Europe's AI Act Arrives, but the Investment Gap May Matter More

Brussels got its rules. Now it has to live with the consequences, and with an investment gap that no single market framework has closed in fifty years.

The EU AI Act was expected to introduce its key rules for general-purpose AI models on 2 August. Warnings about the cost to European competitiveness had been building for months before that, from Swedish Prime Minister Ulf Kristersson, Bosch CEO Stefan Hartung and the tech lobbying group CCIA Europe, whose members include Alphabet, Meta and Apple, according to The Next Web. The European Commission said it wanted to get the detail right rather than rush. "This is a big, sophisticated technology, and we want to get it right," Eoghan O'Neill, senior policy officer at the AI Office of the European Commission, told TNW Conference in Amsterdam on 20 June. "We need specific obligations to capture some of the most impactful or potentially harmful models under the AI Act."

O'Neill said a broad code of practice group drafted the guidelines. It included model providers, civic society organisations, NGOs, academics, AI safety experts, SMEs and European industrial giants. He called it "a big tent with all of those voices from the stakeholder community".

That is the Commission's case: wide consultation, targeted obligations, no retreat from the principle. European operators do not argue that the Act is wrong in principle. They argue that it lands on a market too fragmented and too thinly funded to absorb it.

"Europe is not the United States"

Fabrizio Del Maffeo, CEO of the Netherlands-based chip company Axelera AI, put the fragmentation problem in blunt terms at the same conference. "Europe is not the United States," he said. "We have many languages, many markets, and many regulations, both European and local. And these are stifling growth because they create borders, making it difficult for companies to expand."

Del Maffeo said Axelera had signed the petition for "EU Inc", a proposal to create a standardised legal entity for startups that would make it easier to operate across member states. The idea sits under the bloc's 28th regime, a pan-European legal framework designed to help startups scale. In a speech at Davos in January, Commission President Ursula von der Leyen said the rules would combine "corporate law, insolvency, labour law, taxation" in "one single and simple framework".

But regulation, Del Maffeo argued, is only part of the problem. He said the obsession with launching new startups needs to be balanced with a focus on scaling existing ones, which requires capital more than policy. The numbers he cited are not flattering. Europe accounts for just 8% of the world's scaleups, against 60% in North America, and no EU-founded startup in the past 50 years has surpassed a €100bn valuation. "If you look at machine builders, we are leading the world," he said. "In automotive, we are great, but we are losing traction. In robotics, we do great, but we are also losing traction."

The funding picture is equally lopsided. European startups raised about $52bn (€44bn) in venture capital last year, far less than the $209bn (€177bn) their US counterparts attracted.

Capital, not just compliance

Peter van der Putten, director of the AI Lab and lead scientist at software firm Pegasystems, made the case that Europe should be courting money rather than simply writing rules for it. "Investment could come from the EU, but also from the US," he said. "Regulations could be adjusted to make it easier and more attractive for funding that's leaving the US to flow into Europe."

That framing turns the usual compliance debate on its head. The question is not only what European AI companies must do to sell into the single market. It is also whether the compliance burden changes who is willing to fund them while they do it.

Not everyone at the conference was pessimistic. Elise de Reus, co-founder of Cradle, pointed to a growing trend of European engineers returning from Big Tech jobs in the US, drawn by purpose-driven work and better quality of life. "We're welcoming European engineers who used to work at Big Tech companies like Facebook in the US to come back and contribute to solving societal and global problems such as climate change," she said. She added a caution against imitation: "We're also maybe a little bit too modest. We should measure happiness, not GDP, which is not a sustainable metric. I don't think we should copy and paste the American system."

Two things are true at once here. The AI Act is now the operating environment for anyone selling general-purpose AI into Europe, and the Commission has said it intends to enforce specific obligations on the most powerful or risky models. But the Act will not, by itself, produce the scaleups, the later-stage capital or the cross-border legal simplicity that European founders have been asking for.

That second agenda is where the real test sits. The 28th regime, EU Inc and the push to attract both domestic and returning capital are all attempts to answer it. None of them moves at the speed of a model release.

Europe's regulators have spent the past year arguing that they can write careful rules without killing the market. The market data suggests the harder problem was never the rules. It was the scale.