The FT reports on a familiar story, based a report by the Association for Financial Markets in Europe, showing the EU lagging the USA for start-up funding options.
At FirstCapital we have found this to be much less of a barrier for growth stage companies, particularly those that have already demonstrated the ability to generate significant international sales. We see strong demand for such companies, both in the EU and in the USA.
“Undersized capital markets are limiting growth in Europe but more important is the lack of risk capital,” said Simon Lewis, chief executive of AFME. “This is a particular problem for SMEs, where the lack of equity is preventing the development of the entrepreneurial ecosystems that nurture growth sectors such as technology, communications and energy.” The study found sources of equity funding for SMEs are under-developed in Europe. By comparison, small SMEs, start-ups and entrepreneurs in the US benefit from more diverse financing sources that provide a significantly larger proportion of funding than in Europe. Europe has a smaller pot of funding with about €30tn available for investment, compared with €49tn in the US, even though gross domestic product is roughly similar at €17tn each. The eurozone has significantly less listed equity capital, with €10tn invested in equities compared with €19tn in the US. Europe delivers a larger pot of financing to SMEs than the US, with about €2tn in outstanding stock compared with €1.2tn in the US. However, the majority of EU financing is bank lending.