This analysis was first published in SvD Näringsliv, in Swedish, on September 25th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

With new laws, the EU has American tech giants in a firm grip. But Europe has yet to produce a single one of its own.

EU Commissioner Thierry Breton looked visibly pleased as he looked into the camera and delivered the following message:

“It is D-Day for the DMA. This is a very important milestone for freedom and innovation in Europe.”

Breton was referring to the legislative package known as the DMA — the Digital Markets Act — which had just published its list of tech companies the new laws would apply to.

The names on it were familiar to most: Apple, Amazon, and Meta, for example.

More interesting is where those companies come from. All of them are American, with the exception of ByteDance, which is Chinese. Europe’s new laws therefore do not apply to a single European company.

That the EU has been at the forefront of regulating tech companies is well known. The question worth asking is the opposite — what has it done to foster them?

For a well-functioning tech company, there are few reasons to remain listed in Europe today. SvD’s analysis shows how large the valuation gap between European and American stock markets really is. Comparable companies are often traded at significantly higher multiples on the other side of the Atlantic. Firms like Cevian Capital are now actively looking at moving some of their listed holdings to the US to unlock more value.

Part of the problem with European stock markets is low liquidity. Look at how individual sectors are distributed across the Nordic exchanges, for example. Both tech and gaming companies are noticeably more concentrated on the Stockholm Stock Exchange than their counterparts in Copenhagen or Helsinki. And even if it is technically possible to trade across borders, smaller silos form that limit liquidity. In a small region like the Nordics, there is not an unlimited pool of investors to draw from.

The same reasoning applies more broadly to all of Europe.

Add to that currency risk in certain countries — Sweden in particular — and there are many reasons not to list a successful company in either the Nordics or Europe. Spotify — Sweden’s most brightly shining star among tech companies — chose, as is well known, to list in New York in 2018.

Europe’s problem is not a lack of ideas or capital. A report from Swedish venture capital firm Creandum shows that Europe has captured a growing share of early-stage investment capital (what is known as seed). Over 20 years, that figure has risen from 8 percent to 28 percent. The amount of money raised by European venture capital funds for further investment also reached a record level in 2022.

So there are upward-pointing arrows for Europe in tech as well.

The concern grows when you look at where the value of these companies is ultimately realised.

Most tech companies — those that survive at all — will be acquired rather than going public. And who is doing the acquiring? Again, Americans are in the driving seat. The European M&A market for tech is very limited. There are very few large players in Europe buying companies at the same level as their American counterparts.

Looking at a selection of major Swedish tech deals, a clear pattern emerges. On the selling side: Swedish tech successes. On the buying side: American companies. The list is long. The European equivalent, by contrast, is short.

Nothing suggests this trend will reverse. On the contrary — due to the weak krona, Swedish companies have never been cheaper for those buying in dollars.

At the same time, the European tech ecosystem erodes with every acquisition that takes place. The acquired companies never get the chance to grow into the kind of tech giants that buy rather than get bought.

In the middle of all this sits the EU with its new legislative package. The cumbersome data law GDPR was already in place. These laws have done much to keep tech companies in check. But very little to ensure they remain here in the first place.