One of which is Donald Trump
Illustration: Tyler Comrie
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T he decor at Lovable’s office in Stockholm suits the startup’s cosy name. Lovable, which specialises in “vibe-coding”—prompting an artificial-intelligence system to make software—has a shoes-off policy. The smell of Swedish coffee pervades the air. Heart-shaped cushions bearing the firm’s logo rest atop comfy sofas.
Chart: The Economist
Yet Lovable is less soft and cuddly than nimble and competitive. It is small, but growing fast: in January its annualised recurring revenue hit 1m 14 months earlier. Anton Osika, a co-founder, argues that building a world-beating AI company in Europe is now possible. “The mindset change is happening,” he says.
Europe has long been a laggard in creating tech giants. Today Europe (ie, the European Union, Britain and Norway) is home to just six of the world’s 100 most valuable tech companies. America has 56; China, 16 (see chart 1). The continent’s drawbacks are well known. Its market of 520m people is divided by language and regulation. It has plenty of talent, thanks to its world-class research labs and universities. But its entrepreneurs have had trouble raising capital to expand their companies quickly.
Chart: The Economist
Yet there is new hope for the old continent. Jolted by the deterioration of its relationship with America, its policymakers are redoubling efforts to strengthen its technology ecosystem. Meanwhile, America and China have made decisions that make Europe relatively more attractive to tech workers and investors. Its established tech companies, though few, are now nurturing a new generation of startups. Last year venture-capital (VC) investments in European startups rose to 22bn a decade earlier (see chart 2). Although AI -mad America is still far ahead, investing 53bn.
In an attention-grabbing report in 2024 Mario Draghi, a former Italian prime minister, bashed Europe for its sagging competitiveness. But it is Donald Trump, with his animus towards the region, who has really galvanised policymakers. They now see Europe’s techno-failings as a geopolitical risk as well as a commercial one.
Henna Virkkunen, the European Commission’s tech czar, says the commission is looking into ways to encourage EU governments to buy more technology from home-grown startups, for instance. European enterprises are also “realising that they can’t afford to entirely depend on foreign providers”, says Arthur Mensch, the boss of Mistral, a French maker of AI models.
Perhaps more importantly, policymakers are taking steps to help entrepreneurs build up their businesses. This month the commission is due to publish a plan to unify Europe’s segmented capital markets, which will help startups raise money. That will not be quick, as it requires difficult choices about harmonising national tax regimes. It helps that member states are also upgrading their capital markets. Britain, France and Germany are tweaking rules to encourage pension funds to invest more in risky assets, such as young tech firms.
Chart: The Economist
Meanwhile, Mr Trump’s disdain for foreigners, and recent lay-offs by American tech giants, are driving talent to Europe. People working in Europe for American firms have also formed a talent reservoir. Data from Revelio Labs, a workplace-data firm, show the brain drain has reversed (see chart 3). Lovable, for one, has recruited executives from American software companies. What is more, fewer European firms are being sold to America. Dealogic, a data provider, notes that in 2011-13 American firms made 12% of acquisitions of European tech firms by number and 35% by value. In 2023-25 the shares were 9% and 17%.
China, too, is helping inadvertently. Its model of state-directed innovation has crowded out private investment and shrunk VC spending, pushing some towards Europe. Between 2015 and 2025 China’s share of global VC spending fell from 30% to 10%. Europe’s grew from 12% to 16%.
Europe is also getting over its reluctance to let techies make lots of money. In “The New Geography of Innovation”, published last year, Mehran Gul of the World Economic Forum notes that Skype, a European startup, created just 11 millionaires in the early 2000s. PayPal, an American one, gave many more stock options to its employees, creating over 100. They, in turn, invested in newer Silicon Valley startups.
