A successful technology company founded in Warsaw, Prague, or Bucharest may reach a stage where its product is ready for international customers, but the next funding round exceeds what the local market can provide. An external fund or a move to a better-connected European financial centre may solve the problem. Neither is inherently damaging, but if leaving the domestic investment ecosystem is repeatedly the easiest route to expansion, Europe should ask whether it is making full use of the businesses it helps to create.
For Central and Eastern Europe (CEE), this is a question of economic efficiency. Venture capital is designed to finance companies with uncertain prospects but exceptional growth potential. If access to growth capital depends partly on geography rather than on investment quality, profitable opportunities may be lost to the whole of the EU. The wider European financing gap is substantial: the ECB estimates the aggregate size of US-based VC funds at about €930 billion, compared with roughly €150 billion in the EU (Baumann et al., 2026).
The bottleneck appears when companies begin to grow
CEE is not a single investment market: national ecosystems differ substantially, and commercial datasets use varying regional definitions. Regional aggregates should therefore be treated as indicators of broad market patterns rather than precise measures of inequality among EU member states.
Even with that caution, the pattern is clear. Dealroom reports that CEE startups attracted €2.3 billion in VC in 2025. From 2021 to 2026, region-based investors accounted for nine of the ten most active pre-seed and seed investors, four of the ten most active Series A investors, but only one of the ten most active Series B and later investors (Dealroom, 2026). These are counts of investors, not shares of capital, but they suggest a market better equipped to finance early-stage development than later expansion. Scaling often requires larger rounds, specialised expertise and investors able to accept longer horizons. A founder may therefore secure the first cheque locally but still lack a credible partner for the next stage.
Dealroom also estimates VC funding in CEE at about 40% of the European average relative to GDP, while aggregate enterprise value per euro of VC raised reaches around 120% of the European benchmark (Dealroom, 2026). This does not establish superior returns, but it raises the central question: does lower investment merely reflect fewer attractive opportunities, or are profitable firms being overlooked by established networks?
When public capital adds value – and when it does not
There is an economic case for intervention in venture capital, but it is narrower than the claim that innovative firms simply deserve support. Young technology companies rely heavily on intangible assets, face high uncertainty and can generate spillovers beyond the firm itself. These features can leave socially valuable projects underfinanced (OECD, 2026).
Public money, however, cannot substitute for investment judgement. A government-backed fund may encourage dependence on subsidies, displace private investors or finance ventures that would have received capital anyway, turning apparent success into a transfer rather than new economic activity. The key test is additionality: whether the investment or subsequent growth would have occurred without public participation. A study of more than 20,000 European VC deals finds weaker performance among direct public investors than private ones, while funds backed indirectly through European Investment Fund-type structures perform better (Köppl et al., 2025). Much of that advantage appears linked to the selection of better-connected managers. Institutional design, manager competence and access to networks therefore matter at least as much as headline commitments.
A company’s address is not the same as its economic footprint
Foreign acquisition or headquarters relocation does not automatically mean economic loss. A Joint Research Centre study estimates that only about 3.3–4.3% of European VC-backed startups relocate and that 97% of those retain some operations in their country of origin (Domnick et al., 2026). Szalavetz and Skala (2024) likewise identify “virtual relocation” among startups from Poland, Hungary, and Romania: firms move their headquarters abroad while retaining key functions at home.
UiPath illustrates the distinction. Founded in Bucharest and now headquartered in New York, the company still reports a roughly 120,000-square-foot corporate office in Bucharest, larger than its New York headquarters premises (UiPath, Inc., 2026). The figure does not reveal where research, intellectual property or profits are concentrated, but it shows why formal relocation should not be treated as equivalent to the disappearance of economic activity from the country of origin.
The European Union is already investing
The EU already operates instruments at several levels. Its Startup and Scaleup Strategy and the Savings and Investments Union seek to improve financing conditions and reduce market fragmentation (European Commission, 2025a, 2025b). The European Tech Champions Initiative (ETCI) invests in large European growth funds and had €3.5 billion invested in funds by 30 September 2026 (European Investment Fund [EIF], 2026c).
Regional and national instruments complement this approach. The Three Seas Initiative Innovation Fund targets €180 million and aims to mobilise around €1 billion for growth-stage businesses in participating countries (EIF, 2024); Future Tech Poland is a €350 million BGK-EIF fund of funds, with €85 million initially committed to three managers in March 2026 (EIF, 2026a); and the Scaleup Europe Fund targets €5 billion for high-growth technology companies (European Commission, 2026b). Several instruments remain too recent for meaningful assessment, so programme targets should not be confused with demonstrated impact. The priority should be to test whether they reach attractive firms outside familiar hubs and help regional companies progress into larger international rounds.
What a European return should mean
European programmes should pass two tests. At the investment level, they should satisfy the additionality criterion: enabling firms to attract capital and grow beyond what private markets would otherwise support. At the system level, they should strengthen Europe’s broader innovation capacity. Neither investment volume nor the number of supported startups is, by itself, a sufficient measure of success.
Rather than creating another geographically restricted fund, European policy should more tightly connect regional VC markets to larger pools of growth capital. A structured mechanism linking regional fund managers with established pan-European growth funds could combine local knowledge with access to later financing rounds and international networks. ETCI’s second generation already envisages greater participation by mid-sized funds and a dedicated investment platform, which could provide an institutional basis for such cooperation (EIF, 2026b).
A limited principle of reciprocity may also be justified where public capital removes substantial financing barriers. Public returns should primarily take the form of financial gains and stronger European technological capabilities; cooperation with European research institutions or regional suppliers may support that goal where commercially justified. Rigid localisation requirements, by contrast, could deter investment and weaken the single market. EU State aid rules already require relevant risk-finance measures to be necessary and proportionate (European Commission, 2021).
These measures will remain insufficient unless Europe mobilises more private institutional capital. The Commission’s study of venture and growth funds identifies regulatory, tax and market barriers to raising larger funds, while the Savings and Investments Union addresses fragmentation in cross-border finance (European Commission, 2025b, 2025c). Removing those barriers may matter more to the typical scale-up than a narrow subsidy.
Strategic technologies sharpen the argument, but do not replace it
Strategic technologies add a further consideration. Where foreign control of critical capabilities creates security costs not reflected in the transaction price, ownership may warrant scrutiny, particularly given CEE’s growing role in Europe’s security architecture. This does not justify indiscriminate support for startups in the region: an ordinary American growth-capital investment is fundamentally different from a security-sensitive acquisition by a state-linked investor. The EU’s updated foreign-investment screening framework reflects this distinction (Council of the European Union, 2026).
The European Innovation Act, proposed by the Commission in September 2026, highlights the demand side of the same problem, including the better use of intellectual property and public procurement to bring innovations to market (European Commission, 2026a). Financing matters, but young companies also need customers. A stronger European market for innovative solutions could allow firms to scale without making departure from their original ecosystem a condition of success.
Conclusion
The case for stronger venture capital markets in CEE does not rest on redistribution. Fragmented investment networks may leave viable European firms without sufficient growth capital. EU policy should therefore connect regional investors to deeper European capital markets and assess intervention on the basis of additionality, company growth, and economic returns. Strengthening CEE investment ecosystems is not a concession to the region but a way to use Europe’s innovative capacity more efficiently.
References
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