Europe has a singular probability to guide in software program — however provided that it improves its means to show startups into worthwhile companies. That’s the conclusion of a brand new report from McKinsey and Boardwave, which warns that until the area tackles structural boundaries, its startups will proceed to lag behind world rivals.
The report, Europe’s Moonshot Second, discovered that the continent has over 280 software program firms producing greater than €100 million in annual recurring income (ARR). These scaleups embrace the likes of Spotify, Revolut, Adyen, and Vinted.
Nevertheless, European software program companies that attain the €100 million ARR threshold take 15 years on common to get there. That’s 5 years longer than their US friends, the report discovered.
Europe additionally lags in birthing software program giants. Whereas 5–10% of US companies reaching €100 million in ARR subsequently scale to €1 billion, fewer than 3% of their European friends attain that milestone.
The report highlighted a few of the causes for this stalled progress: fragmented markets, conservative company norms, and a slower stream of late-stage capital relative to early-stage funding.
Turning level?
Regardless of the hurdles, the report’s authors are assured that every one the substances for Europe’s success in software program are actually in place.
Sandro Gianella, Head of EMEA Coverage & Partnerships, on stage at TNW Convention 2025
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“Europe already holds the necessities to create the world’s subsequent technology of software program champions: deep expertise swimming pools, vibrant founder networks, and a quickly maturing capital base,” stated Ruben Schaubroeck, senior associate at McKinsey.
Whereas Europe misplaced out to Silicon Valley companies like Google and Microsoft within the early web period, rising applied sciences like AI might provide a brand new opening for the area’s tech startups. Geopolitical shifts might additionally drive governments to put money into native tech ecosystems and rethink digital sovereignty, stated the report.
“There’s no denying that European tech has confronted structural boundaries, however we’re at a real inflection level,” Phill Robinson, CEO and co-founder at Boardwave, advised TNW. “New expertise arenas, geopolitics, and an evolving working setting are creating a singular alternative for Europe to spice up innovation.”
Now Europe should flip that potential into earnings, the report argues. To that finish, it suggests 5 key interventions to spice up Europe’s software program ecosystem:
- Develop late-stage funding
- Encourage skilled founders to begin new firms
- Make it simpler for gross sales and advertising groups to work throughout borders and assist startups develop sooner
- Encourage extra giant companies in Europe to purchase software program from European startups by providing authorities assist or monetary incentives
- Strengthen public-private partnerships to de-risk new applied sciences
Scaling up European tech
The McKinsey/Boardwave report comes sizzling on the heels of the EU’s landmark Startup and Scaleup Technique, launched final week. The plan set out a number of reforms designed to take away boundaries to progress for the bloc’s early-stage firms.
“If applied boldly, and most significantly shortly, it may well assist Europe transfer from fragmented success tales to systemic, continent-wide scale; in any other case, we threat being left behind,” stated Robinson, commenting on the brand new technique.
The EU’s proposal contains provisions for a long-awaited “twenty eighth regime,” which might permit firms to function underneath a single algorithm throughout the 27 member states. It’s supposed to cut back complications round taxes, employment guidelines, and insolvency.
Robinson stated he believes the EU’s new technique will strengthen Europe’s software program ecosystem by making it simpler to function throughout borders.
“We have to act as one innovation ecosystem, not 27 totally different ones,” he stated. “That’s what makes this Europe’s moonshot second. If we join and act now, we are able to lead. And never simply in Europe, however globally.”
