Cross-Border Investing in Europe: What's Broken and How to Fix It

A founder based in Warsaw builds a product that would be an obvious fit for a climate-focused investor in Amsterdam. They never connect. The investor never sees the deal. The founder eventually raises from a local angel at a lower valuation, which shapes the company's trajectory for years.

This is not an unusual story. It plays out constantly across Europe, in every direction, at every stage. And it is one of the clearest signs that the continent's investment infrastructure is not working the way it should.

Europe has plenty of capital. It has no shortage of ambitious founders. What it lacks is the connective tissue that lets the right investor find the right company at the right moment, regardless of which country either of them happens to be in.

The Scale of the Problem

In 2024, European startups raised around $51 billion in venture capital.¹ On paper, that is a healthy market. But zoom in and a different picture emerges.

A 2024 IMF working paper on venture capital in Europe found that home bias among investors is one of the defining structural problems in the continent's ecosystem. Regulatory, legal, and tax differences across member states create friction that pushes funds toward domestic investments, even when better opportunities exist across borders. The paper notes that domestic investments constitute the majority of overall VC activity in Europe, leaving significant cross-border potential unrealized.²

The European Commission's own report, Beyond Fragmentation: Connecting Europe's Startup Ecosystems for Growth and Innovation, published in late 2024, puts the problem plainly: fragmented investment networks leave startups in smaller markets struggling to find the funding necessary to grow.³ The concentration of capital in a handful of hubs means that most of Europe's founders are competing for attention from a relatively narrow group of investors.

Funding in Europe remains concentrated: London, Paris, Berlin, Stockholm, and Amsterdam capture roughly 65% of venture volume, with secondary hubs taking another 15 to 20%. Outside those areas, fundraising typically takes longer and requires the kind of cross-border relationship building that most early-stage founders are not equipped to do while also running a company.

Why Investors Stay Local

It is easy to frame home bias as a failure of ambition or vision. It is more accurately a rational response to friction.

Evaluating a company in another country means navigating different legal systems, different regulatory requirements, different tax treatment of investment structures, and different conventions around term sheets and shareholder agreements. Even for experienced investors, the overhead is real. For smaller funds and angel networks, which make up a large share of early-stage capital in Europe, it can simply be too costly to justify.

Tax law fragmentation, differences in capital raising frameworks, and other regulatory variations lead funds to invest primarily in their home country due to high transaction costs elsewhere. That is a rational calculation, not indifference to opportunity.

The more significant barrier is information asymmetry. An investor in Munich has a reasonably clear mental model of the Munich startup scene. Building that same mental model for Lisbon, or Tallinn, or Krakow requires significant investment of time and attention that most small funds simply cannot make.

The result is a market that is theoretically pan-European but practically national. Capital pools in the hubs. Promising companies outside those hubs either relocate, which many do, or remain underfunded relative to their potential.

What This Costs the Ecosystem

The most obvious cost is mispriced deals. When a strong company in a smaller market cannot access a competitive investor pool, its valuation at early stages is often lower than it deserves. That initial undervaluation has compounding effects: smaller first checks mean slower initial growth, which means less traction when approaching later-stage investors.

There is also a brain drain dynamic at work. Many of the most successful EU startups move elsewhere for financing, causing the EU to lose out on both the direct growth benefits and positive spillovers from these innovative firms.² When founders relocate to London or New York to raise money, the jobs, the tax revenue, and the ecosystem-building effects of those companies tend to follow.

The less visible cost is the deals that never happen at all. Companies that might have found the right investor if the infrastructure existed, but were never seen because deal flow does not flow across borders the way capital should.

The Infrastructure Gap

The cross-border problem in European early-stage investing is fundamentally an infrastructure problem. Not a regulatory one, in the short term, and not a capital one.

A startup in Seville does not need Brussels to harmonize insolvency regimes before it can reach an angel investor in Rotterdam. It needs a mechanism that makes relevant investor profiles visible and makes the company's profile visible to relevant investors, regardless of geography, without either party having to invest weeks of relationship-building before determining whether there is a fit.

That mechanism has two components. The first is a standardized way to describe investment theses: stage, sector, geography, ticket size, and specific criteria a fund looks for or avoids. When a thesis is structured at this level of specificity, applications can be filtered against it automatically rather than requiring a warm introduction.

The second component is a shared network. A startup that applies to one investor community should not have to apply separately to every other community that might be relevant. If investor communities share a common layer, one application can reach many networks simultaneously, filtered by thesis match on both sides.

What Better Infrastructure Looks Like in Practice

This is not a theoretical problem waiting for a theoretical solution. The tools to address it exist now.

Platforms like Pynn give investor communities the ability to define their thesis in structured terms and receive AI-assessed startup applications already filtered against those criteria. Every community that joins also connects to the AngelHive marketplace, meaning a startup applying through one community can become visible to investors across the full network, filtered by thesis match, without submitting separate applications or relying on personal introductions.

The practical effect is that an angel network in Mallorca, a VC fund in Madrid, and a pitch event organizer in Miami can all be part of the same deal flow network, each seeing only companies that match their specific criteria, without building direct bilateral relationships with each other first.

This does not eliminate cross-border friction entirely. Legal, regulatory, and tax complexity will remain features of the European landscape for years. But it separates the discovery problem from the execution problem. Finding the right company and reaching the right investor is solvable today. The due diligence and legal work that follows can be handled case by case.

The Bigger Shift

Cross-border investing in Europe will not be fixed by any single platform, regulation, or initiative. It will be fixed gradually, as infrastructure for discovery and matching improves, as more investor communities adopt shared tools, and as founders in smaller markets gain access to the same investor pool as founders in the major hubs.

Underserved markets often feature strong technical talent, lower valuations, and less competition for deals. The investors who recognize this and build the infrastructure to act on it consistently will have a meaningful advantage over those who stay within their national networks.

The opportunity is real and the tools exist. The only thing missing is the decision to use them.

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Pynn connects investor communities across borders through a shared deal flow network. Start your free trial at pynn.ai/new-tenant or learn more at pynn.ai

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1. Crunchbase News, "Europe's Startup Funding Stabilized In 2024, But Remains Far Off Market Peak," January 2025, news.crunchbase.com/venture/europe-startup-funding-eoy-2024/

2. IMF Working Paper, "Stepping Up Venture Capital to Finance Innovation in Europe," Arnold, Claveres, and Frie, July 2024, imf.org/-/media/files/publications/wp/2024/english/wpiea2024146-print-pdf.pdf

3. European Commission / StepUp Startups, "Beyond Fragmentation: Connecting Europe's Startup Ecosystems for Growth and Innovation," November 2024, digital-strategy.ec.europa.eu/en/library/beyond-fragmentation-connecting-europes-startup-ecosystems-growth-and-innovation