A Data-Driven Look at U.S. vs. European Early-Stage Fundraising
Do European startups raise less because European investors are more risk-averse?
The question of whether European startups raise less capital because European investors are more risk-averse lies at the heart of ongoing debates about the continent’s innovation ecosystem. For years, observers have noted stark disparities in venture capital (VC) activity between Europe and the United States, where American startups consistently secure larger funding rounds at higher valuations, fueling faster growth and global dominance in sectors like artificial intelligence (AI) and biotechnology. This gap not only affects individual founders but also has broader implications for economic competitiveness, job creation, and technological sovereignty. As Europe grapples with lagging GDP growth, trailing the US by significant margins due in part to weaker tech ecosystems and VC funding, the risk-aversion narrative has gained traction. Yet, it competes with alternative explanations rooted in structural, market, and operational differences. This report delves into aggregated data from early-stage VC deals between 2020 and 2025 to test the risk-aversion premise against nearby factors, such as pricing dynamics, stage composition, and traction thresholds required for funding.
Key Findings.
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Stage mix is nearly identical (late stage = 57% of deals in both regions). Composition does not explain the gap.
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Traction thresholds differ. Europe funds companies at higher current revenue at the time of raise (median bin $1m–$5m vs. $100k–$1m in the U.S.) and with a larger ≥$5m revenue share.
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Pricing is more conservative in Europe. Lower valuations, lower funding targets and higher implied dilution for a “typical” round.
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More ambitious projections in the US. U.S. median revenue projections are higher over Years 1–3 (CAGR ≈ 205% U.S. vs 192% EU), suggesting either different opportunities, sector mix, or more conservative European forecasting.
European founders should target U.S. investors for pre-revenue or high-uncertainty rounds and benchmark dilution against revenue traction. European VCs may need to increase pre-revenue exposure for outlier-seeking strategies or emphasize efficient growth. LPs and policymakers could introduce downside protection (e.g., co-investment guarantees) to boost risk appetite.
| Year | United States | Europe |
|---|---|---|
| 2020 | $1,000,000 | $433,000 |
| 2021 | $1,000,000 | $649,000 |
| 2022 | $1,184,000 | $763,000 |
| 2023 | $1,500,000 | $600,000 |
| 2024 | $1,000,000 | $689,000 |
| 2025 | $1,500,000 | $742,500 |
| Year | United States | Europe |
|---|---|---|
| 2020 | $12,158,000 | $4,574,000 |
| 2021 | $15,470,000 | $6,497,000 |
| 2022 | $18,226,000 | $9,560,000 |
| 2023 | $19,085,000 | $6,217,000 |
| 2024 | $11,946,000 | $7,256,000 |
| 2025 | $10,978,000 | $5,117,000 |
Introduction
Early-stage fundraising in Europe consistently lags behind the United States in scale and ambition. Median valuations for European deals averaged $6.54M from 2020–2025, compared to $14.64M in the U.S., with funding targets 46% smaller ($0.65M vs. $1.20M). This stylized fact raises a central question: Are European venture capitalists (VCs) more risk-averse, or do nearby explanations (such as pricing differences, stage composition, or higher traction thresholds) better account for the gap?
Competing explanations include:
- Risk preference: European investors may be more cautious, favoring de-risked opportunities with proven traction, leading to funding at later maturity points within stages and more conservative terms.
- Pricing differences: Lower expected values (EV) from exits could justify lower valuations and multiples, independent of risk tolerance.
- Stage composition: Europeans might simply raise at later development stages, where traction is inherently higher.
- Traction thresholds: Even at similar stages, European investors may require more revenue or profitability before funding.
Hypothesis. H₁ (risk-aversion): EU rounds occur at later stages, higher revenue, and higher profitability share, with more conservative pricing (lower revenue multiples and higher implied dilution, reflecting lower valuations relative to funding asks), holding stage constant.
This report tests these explanations using aggregated data on early-stage VC deals, focusing on three analytical lenses: pricing, traction thresholds, and stage composition. We find evidence of stricter thresholds and conservative pricing in Europe, consistent with higher risk aversion, though pricing/EV channels also contribute. The analysis is limited to the funded cohort and does not establish causality.
Data & Measurement
Data are aggregated from VC deal reports covering early-stage fundraising in the U.S. and Europe from 2020–2025. Europe includes continental countries and the UK (sensitivity checks exclude the UK where noted). Early-stage is defined as pre-seed, seed, and Series A, aligned with development stages from Idea to Expansion/Growth.
