Raising capital in 2025 is proving to be an uphill battle for European founders. The venture capital (VC) landscape has shrunk significantly, with the number of active VCs in Europe dropping by 30% over the past two years. At the same time, European VC fundraising has plummeted from €34 billion in 2022 to approximately €21 billion in 2024, leaving startups with fewer funding options.
As exits slow down and profitability takes precedence over growth, many entrepreneurs are seeking alternative methods to raise capital. One such method gaining traction worldwide is tokenization—a mechanism that allows companies to bypass traditional VCs and tap into a diverse investor base without the regulatory burden of an IPO.
However, despite its potential, European regulatory roadblocks are preventing tokenization from flourishing. While other global markets are embracing this innovation, Europe risks falling behind. With the right regulatory adjustments, tokenization could unlock vast economic benefits for the continent.
Tokenization: The Global Perspective
Several countries have already recognized the benefits of tokenization and are actively fostering its adoption. Leading the charge are jurisdictions such as the United States, Singapore, Switzerland, Liechtenstein, the British Virgin Islands, and MENA countries. Their pro-business regulatory frameworks have positioned them ahead of Europe in the tokenization race.
Here’s why these countries are excelling:
- Lower Barriers to Entry: SMEs in these jurisdictions can easily issue equity tokens, a critical component of tokenization. Unlike in Europe, where strict rules prohibit private companies from issuing easily transferable equity securities, these countries allow businesses to experiment and innovate.
- Exemptions for Foreign Investment: These markets enable businesses to issue tokenized securities to foreign investors without requiring local registration. This significantly expands their access to capital beyond domestic borders.
- Simplified Corporate Law: In some jurisdictions, transferring equity tokens does not require notarization, making the process seamless and cost-effective. In contrast, European companies often face bureaucratic hurdles, requiring public company registration and securities depository involvement.
Why Europe is Falling Behind
Despite its technological advancements, Europe remains hampered by outdated corporate laws that prevent private companies from issuing and transferring tokenized securities with ease. The continent’s fragmented investment thresholds further complicate matters. For example:
- Austria and Belgium have an issuance threshold of €5 million
- Germany and France set their threshold at €8 million
This lack of harmonization discourages cross-border investment and limits scalability for startups using tokenization.
Additionally, the Markets in Crypto-Assets Regulation (MiCA), set to reshape the European digital asset landscape, largely overlooks real-world asset (RWA) tokenization, focusing instead on cryptocurrencies and stablecoins. This omission leaves a crucial funding mechanism outside the scope of regulatory support.
A Growing Need for Reform
Europe is currently underinvested in tech compared to the U.S. According to the World Economic Forum, between 2015 and 2022, European corporations underinvested by €700 billion annually, leading to lower returns on invested capital. This massive gap signals an urgent need for alternative funding mechanisms like tokenization.
For many European entrepreneurs, the lack of viable funding options pushes them toward foreign markets. While some founders hesitate to leave Europe due to regulatory uncertainty, those who embrace tokenization abroad gain access to a broader investor base and greater financial flexibility.
The Path Forward
To reclaim its competitive edge, Europe must modernize its regulatory framework to accommodate tokenized securities. Key reforms should include:
- Allowing private companies to issue transferable equity tokens without the burden of public company registration.
- Harmonizing issuance thresholds across European countries to create a cohesive investment landscape.
- Expanding MiCA regulations to include RWA tokenization, offering clear guidelines for businesses and investors.
Tokenization presents a golden opportunity to drive investment, stimulate economic growth, and make Europe a leader in the digital finance revolution. With global markets moving forward, European regulators must act fast to unlock the full potential of tokenization before more founders seek capital elsewhere.
