By Bo Ilsoe
The future of European innovation depends on a single, unified Pan-European stock market.
The current fragmented landscape of national exchanges stifles growth, limits liquidity and drives talent and capital away. The feedback loop of venture funding, entrepreneurial activity, company building, exits and capital return is broken, due to a lack of robust exit opportunities, particularly through initial public offerings, creating a critical bottleneck.
Venture capital returns have plummeted in recent years, jeopardizing the entire European venture ecosystem. A fundamental shift is imperative to revitalize this engine of innovation.
Liquidity — the lifeblood of any healthy financial ecosystem — is severely lacking. Companies linger in the private sphere for extended periods as Western IPO markets stagnate and capital gravitates toward venture funds. This liquidity crisis is particularly acute in Europe, where companies are traditionally less acquisitive than their American counterparts. An extensive, liquid pan-European exchange is not a mere luxury but a necessity.
Spreading the wealth
A unified exchange would unlock immense capital reserves, attract seasoned analysts and cultivate a deeper understanding of technology companies. Europe’s 35 disparate national exchanges and 41 trading exchanges (compared to the U.S.’ three and 16, respectively) create an unsustainable system.
With its relatively small pool of listed companies, the EU suffers from a fragmented market that lacks the scale and depth to support high-growth ventures. This fragmentation also breeds operational inefficiencies; inflating costs and limiting accessibility for investors and companies seeking capital.
National pride, historical inertia and local politics have perpetuated this stagnation. The concept of numerous national exchanges is as outdated as national airlines in every EU country. These subscale exchanges are vulnerable to manipulation and ill-equipped to guide investors through the complexities of modern technologies such as software, robotics, cybersecurity and other cutting-edge innovations.
This vision aligns with Mario Draghi’s European Commission report, which emphasizes reducing capital market fragmentation and bolstering the European Investment Bank‘s role in financing startups and scale-ups. These are vital steps toward enhancing European competitiveness.
The necessity for a pan-European stock market is further reinforced by modern startups’ inherently “borderless” nature. They operate seamlessly across national borders; a reality that fragmented national exchanges fail to accommodate.
This borderless characteristic is prevalent in sectors such as ride-hailing, e-commerce, social media and music streaming where a few global players dominate. This reality allows companies to tap into larger capital pools, driving up capital intensity, increasing competition and leading to industry consolidation, as evidenced by the food delivery sector.
A unified pan-European stock market would better serve these companies, providing the scale and liquidity needed to compete globally and allowing European investors to participate in the success of these companies.
Opening the exit lane
Listing on a liquid exchange would provide a clear exit path for European entrepreneurs, bolstering the VC asset class and attracting further investment. Stronger exit markets enhance liquidity, improving the VC asset class’s reputation as an attractive alternative investment opportunity.
Retaining “brains and gains” within Europe is vital. The United States, with its highly liquid IPO market and dominant tech giants, has long been the primary beneficiary of European innovation. The U.S. has a much more liquid IPO market, and big tech has driven the most stock market gains in the past three years. Big Tech has also acquired the best tech companies in Europe. Very few, like Spotify, resist selling in M&A and go all the way to a booming stock market listing.
Europe desperately needs the possibility for European entrepreneurs to list in Europe. That option does not exist today.
The U.S. model, where growth often comes through acquisitions, exacerbates the problem.
Traditional European companies’ reluctance to pursue inorganic growth makes a well-functioning pan-European exchange even more critical. It is the only way to ensure European startups access the capital and liquidity they need to thrive.
The expected surge in European defense spending underscores the urgency of this issue. Startups and scale-ups, fueled by venture capital and supported by liquid markets, are best positioned to deliver the rapid advancements needed in today’s geopolitical environment. Traditional defense majors, with their slower processes, cannot keep pace.
These new defense companies also need diverse exit options, as acquisitions by large incumbents may not provide the desired financial returns. This investment, innovation and exit cycle is critical for that sector’s future.
A unified European stock market is both a financial instrument and a strategic imperative. It is the key to unlocking the full potential of European innovation, retaining talent and ensuring competitiveness in the global economy. The time for action is now.
Bo Ilsoe is the managing partner of NGP Capital. Founded in 2005, NGP Capital has more than $1.6 billion in assets under management and has invested in more than 100 companies, of which 19 became unicorns and 11 went on to IPO. Some of the companies NGP has backed in Europe include GetYourGuide, The Exploration Co., ANYbotics, Babbel and Scandit.
Illustration: Dom Guzman
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