Key variables:
- Valuation: Median pre-money valuation in USD (converted at spot FX rates; no inflation adjustment applied due to short timeframe; tails not winsorized as medians are robust).
- Funding target: Median round size (new money raised) in USD.
- Revenue at raise: Binned annual revenue (e.g., <$100K, $100K–$1M, $1M–$5M, ≥$5M); pre-revenue flagged implicitly via coverage (revenue-positive bins cover 65% of U.S. deals and 82% of European deals, suggesting higher pre-revenue share in the U.S.).
- Development stage: Categorical labels mapped to ordinal scores (Idea=1, Development=2, Startup=3, Expansion=4, Growth=5, Maturity=6); percentages normalized per region.
- Revenue projections: region-level medians for Year 1–3.
All metrics use medians or shares; currency is standardized to USD. No deal-level data is available, limiting regressions, but nonparametric tests are applied where feasible.
Table 1. Variable Definitions & Summary Stats (by Region)
| Variable | Definition | U.S. Summary | Europe Summary |
|---|---|---|---|
| Valuation | Median pre-money valuation (USD, avg. across 2020–2025) | $14.64M | $6.54M |
| Funding Target | Median round size (USD, avg. across 2020–2025) | $1.20M | $0.65M |
| Implied Dilution | Funding target / (valuation + target); avg. across years | 7.80% | 9.21% |
| Revenue at Raise | Median bin (normalized shares) | $100K–$1M (53.8% <$1M, 29.2% ≥$5M) | $1M–$5M (34.1% <$1M, 47.6% ≥$5M) |
| Development Stage | Ordinal score (1–6); centroid | 3.42 | 3.50 |
| Projected Revenue | % CAGR | 205% | 192% |
The Role of Revenue
Europe and the U.S. fund companies at similar stages (late-stage = 57% in both), so the gap isn’t about “raising later.” Instead, Europe tends to invest within stage at higher current revenue and on more conservative terms: funded European startups are one revenue bin “to the right,” yet receive lower valuations, smaller checks, and higher implied dilution. Median projections are also less ambitious in Europe, reinforcing a pattern of tighter underwriting (whether from greater risk aversion or smaller expected exits).
Key stats
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Entry point (revenue at raise): EU median $1m–$5m vs US $100k–$1m; ≥$5m share 47.6% (EU) vs 29.2% (US); sub-$1m 34.1% (EU) vs 53.8% (US); odds ≥$5m vs <$100k: EU/US = 2.57×.
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Pricing (2020–2025 avg of yearly medians): Valuation $6.54M (EU) vs $14.64M (US) → EU/US = 0.45×; Target $0.65M (EU) vs $1.20M (US) → 0.54×; Implied dilution higher in EU (≈ 9.2–10.2%) vs US (≈ 7.8–8.5%).
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Profitability at raise: 28% (EU) vs 25% (US) (+3 pp; small effect, consistent with stricter thresholds).
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Projected revenue (medians): US $0.80M → $4.00M → $7.39M (Y1–Y3; CAGR ≈ 205%, +$6.60M); EU $0.35M → $1.50M → $2.98M (CAGR ≈ 192%, +$2.64M).
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Bottom line: With stage mix held constant, Europe looks more conservative—funding at higher proof and lower multiples.
Target Dilution Implications
The figures below reflect target dilution set by the founder when planning a round (i.e., the intended percentage of equity to sell). In practice, ultimate dilution can be higher because founders are commonly (i) encouraged to raise more capital than initially planned, and/or (ii) negotiated down on valuation during term setting or diligence—both dynamics push the ownership sold above the target.
Pattern (2020 Q1–2025 Q3). European target dilution has been consistently higher than the U.S. and the gap widened post-2022.
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Overall averages: US 7.17% vs Europe 8.88% (EU +1.70 pp).
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Medians: US 8.04% vs Europe 8.77%.
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Share of quarters with EU > US: 20 of 23 (US > EU in 3 quarters).
By regime:
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2020–2021 (boom): US 8.41%, EU 9.01% (EU +0.61 pp; EU > US in 6 of 8 quarters).
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2022 (reset): US 7.36%, EU 8.69% (EU +1.33 pp; EU > US in 3 of 4 quarters).
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2023–2025 Q3 (normalization): US 6.21%, EU 8.84% (EU +2.64 pp; EU > US in 11 of 11 quarters).
Even before accounting for the tendency for actual dilution to exceed targets, European founders plan to sell more equity per round than their U.S. counterparts, and that difference has intensified since 2022. This is consistent with more conservative pricing and tighter underwriting in Europe: relatively lower valuations and smaller checks imply that a given raise requires more ownership sold. It also dovetails with our traction findings (Europe funds at higher current revenue), suggesting investors remain price-disciplined even as risk decreases.
