Why Are Europe’s Smaller Cities Producing So Many Startups?

Europe’s startup economy often begins in discussions about places like London or Paris but the latest Dealroom Global Tech Ecosystem Index gives us another side to this. Europe’s advantage actually comes from a long list of smaller cities that are turning research and technical expertise into successful companies.

Dealroom found that Europe accounts for 45 of the world’s top 100 tech ecosystems on a per capita basis, ahead of North America’s 40. The ranking measures startup activity, unicorn creation, enterprise value and university connections relative to population size.

That result brings cities such as Cambridge, Ghent and Lausanne into view. Cambridge came third globally in the Density Leaders category, which is only behind the Bay Area and Boston. London, Stockholm and Ghent also locked in positions in the global top 10.

So, What Does This Mean?

This completely changes an old assumption startups might’ve had. Building a global company no longer requires being based in one of a few giant tech capitals. Dealroom’s data shows specialised ecosystems producing internationally competitive companies from cities that many investors would once have overlooked.

Raffi Kamber, General Partner at Singular, said, “The European tech narrative is a familiar one but what we talk less about is the rare breed of founder quietly building something the continent has never produced before: scientists who think like entrepreneurs, technical talent that thinks like operators, building from their European hometowns.

“Dig deeper and you find this new generation of AI x Science founders: the sciencetrepreneurs like Basecamp Research and Spore.Bio. And, on the other hand, you have Aikido Security, which flipped the cybersecurity space from Ghent which I bet was unexpected. This is the data as we see it and nothing speaks louder.”

What Makes Europe Different From The US Model?

The Dealroom rankings tell us that Europe’s startup strength comes from many locations. Success is not concentrated in a small collection of mega hubs.

Research institutions form an important element of that formula. Cambridge, Lausanne and Munich all benefit from close relationships between universities, technical talent and entrepreneurs. The result is a pipeline of startups rooted in scientific research and engineering expertise.

Yoram Wijngaarde, Founder and CEO of Dealroom.co, said, “As Europe struggles with entrenched low growth, political leaders see tech and innovation as a fundamental building block of economic competitiveness. Innovation is seen as a route not only to securing growth but also national resilience and strategic autonomy.

“What stands out is not just the strength of leading hubs like London and Paris, but the rise of high-performing smaller ecosystems often built around leading research and academic institutions. Our Index provides a transparent, data-driven benchmark to help leaders understand and accelerate that growth.”

Bobby Jäckle, Partner at Visionaries, said, “Europe’s strength in tech has never been about one city or one country. It comes from the depth and diversity of ecosystems building globally relevant companies across the continent.

“From London’s leadership in AI and fintech to deep tech hubs like Munich, Cambridge and Lausanne, we’re seeing a new generation of founders building with greater ambition and urgency. What’s especially exciting is how Europe’s technical talent, research strength and industrial base are coming together to turn the continent into a serious force in AI, software and strategic technologies.”

Is Policy Becoming A Startup Growth Tool?

The European Commission’s first European Startup and Scaleup Scoreboard presents an interesting conclusion. Countries that make life easier for founders tend to produce better startup ecosystems.

According to the Scoreboard, 20 of the EU’s 27 member states improved their performance between 2020 and 2025. Estonia, Sweden, Finland, the Netherlands and Denmark lead the rankings.

Estonia recorded 615 venture capital backed companies per million inhabitants, the highest level in the EU. Sweden produced 409 unicorns per million inhabitants, more than any other EU country. Finland matched high research and development spending with substantial patent activity.

The Commission also identified the issues faced by countries lower in the rankings. Access to later stage venture capital isn’t as accessible in many markets. Administrative processes can slow expansion, and talent often leaves for ecosystems that would provide more attractive conditions.

That is important for startups because policy now influences where companies choose to launch and grow. The Commission is using the findings to guide initiatives such as EU Inc., a proposed single corporate framework across the EU, the European Business Wallet and the EU Visa Strategy.

What Can Founders Learn From Europe’s Rankings?

One big lesson here is that startup success depends less on geography and more on ecosystem quality.

London reclaimed its position as Europe’s leading tech ecosystem after raising $17.8 billion in funding during 2025, according to Dealroom. AI investment in the city reached $7 billion, and London is home to 138 unicorns.

The most interesting lesson from this year’s rankings comes from cities outside the traditional capitals. Munich has become a hub for defence technology and industrial innovation. Istanbul, Kyiv, Zagreb, Athens and Sofia are all moving higher in Dealroom’s Rising Star rankings.

Jan Hendrik Boelens, co-founder and CEO of Alpine Eagle, said, “Munich has fast become a critical hub for Europe’s next generation of defence and deep tech companies. What makes this ecosystem different is the combination of engineering talent, advanced manufacturing and a growing recognition that the continent must build more of its own strategic capabilities.

“The city also benefits from its proximity to Technische Universität München (TUM), one of the world’s leading engineering universities, which helps create a strong pipeline of technical talent. For Alpine Eagle, growing here means we can scale quickly while remaining deeply connected to the industrial and technological foundations Europe will need to strengthen its long-term security and sovereignty.”