A recent EIB report reveals why EU companies move abroad for scaling-up, shedding light on limitations in the EU and recommendations for the future 28th regime.
With 10% of EU scaleups relocating abroad, and of those, around 85% moving to the United States, the EU continues to lose high-growth and innovative startups to international competition. This Internationalisation in itself is neither surprising nor undesirable; expanding across borders is a hallmark of successful startups. Yet the pattern of relocation documented in a recent report commissioned by the European Investment Bank (EIB) and conducted by Ernst & Young (EY) signals persistent limitations in Europe’s ability to support companies as they scale. At a time when Europe urgently needs new sources of productivity growth to manage the demographic transition, the green transition, and the growing technological gap between Europe and the United States and China, the loss of high-growth, innovative firms really matters. The EIB show that relocation is fundamentally about finding environments that match the pace, risk appetite and flexibility required by startups and scaleups once they move beyond the early stages. What emerges is not a story of European failure, but of European fragmentation when companies attempt to scale across borders. Europe has long been aware of this “scaleup problem”.
Over the past two decades, multiple policy initiatives have tried to address these structural barriers that prevent young firms from growing seamlessly across the single market. The most notable precedent is the European-level company status, the Societas Europaea (SE), designed to allow firms to operate EU-wide under a single legal form. In practice, however, the SE has proven unsuitable for innovative startups. It cannot be created from scratch, requires a minimum capital of €120’000, and remains subject to a complex overlay of national laws. Unsurprisingly, it has been adopted almost exclusively by large incumbents such as Airbus, BASF or SAP. The EU has since focused on partial harmonisation, but these piecemeal approaches have failed to resolve the underlying problem.
Against this backdrop, EY conducted 91 interviews with EU startup founders and CEOs who moved abroad to understand the reasons and process of relocation, as well as recommendations for improving EU conditions for startups. The findings offer valuable insight into why innovative firms continue to look elsewhere once they reach scale. On the pull side, access to larger and more unified markets stands out. Founders point to the United States as offering a vast, coherent customer base with fewer regulatory and linguistic barriers, reducing “go-to-market friction” and enabling faster expansion. Similar dynamics are at play in the UK and parts of the Middle East, where demand for cutting-edge technology is strong and decision-making cycles are shorter. Financial considerations also weigh heavily. The US and UK remain attractive because they offer deeper pools of capital, larger ticket sizes, and a greater willingness to finance high-risk, high-reward ventures. The Middle East, meanwhile, stands out for its favourable tax regimes and aggressive investment strategies. The pull factors shed light on the current EU limitations in scaling up. Many founders describe a perceived “non-existence of the single market” in Europe when it comes to scaling operations. Regulatory fragmentation across member states creates compliance bottlenecks that absorb time, capital and management attention. This is compounded by a more risk-averse investment culture and an administrative burden that remains high, particularly for companies operating across borders.
When it comes to recommendations, founders consistently call for a modernised and unified regulatory landscape that reduces compliance complexity and enables companies to operate across borders more easily. Several interviewees explicitly reference the need for an “EU Delaware”, a simplified, predictable corporate framework offering legal clarity and operational efficiency across member states. Some point to existing initiatives, such as Estonia’s e-Residency programme, as proof that streamlined cross-border company formation is possible within Europe. The report also stresses the need to unlock more funding, introduce targeted tax incentives, reduce early-stage costs for critical technology startups, reform labour and immigration rules that slow down cross-border hiring (e.g. startup visas), and invest more systematically in education and startup support ecosystems.
These findings resonate strongly with the renewed political momentum behind the idea of a 28th regime. Recent reports, including those by Enrico Letta and Mario Draghi, have revived the call for an EU-level corporate framework tailored to innovative companies. Commission President Ursula von der Leyen has echoed this ambition, and the European Commission enshrined it in its Startup and Scaleup Strategy, which explicitly calls for a harmonised set of EU-wide rules covering corporate law, insolvency, labour and tax. Beyond the advocacy by the startup sector itself under the EU INC movement, a recent Bruegel policy brief proposes a “regime 0” that would allow startups to swiftly obtain cross-border legal recognition, easing access to finance and key talent. The regime also deliberately avoids harmonisation of general corporate, labour and tax regulations, which would remain under EU member-state jurisdiction.
These debate should not obscure Europe’s real strengths. Most startups do not leave and the decision to relocate is never about abandoning Europe completely. According to the interviews, it is important to mention that companies rarely fully move abroad. Instead, they go for partial relocation, often by establishing a holding company abroad or “flipping” their corporate structure. Sales, marketing and customer-facing functions are typically shifted to the US, while research and development remains in Europe. This reflects Europe’s continued strength in talent, scientific research and in its high number of innovation hubs and ecosystems. Furthermore, the current geopolitical situation could benefit EU innovative startups, as mentioned in recent Science Business article: Europe has an opportunity to capitalise on the current climate of uncertainty in the US by welcoming US talent through accelerated programmes and incentivising private capital. Europe has both the opportunity and the talent, but as this report by the EIB and EY underscores, without a truly borderless path to scale, startups will continue to invent the future in Europe and commercialise it elsewhere.