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Funding Challenges for European Founders

European founders hoping to raise funds for their businesses in 2025 aren’t spoiled for choice. The number of active VCs in Europe has dropped by 30% in the last two years as exits slow and startups prioritize profitability over rapid growth. Additionally, European VC fundraising has declined from €34 billion in 2022 to around €21 billion in 2024, creating a challenging funding environment for founders.

Tokenization as an Alternative

For entrepreneurs globally, tokenization provides a ‘backdoor’ into funding, allowing companies to bypass picky VCs. Tokenization promises to unlock IPO-like funding from a diverse pool of investors for private companies that are too small to go public, without incurring additional costs.

However, European regulation is not as progressive as it could be, holding back the funding system. Tokenization falls under securities regulation, classifying equity tokens as digital shares recorded on the blockchain. While European founders can leverage foreign jurisdictions like the U.S., where tokenization is burgeoning, Europe’s economy could benefit significantly from regulatory adjustments.

Europe vs. the World: The Benchmark Battle

Countries like the U.S., Singapore, the MENA region, the British Virgin Islands, Switzerland, and Lichtenstein are leading the way in tokenization, far ahead of Europe. Here are three reasons for their advantage:

1. Low Barriers to Entry for Investment: These countries allow SMEs to experiment with tokenization and issue equity tokens without extensive licensing requirements, enhancing adoption.
2. Exemptions for Foreign Securities Offerings: Securities offerings aimed at foreign investors are often exempt from local regulations, enabling businesses to operate more freely.
3. Favorable Corporate Law: Legislation allows for easy transfer of equity tokens without notarization, a stark contrast to European laws that restrict such practices.

In contrast, European corporate law often prohibits private companies from easily issuing transferable equity securities, forcing them to register as public companies and meet onerous requirements.

Diagnosis for Europe

The regulatory outlook for tokenization in Europe is indeed challenging and could worsen with the new Markets in Crypto-Assets Regulation (MiCA), which focuses mainly on crypto and stablecoins, leaving real-world asset (RWA) classes outside its scope.

Despite these challenges, the European market remains underinvested. Between 2015 and 2022, European corporations underinvested €700 billion annually in tech compared to the U.S., yielding lower returns on invested capital. Yet, investment opportunities are plentiful on the continent, stymied by limited funding options for private companies and a lack of aggressive IPO activity. Consequently, many European founders seek funding from foreign investors, and tokenization emerges as a better fit for them.

Clearly, Europe is lagging in the tokenization landscape. To unlock direct investments in private companies and enhance regulatory measures, European corporate law needs reformation. Such changes could boost investment activity across Europe, presenting a significant opportunity for economic growth.

Author Information

Ross Shemeliak is the co-founder and COO at Stobox, a licensed tokenization provider focused on creating financial markets for small and medium businesses. He is an expert in tokenization with a background in traditional financial markets and has extensive experience as an STO analyst, investor, and advisor. A recognized speaker at numerous leading conferences, Ross is also involved with the Blockchain for Europe Association.