiring and operational costs.

Market Development and Institutional Gaps

The Pension Fund Participation Gap

One of the most significant structural differences lies in institutional investor participation. According to research from the Jacques Delors Centre, in the EU, institutional investors provide only 30% of VC funds compared to 72% in the US. US pension funds allocate approximately 11% of their portfolios to private equity, venture capital, and infrastructure investments, while European pension funds allocate just 4.3%.

This gap has profound implications:

Capital Scarcity: The overall funding gap for rounds over $15M is approximately $75 billion, forcing European companies to rely heavily on US investors. For every European company securing funding from a European lead investor, another is compelled to seek capital from the US due to this funding disparity.

Valuation Pressure: Limited domestic capital forces European startups to accept lower valuations or seek US investors who may demand US-standard terms and expect to eventually move operations to the US.

Return Expectations: European institutional investors often have more conservative return expectations, translating into lower acceptable valuation multiples compared to US counterparts.

Venture Capital Ecosystem Maturity

Research by Redstone shows that German pension funds represent less than 1% of the investor base in German VC funds, compared to 27% for US pension funds in US VC funds and 15% for German pension funds investing in German VC funds. This means “German pensioners hardly benefit from the growth of new innovative companies, although both German and European venture capital firms are extremely successful in selecting emerging technology stars.”

The ecosystem maturity gap manifests in several ways:

Fund Sizes: European VC funds remain smaller on average, limiting their ability to lead large rounds or provide substantial follow-on capital.

Deal Flow: US VCs see higher deal volumes, allowing for more sophisticated pattern recognition and valuation benchmarking.

Network Effects: The concentration of successful entrepreneurs, investors, and service providers in Silicon Valley creates network effects that accelerate deal-making and value creation.

Industry-Specific Variations

Software and AI: The Premium Sectors

AI became the dominant investment theme in 2024, receiving close to a third of all global venture funding and over $100 billion in total investment. However, this premium is unevenly distributed geographically.

In Europe, AI funding reached $8.8 billion in 2024—around 9% of global AI funding despite representing 16% of overall venture funding. Key European AI companies like London-based Wayve, Paris-based Mistral AI, and Berlin-based Helsing raised significant rounds, but at valuations that typically remained below comparable US companies.

The AI valuation gap reflects several factors:

Talent Concentration: Silicon Valley’s concentration of AI talent from major tech companies creates a premium for US-based teams.

Data Access: US companies often have superior access to large-scale data sets crucial for AI development.

Customer Bases: Enterprise AI companies benefit from proximity to large US technology customers willing to pay premium prices for cutting-edge solutions.

Deep Tech and Hardware: European Strengths

Interestingly, some sectors show reversed valuation patterns. European deep tech companies, particularly in areas like climate technology, advanced manufacturing, and life sciences, sometimes command premium valuations due to:

Regulatory Advantages: European companies benefit from clearer regulatory frameworks around privacy, environmental standards, and medical devices.

Government Support: Significant public sector backing for deep tech research and commercialization.

Technical Excellence: Strong university research bases and engineering talent in specialized fields.

The Role of Market Inefficiencies

Information Asymmetries

Not all valuation differences reflect economic fundamentals. Significant market inefficiencies persist:

Investor Familiarity: Many American funds entered the European market to escape overvalued American startups, pushing European valuations higher. However, their unfamiliarity with European markets can lead to both over- and under-valuation of companies.

Network Effects: US investors’ strong networks often limit their effective due diligence capabilities in European markets, leading to conservative valuations for unfamiliar business models or markets.

Currency and Legal Complexity: Transaction costs and complexities associated with cross-border investments can depress valuations as investors discount for operational friction.

Hype Cycles and Momentum

European investors note that founders with less proven metrics are more likely to receive valuations around 10 times their annual revenue or lower, compared to some US companies that raised at 20 to 100 times revenue during peak periods.

This reflects different market maturity levels:

Bubble Resistance: European markets have shown more resistance to extreme valuation bubbles, potentially indicating more sustainable long-term practices.

Conservative Culture: European investors’ traditionally conservative approach can lead to undervaluation of truly exceptional opportunities.

Follow-the-Leader Dynamics: When US investors become bullish on European companies, valuations can quickly converge upward, suggesting previous undervaluation.

