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European founders hoping to raise funds for their businesses in 2025 aren’t spoilt for choice. The number of active VCs in Europe has dropped by 30% in the last two years as exits slow and startups prioritize profitability over rapid growth. Add to this the fact that European VC fundraising has declined—dropping from €34 billion in 2022 to around €21 billion in 2024—and you can be sure founders face a challenging funding environment.
For entrepreneurs across the globe, tokenization is a ‘backdoor’ into funding: it allows companies to steer clear of VCs, who can be pretty picky and demanding. For private companies that are too small to go public—and are keen to avoid added costs—tokenization also promises to unlock IPO-like funding from a diverse pool of investors.
But there’s a pitfall: regulation in Europe is not as progressive as it could be, and this holds back the whole funding system. Tokenization is no crypto fad—the tech falls under securities regulation, which asserts that equity tokens are essentially digital shares recorded on the blockchain. That’s not to say that tokenization is off the table for European founders: as we’ll see, entrepreneurs can leverage foreign jurisdictions, like the United States, where tokenization is a huge trend. In any case, though, Europe’s economy stands to win big time from adjusting regulation to the needs of founders.
Europe vs. the world: The benchmark battle
Who is leading the way in tokenization? The US, Singapore, some MENA countries, the British Virgin Islands, Switzerland, and Lichtenstein are the big players. The bigger point to understand is how these countries have stepped up their game compared to most of Europe.
These countries are taking a pretty different tack to the continent—so let’s check out three key reasons giving them an advantage. First up: low barriers to entry for investment. This means these countries are very nicely placed in tokenization because SMEs located here have the freedom to experiment with the tech and issue equity tokens. This type of token is the best fit for the majority of issuers, so the inability to tokenize equity noticeably hinders the adoption of tokenization by SMEs. Local authorities also set emissions thresholds, enabling entities to operate below established limits without the need for extensive licenses or brokerage involvement.
The countries also have the upper hand in tokenization because securities offerings targeted at foreign investors are exempted from their regulations: this means that businesses don’t have to register Prospectus or obtain a license in their home country while operating in foreign countries, allowing them to work abroad freely. Naturally, this is a very attractive opportunity for founders as it unlocks access to a significantly larger investor pool.
The final reason that allows these countries to take the lead in tokenization is a very useful corporate law. This piece of legislation allows equity tokens to be transferred without physically notarizing the change of ownership.
This sheds some light on why the aforementioned countries are stronger in tokenization. Against this backdrop, Europe is unfortunately lagging behind. Importantly, European corporate law poses obstacles, often prohibiting private companies from issuing easily transferable equity securities. Companies have to register as public companies, work with a securities depository, and provide a physical notary’s certificate (which is ridiculous given the context of blockchain).
Europe is also held back by the lack of a uniform threshold for issue sizes. Countries like Austria and Belgium, for example, operate at a €5 million threshold, while Germany and France set theirs at €8 million. This makes the investment landscape and cross-border investments across Europe quite fragmented.
Diagnosis for Europe
There’s little doubt that the regulatory outlook for tokenization in Europe is challenging—and it’s set to become even more so as the new Markets in Crypto-Assets Regulation (MiCA) regulation leaves the RWA asset class largely outside of its scope, focusing instead on crypto and stablecoin circulation across Europe.
Yet, despite these challenges, the European market is underinvested in most fields. According to the World Economic Forum, between 2015 and 2022, European corporations underinvested €700 billion every year in tech, compared to the US, while achieving lower returns on invested capital. This means there are outstanding investment opportunities on the continent for founders and investors.
However, investing options for Europeans are limited: they can’t fund private companies, there is a lack of aggressive IPO activity in Europe, and traditional stock markets do not align with the risk and return profiles of many investors. As a result, many European founders lean towards raising from foreign investors. Tokenization is a better fit for them—and they would be better off running it in a foreign jurisdiction. So, whilst many European issuers and investors hesitate to go abroad, many take the plunge—and reap the benefits.
We can see that Europe is lagging behind in tokenization. Clearly, European corporate law needs to be refined in favor of tokenization and securities on the blockchain. This will allow for direct investment in private companies across Europe, and regulatory enhancements will kickstart investment activity across the continent. So, when faced with such potential to boost the European economy, why wait?
