Sovereignty and the fragmentation challenge
I love the new born tech patriotism in Europe. I believe it was never gone, just the demand has shifted.
Thanks to Trumpy, all of a sudden, Europe remembers it can do tech too. This newborn tech patriotism is great to see, I might even say inspiring. But I ask myself, how do we want to balance innovation and independence, how do we want to grow to a challenger size while the governmental support vaporizes away in a fair split of funding money between hundreds of startups?
The European Tech Paradox
We have in Europe 27 something markets, almost every country has its own language, regulatory frameworks, and as I believe, we have to acknowledge and understand the different cultures too. This often leaves companies struggling, as they are challenged by this fragmentation and the varying cultures. A few weeks back, I read a post from a German startup that stated, “We launched our product in the UK, and it allowed us to be successful. If we had started in Germany, we most likely wouldn’t make it.” In the same thread, another founder wrote that he feels the pain, but needs to report that after they entered the German market, their product has proven its reliability, and the changes they had to make organizationally to become solid. I think this accurately describes the cultural aspect.
And while we have many very great startups and companies, we have lost for most of them the first place in the race. We have become good, to be the second or third.
This fragmentation and being nutorically late to the party isn’t only a bureaucratic inconvenience. Also, it would be easier with less paperwork, and time wasted for paying random bills to local authorities.
The question also isn’t whether this fragmentation really exists, but whether we as Europeans can overcome this, transforming this apparent weakness into a competitive advantage.
Fragmentation Reality
France is accelerating in digital sovereignty, while Estonia has become a digital-first nation, Germany, as usual, focuses on Industry 4.0 (still), and in the Nordics, we have our fintech and gaming champs.
This diversity creates multiple centers of excellence, including significant barriers. Building a startups in Barcelona will face different privacy regulations than in Berlin, different tax structures, and different language requirements. In the US, a company scales across the continent with more or less the same conditions. Sure, there are some local adjustments, but the frame is the same.
And this we can see in the numbers. Andrew MacAfee from MIT published a simple chart: The US has 682 Unicorn companies, while Europe just makes it to 112. And, in US 35% of them are not older than 50 years. EU? Only 12%.
We are clearly missing something…
In this discussion, and I have to admit I had the same position, it often came up that US has a very bad money spending habit, coming with huge debts and high risk. While this is true to some parts, here is a thing:
US external debts equal the external debts of the first 6 EU countries with the highest debts.
The other argument is that Venture Capital in the US is more effective and allocates more funds. This gap is killing us:
Europe spends via VC only 20% in comparison to the VC in US
And yes, we have a gap in the funding of R&D. Andrew has further numbers from CB Insights, which show that if US spends 100 “Units” for R&D, Europe “just” spend 88 units. (They use units because people have no understanding for money). The fact is, even though there is a gap, it is smaller than the outcome (unicorn companies). If this is broken down to a per capita number, EU even spends more on it.
Sorry for the short, hipster startup VC excursion.
Is there any strength in fragmentation?
I think this fragmentation puts us in a neutral position, like in a car. You can push the gas paddle; it roars, but nothing moves. However, if you step back and push it, it will start rolling. It doesn’t give us an advantage, but it also doesn’t hold us back.
Some leading points I find in this discussions are:
Regulatory Innovation: Different countries are making market access for different technologies easier. Crypto → Switzerland, Digital Products → Estonia, International Trade → Netherlands. However, I wouldn’t call it regulatory innovation. Looking at many EU acts they increase the level of burden for companies more.
Resiliency through diversity: Due to that fragmentation, if one economy struggles, one market has an issue, others can compensate. EU doesn’t depend on a single tech hub.
Privacy and values leadership: An argument that I found very often is, that Europe has created a leadership in privacy. We have put privacy so high that it hurts us more than it brings. It actively prevents digitalization and innovation. And no, privacy is not innovative. You get robbed on the streets? Sorry, no cameras.
Specialized Excellence: We try not to compete with Silicon Valley, or do we? London is a fintech hub, Stockholm Gaming, Munich Automotive…But somehow also everyone else makes in fintech, France and Germany are in the Space Race, every other EU automotive competitor gets bought by the big fish, every country has its own telco ecosystem, etc.
I would say, companies have learned to live with the circumstances. Companies find strength somewhere else.
Sovereignty Imperative
Unfortunately, the geopolitical tensions increase the demand for digital sovereignty. For the last decade, we have built on partners, who have become unreliable. And this is great, because we finally got some mind back for our own strength.
But European sovereignty can’t simply mean building a European version of an American or Chinese platform. Because of the fragmentation challenge we have, this means that European sovereignty must be architected differently, new, innovative. It must work with, rather than against, our inherent diversity.
Some companies are successfully doing that. Spotify not only revolutionized the music industry, but it also successfully navigated complex licensing in Europe and globally. Adyen solved the payment fragmentation. Europe’s Fintech industry is not strong, it’s fragmented, but the apps are lean, modern, and have useful features. It even caused so much pressure that traditional banks had to follow.
Becoming successful in the European market means securing a spot. Because it's challenging to enter our markets from the outside with a new product due to fragmentation, it serves as a form of protection.
Additionally, this represents a distinct segment in itself, overcoming fragmentation.
For me, sovereignty doesn’t mean “oh they are all bad”. It means for me “hey, we can do that too”. We have to embrace the diversity of the European countries, and we have to help each other. Making the German stiffness a little more risk-affine, bringing some structures to chaotic countries, implementing social systems as in the Nordics, and in the end, standing in for everyone.
Looking Forward
Europe's tech future depends on embracing fragmentation as a feature, not a bug. The continent's diversity creates challenges, but also opportunities for companies that can navigate complexity, respect local preferences, and build bridges between different markets and cultures.
The fragmentation challenge is simultaneously Europe's greatest obstacle and its most distinctive asset. The companies and countries that learn to harness this complexity—rather than fight against it—will likely define Europe's role in the global tech ecosystem.
In an increasingly multipolar world, Europe's fragmented approach to technology may prove to be perfectly suited to a future where diversity and resilience matter more than simple scale. The question is whether European entrepreneurs, policymakers, and investors can execute on this vision before others capture the opportunities that fragmentation creates.
We should change our mindset, from the hunt for an infinitely growing company, to the hunt for an infinitely healthy company. The first requires growing markets and population, the second is that we are just happy with what we have at some point.