Practical Implications for Founders and Investors

Strategic Considerations for European Founders

Market Timing: European founders should consider the funding lifecycle carefully. Analysis shows that European companies are more likely to be undervalued initially, creating higher step-up potential upon US listing or acquisition.

International Strategy: Early international expansion, particularly to the US, can justify higher valuations by demonstrating larger addressable markets and scalability.

Narrative Building: European founders must become skilled at translating local market success into global potential narratives that resonate with international investors.

Investment Strategies

Arbitrage Opportunities: Sophisticated investors increasingly recognize valuation arbitrage opportunities in European markets, particularly for companies with clear US expansion potential.

Portfolio Diversification: European startups taking more dilution (17%) for capital compared to the US (14.3%) can create attractive entry points for investors willing to provide patient capital.

Market Development: Strategic investors can add value by helping European companies navigate US market entry, justifying premium valuations through operational support.

Structural Changes Driving Convergence

Several trends suggest continued convergence of international valuations:

Digital Market Integration: Remote work and digital-first business models reduce geographical barriers to scaling.

Regulatory Harmonization: Initiatives like EU Inc. and digital single market policies could reduce operational complexity for European startups.

Capital Market Development: Initiatives like France’s Tibi program, which has convinced 28 French institutional investors to pledge €13 billion to back the ecosystem, are being replicated across European countries.

Global Investor Networks: Increasing cross-border investment by major funds creates more consistent valuation benchmarks.

Persistent Differences

However, some differences are likely to persist:

Cultural Factors: Different attitudes toward risk, growth, and work-life balance will continue to influence business models and valuations.

Regulatory Environments: Distinct regulatory approaches to AI, data privacy, and competition will create ongoing valuation differences.

Market Characteristics: Fundamental differences in market size, customer behavior, and competitive dynamics will maintain some valuation gaps.

Recommendations for Market Participants

For European Founders

  1. Build Global from Day One: Design business models and teams with international expansion in mind from inception.
  2. Leverage European Advantages: Capitalize on regulatory clarity, government support, and technical excellence in specific sectors.
  3. Understand Valuation Drivers: Focus on metrics that international investors understand and value, while educating investors about unique European market dynamics.
  4. Strategic Partnership: Consider partnerships with US companies or investors early to access larger markets and higher valuations.

For Investors

  1. Market Education: Invest in understanding local market dynamics and business practices rather than applying home market assumptions.
  2. Portfolio Support: Provide operational support for international expansion to help European companies achieve their global potential.
  3. Long-term Perspective: Recognize that European markets may offer better long-term value creation despite lower initial valuations.
  4. Regulatory Navigation: Develop expertise in cross-border regulations and legal structures to reduce transaction friction.

For Policymakers

  1. Capital Market Development: Work toward the goal of bringing European pension fund allocation up to 10% in private markets, which would increase investment by €124 billion in current values.
  2. Regulatory Streamlining: Reduce barriers to cross-border investment and business operations within Europe.
  3. Ecosystem Support: Continue supporting initiatives that connect European startups with global capital and markets.
  4. Data and Transparency: Improve data availability and transparency around European startup performance and valuations.

Conclusion

International valuation differences remain a complex mix of legitimate economic factors and market inefficiencies. While the US continues to command premium valuations due to market size, capital depth, and ecosystem maturity, European startups are increasingly finding ways to bridge these gaps through international expansion, strategic partnerships, and improved access to global capital.

The data shows that “investment into European tech has leveled up significantly over the past decade,” with this year’s investment levels on track to reach around $45 billion—three times the $15 billion recorded in 2015. This growth, combined with improving institutional investor participation and regulatory reforms, suggests continued convergence.

However, founders and investors should expect geographical differences to persist. Success in this environment requires understanding both the legitimate economic factors driving valuation differences and the market inefficiencies that create arbitrage opportunities. For European founders, this means building globally scalable businesses while leveraging unique regional advantages. For investors, it means developing sophisticated frameworks for evaluating opportunities across different markets and regulatory environments.

The future likely holds a world where the most exceptional companies achieve similar valuations regardless of geography, while market-specific factors continue to create opportunities for those who understand them. In this landscape, the winners will be those who can navigate complexity while building fundamentally strong businesses that create value for customers and investors alike.

For more insights on startup valuation trends and methodologies, explore Equidam’s quarterly valuation reports and comprehensive valuation guide. European founders can also benefit from understanding proper valuation methodologies when approaching international investors.