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European entrepreneurs aiming to secure funding for their ventures in 2025 aren’t faced with an abundance of options. The number of active venture capitalists in Europe has declined by 30% over the past two years, as exits slow down and startups focus more on profitability than fast-paced growth. Compounding the challenge, European VC fundraising has seen a decrease—from €34 billion in 2022 to around €21 billion in 2024—indicating a tough funding climate for founders.
For entrepreneurs globally, tokenization serves as a ‘backdoor’ to raise capital: it enables companies to bypass sometimes selective and demanding VCs. For private entities too small to go public and wishing to avoid additional costs, tokenization opens the door to IPO-like funding from a wide array of investors.
However, challenges exist: European regulations remain comparatively stagnant, which hampers the overall funding ecosystem. Tokenization is more than a passing trend; the technology falls under securities regulations, classifying equity tokens as digital shares recorded on the blockchain. Despite this, tokenization isn’t entirely off the table for European founders; as we will explore, entrepreneurs can take advantage of foreign jurisdictions like the United States, where tokenization has become increasingly popular. Ultimately, a regulatory shift tailored to the needs of founders could significantly benefit Europe’s economy.
Europe vs. the world: The benchmark battle
Which regions are at the forefront of tokenization? The United States, Singapore, certain MENA countries, the British Virgin Islands, Switzerland, and Lichtenstein are notable leaders. It’s crucial to recognize how these nations have enhanced their approaches compared to much of Europe.
These locations adopt a markedly different approach than Europe—let’s delve into three key advantages they possess. First, low barriers to investment. This situation allows businesses in these countries to experiment with technology and issue equity tokens freely. Such tokens align perfectly with the needs of most issuers, meaning the inability to tokenize equity can notably impede adoption among small and medium-sized enterprises (SMEs). Local authorities often set emission thresholds that permit entities to operate below established limits without the burden of extensive licensing or brokerage requirements.
Moreover, these countries hold an advantage in tokenization as they exempt securities offerings aimed at foreign investors from local regulations. Consequently, businesses can avoid registering a prospectus or obtaining a license in their home jurisdiction while operating in foreign markets, thus accessing a much larger pool of potential investors.
The final key factor that gives these nations a leg up in tokenization is favorable corporate laws. Legislation that facilitates the transfer of equity tokens without the need for physical notarization of ownership changes proves invaluable.
This explains why the previously mentioned countries excel in tokenization. Unfortunately, Europe trails in this regard. European corporate law imposes hurdles, often preventing private companies from easily issuing transferable equity securities. Companies frequently need to register as public entities, collaborate with securities depositories, and provide physical notarization (which seems counterintuitive in a blockchain context).
Additionally, Europe suffers from a lack of uniformity concerning issue size thresholds. For instance, Austria and Belgium have a threshold of €5 million, while Germany and France set theirs at €8 million. This inconsistency leads to a fragmented investment landscape and complicates cross-border investments within Europe.
Diagnosis for Europe
It’s clear that the regulatory landscape for tokenization in Europe presents significant challenges—and this is likely to worsen with the introduction of the new Markets in Crypto-Assets Regulation (MiCA) that largely excludes the RWA asset class, focusing instead on cryptocurrency and stablecoin regulation within Europe.
Nonetheless, despite these hurdles, the European market remains under-invested in numerous sectors. The World Economic Forum reports that between 2015 and 2022, European companies underinvested by €700 billion annually in technology compared to the United States, while yielding lower returns on invested capital. This indicates abundant investment opportunities across the continent for both founders and investors.
However, investment options for Europeans remain restricted: they lack the ability to fund private companies, encounter a scarcity of vigorous IPO activity in Europe, and find that traditional stock markets do not align with the risk and return preferences of many investors. Consequently, numerous European founders are now looking to foreign investors for support. Tokenization suits their needs better—and many would be better off pursuing it in jurisdictions outside their own. While some European issuers and investors may hesitate to venture abroad, many take the leap and enjoy substantial rewards.
It’s evident that Europe is trailing in tokenization efforts. There is a clear need for European corporate law to evolve to accommodate tokenization and blockchain securities. Such changes would enable direct investments in private companies throughout Europe and regulatory improvements would stimulate investment activity across the continent. With such potential to boost the European economy, why delay action?