Implications for founders.
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Treat target dilution as a floor, not a forecast. Build buffers for scenario creep (bigger round) and valuation negotiation.
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If targeting EU investors, plan for higher expected dilution at similar stages unless you can (i) credibly justify larger valuations (e.g., stronger KPIs, comparables), or (ii) bring cross-border leads accustomed to underwriting earlier with higher multiples.
Conclusion
This report set out to test a common claim: European startups raise less because European VCs are more risk-averse. Using five complementary lenses (stage composition, traction at raise, pricing, profitability at raise, and revenue projections) we find a coherent pattern that does not hinge on a single metric or cycle year.
First, stage composition is essentially the same across regions (late stage = 57% in both). That rules out the simplest explanation, “Europe funds later”, as the primary driver. Second, within stage, Europe funds companies at higher current revenue and with a slightly higher share of profitability at the time of the raise. Third, despite this additional proof, pricing is more conservative in Europe: median valuations and target sizes are lower and implied dilution is higher in every year from 2020–2025 (gap narrowing only modestly in 2024–2025). Fourth, U.S. revenue projections are larger and compound slightly faster on median, reinforcing a difference in upside orientation. Put together, these findings point to tighter traction thresholds and lower underwriting multiples in Europe, consistent with greater investor caution (risk aversion) and/or lower expected exit values. The data we have cannot fully separate preference from expected value, but the directional alignment of all five lenses; same stages, higher proof, lower price, slightly more profitability, smaller plans; leans toward a more conservative stance among European investors.
This conservatism is not inherently negative: it may reduce downside volatility, favor efficient growth, and fit the capital base and exit markets of many European ecosystems. But it also risks under-capitalizing outlier trajectories, particularly in categories where speed and scale are decisive. The U.S. pattern (earlier underwriting of upside with larger asks and bigger plans) accepts more forecast risk to keep optionality on extreme outcomes. The European pattern (later entry, tighter pricing, and modestly higher profitability at raise) prioritizes certainty and efficiency, but potentially at the cost of outlier capture.
Practical implications
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Founders (Europe): To secure larger rounds at competitive dilution, pair clear present traction with a credible, U.S.-style upside narrative (drivers, speed, capital map). Consider cross-border leads when the thesis requires pre-revenue or frontier risk.
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VCs (Europe): If your strategy targets power-law outcomes, revisit entry timing (earlier exposure to uncertainty), check-size policy relative to fund size, and syndication to avoid starving promising trajectories.
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LPs & Policymakers: If preference is the constraint, deploy risk-sharing instruments (co-investment guarantees, first-loss capital) to raise risk appetite without distorting markets. If expected exits are the constraint, prioritize deeper exit channels (public listings, cross-border M&A, secondary liquidity).
Limitations and what would change our minds
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We analyze funded cohorts using medians; ratio-of-medians approximations can mask within-cohort dispersion.
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We do not observe exit outcomes or fund size/reserves; both could rationalize lower pricing without invoking preference.
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The profitability gap is small; formal significance depends on deal counts.
Falsification paths. If, within stage and for the same revenue, European companies commanded similar multiples and dilution to U.S. peers, or if exit distributions in Europe matched the U.S. while pricing still differed, the “risk-aversion” interpretation would weaken in favor of capacity or negotiation effects.
High-value next steps
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Within-stage revenue multiples at raise (valuation ÷ revenue) and within-stage dilution to isolate preference from composition.
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Deal counts to run median tests and two-proportion tests (profitability) with power.
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Fund-economics controls (fund size, reserves, pacing) to separate risk capacity from risk preference.
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Exit linkage (rate, time, value) to quantify the expected value channel explicitly.
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Cross-lead counterfactuals (U.S. leads in Europe vs. European leads in the same markets) to identify investor-preference effects.
Bottom line
With stage held constant, Europe funds at higher proof and lower multiples, with slightly more profitability at raise and smaller projected paths. Across cycles, this stack of evidence is most consistent with a more conservative investment stance in Europe (a mix of tighter selection and more cautious pricing) shaped by investor preferences and the economic reality of European exit markets. Whether European ecosystems should shift that stance depends on policy goals: maximize outliers (accept more early risk, deepen exit markets) or optimize efficient growth (maintain current thresholds, broaden later-stage capital). The evidence here clarifies the trade-off; the choice is strategic.