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For many decades, European founders faced two main barriers to the ability to access venture capital: contending with an investor-hesitant market and competing with the dominance of the U.S. funding networks.
The traditional VC structures with their decade-plus lockups and closed access to capital have gone to make it even tougher for European startups to thrive.
It’s little wonder that Crunchbase data found that VC funding to European startups has fallen 39% year on year and plummeted to $10 billion in Q3 2024, the lowest quarter since Q3 of 2020.
Against this backdrop, Trump’s “America First” agenda, tariffs and all,is making venture capital for European startups more difficult. Rising trade uncertainties combined with a likely turn inward on investment could leave U.S. funding for foreign ventures to further decline.
Among these challenges remains a viable solution: tokenized venture capital. Unsealing liquidity and opening investor access, it can reduce Europe’s reliance on traditional funding sources and enable startups to compete more effectively with their American counterparts.
1: Releasing liquidity to engage more investors
One of the biggest challenges of the European founders is securing early-stage capital. Compared to the U.S., where highly networked, deep investor markets support high-risk innovation, European capital markets are risk-averse with modest demand for long-term, illiquid VC commitments.
Tokenised VC tilts the balance by offering liquidity through blockchain-based digital tokens, which are an expression of ownership in funds or startups. These tokens may be traded by investors on secondary markets, creating a flexible investment climate. This attracts both a bigger pool of investors, those who are reluctant to commit to long lock-up periods, and also enables founders to raise capital more efficiently.
Europe has already seen growing adoption of tokenisation in broader finance. In 2024, The European Investment Bank issued a digital bond on Banque de France’s blockchain platform DL3S, while the Bank of England announced it would move forward with a central bank digital currency.
With institutional activity like this, tokenised investment arrangements are becoming more mainstream, and could help bring about a more penetrating and active European startup finance market.
Liquidity alone may not be a silver bullet for bringing in investors, but it can help alleviate the challenges tokenised platforms such as Securitize presently undergo. Greater liquidity can address market participation challenges, spur wider institutional uptake, and, with the right controls in place, foster long-term value creation over short-term speculation.
2: Competing with the U.S. through smarter capital allocation
European entrepreneurs, besides liquidity issues, also face limited access to venture capital compared to their American peers, who dominate the world in VC investment by virtue of a high-risk, high-reward attitude. Many EU startups, however, opt to utilize American funds, which jeopardizes European development for the sake of matching U.S. objectives.
Tokenisation offers an opportunity to balance the playing field for Europe. By decentralizing venture capital, it allows a wider group of investors, such as European institutions, sovereign wealth funds, and retail investors, to support local innovation. This diminishes reliance on U.S. capital and keeps European startups within a European-controlled financial system.
Market trends are beginning to support this. In 2022, Web3 startups in Europe experienced a 120% increase in funding to $1.2 billion as part of a record $5.7 billion spent within the sector. Barcelona-based company Brickken, which focuses on asset tokenisation, has tokenised more than $250 million in assets since 2023, and recently raised $2.5 million in seed funding.
Institutional mass adoption offers an opportunity to resolve regulatory and security concerns. While regulatory ambiguity has slowed takeup and cautious leaders like Vanguard have waited before formally offering token or crypto-related investment products, more extensive adoption may compel clarity and regulatory action. Blockchain enhances transparency but does not eliminate security risks, as DeFi hacks have shown.
Wide-scale institutional involvement can strengthen governance structures, locking in blockchain’s potential to reduce fraud with proper guardrails, states a 2023 Deloitte report.
Is a Hybrid model the best of both worlds?
While promising, tokenisation is no panacea. Instead of completely replacing venture capital, a hybrid model, combining traditional equity investment with tokenised assets, might be the solution.
Such a design maintains value creation and due diligence in the long term and incorporates additional liquidity and transparency wherever required.
Giant asset managers have already started to test hybrid models. BlackRock and Franklin Templeton are starting to apply blockchain technology without foregone investment models, which implies that balance between stability and innovation is the secret to gain mass acceptance.
A turning point for EU startups
Tokenised venture capital is more than a fintech pilot project, it’s a potential source of liquidity relief for Europe’s founders and a competitive funding shortage.
Tokenisation may turn the EU into a global venture capital leader by eliminating investors’ barriers and keeping European startups within a European financial system.
Increasing trade uncertainty and U.S. protectionism, including tariffs on European imports, threaten startup growth in Europe. Tokenized venture capital offers a decentralized funding source, reducing reliance on the U.S. system and giving startups greater freedom and resilience.
Whether this shift happens rapidly or remains a niche solution will depend on how well the industry addresses adoption barriers. But one thing is for sure: the decade-long lockup model is no longer the only game in town. European entrepreneurs should take note, because the future of VC might just be decentralized, liquid, and built for them.