Now European tech firms are giving out more options, and the region’s established tech tycoons are helping youngsters make fortunes. Nikolay Storonsky, founder of Revolut, a fintech company, has backed Spiko, a French startup in the same sector, and Biorce, a Spanish medical-technology firm. Daniel Ek, Spotify’s founder, is a big investor in Helsing, a German defence-tech firm. Former staff of Klarna, a Swedish fintech star, have created more than 60 startups, according to Dealroom, another data provider, and Accel, a VC fund.
None of this means that Europe will supplant America as the leading techno-power. Last year it launched just two of the world’s 94 new large language models, according to Epoch AI, a think-tank. The idea that the EU will manufacture a fifth of the world’s computer chips by 2030, an objective of the commission, is fanciful. But in some areas Europe is becoming more competitive. Three sectors—all of them helped by Mr Trump’s actions—stand out.
Even before he started his second term last year, Europe’s climate-technology sector was catching up with America’s. In 2015-16 VC spending on Europe’s green startups was 24% of America’s. By 2024-25 that ratio grew to 55%. Mr Trump’s gutting of American environmental regulation will surely encourage the trend. Last year the number of American climate-tech startups raising VC funds was the lowest since 2019.
There is no sign of demoralisation among European green-tech firms. In December Octopus Energy, a British provider of green power, spun off Kraken, which sells smart-grid software, at an estimated valuation of $9bn. Sweden is a hotspot for green-tech startups. Stegra aims to make carbon-free steel there. Einride is electrifying freight transport. In Switzerland Climeworks builds machines that suck carbon dioxide from the air.
Mr Trump’s demand that Europe do more to defend itself is also spurring high-tech arms-making in a region that had little of it. In 2015-17 VC investment in European defence tech was barely 1% of North America’s. By 2023-25 that had risen to 6%. The International Institute for Strategic Studies, a think-tank, says that Europe’s defence spending rose by 42% from 2023 to 2025; America’s defence budget, though far bigger, was unchanged. Whereas established contractors account for much of American defence spending, Europe offers more scope for young defence-tech firms.
Munich has emerged as a hub for them. Behind a metal-panelled door marked “Confidential” at Helsing’s headquarters in the city is a “demo room”, where its newest weapons are illuminated with red light. The HX -2, a drone with wings in the shape of an X and a range of 100km, has AI systems that help it attack targets, such as tanks, even if they are protected by communications-jamming technology.
Helsing is defiantly European. It calls the autonomous fighter it is building “Europa”. Much of the capital comes from Mr Ek, leaving the firm less reliant on American VC s. Helsing does not want to be “the little brother of some bigger thing in America”, says Niklas Köhler, a co-founder. Its neighbours include Quantum Systems, a maker of surveillance drones that is valued at $4bn, and Isar Aerospace, which builds vehicles that launch small satellites. When Ukraine’s innovative drone-makers are done fighting Russia, many may found or join European defence-tech firms.
“Deep-tech” firms investing in unproven technologies may benefit too from Mr Trump’s hostility to scientific research. Proxima Fusion, spun off from the Max Planck Institute for Plasma Physics in Munich, has raised over €200m ($236m) for nuclear-fusion reactors. Nearby are quantum-computing startups, such as Planqc, also a Max Planck spinoff, and firms specialising in nanotechnology, photonics and laser communications.
The share of European VC investment going to deep-tech firms rose from 19% in 2021 to 36% in 2025, calculates Atomico, a VC fund. In some niches Europe’s startups are raising more than America’s. Since 2023 European hydrogen startups (whose technology is both deep and green) have secured more capital than young American firms. In quantum technologies, Europeans and Americans are almost on a par.
It is possible that Europe’s tech dawn will prove false. One worry, especially for defence firms, is that governments are short of cash. On February 25th the budget committee of Germany’s legislature called for “moderation” in defence spending and cut the expenditure on contracts with Helsing and Stark Defence, a rival. Few think the world’s next trillion-dollar tech giant will be European. But, perhaps for the first time, it is not a silly idea. ■
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