Should All VCs Now Have Policy Roles?
Europe wants global tech champions. But in today’s markets, scale is determined as much by regulation and geopolitics as by capital and execution. That makes a functioning policy–capital–innovation stack indispensable.
For VCs, engaging here is no longer optional: policy now shapes returns as directly as customer demand. Ahead of the VC & Policy session I’ll moderate at FRAME (250 VCs+LPs) in London in Sep 2025 with Atomico’s Tom Wehmeier and European Innovation Council’s Kat Borlongan, I jotted down a few thoughts on what a modern policy function inside venture could look like to enhance responsible innovation, resilience, enduring companies, and European ecosystem building.
In the US, venture capital has already made policy a core capability. General Catalyst even launched a full policy institute in 2024. In Europe, by contrast, the very funds that stand to gain most from a well-designed policy-capital-innovation stack have remained strikingly absent from strategic engagement.
That absence is less a failing than an open lane. Venture today collides head-on with regulation and geo-economics across AI, fintech, health, crypto, climate, manufacturing, energy, or dual-use technologies. At stake is not just compliance or risk management, but the design of the ecosystems in which governments, startups, investors, and society decide how innovation unfolds in ways that build rather than erode trust.
Europe often laments its inability to scale companies into global champions. Much of that stems from shallow capital markets that constrain growth-stage funding. Another part of the story lies in policy itself. As tech becomes regulated, rules have become one of the most decisive determinants of returns: it can halve or double markets overnight, accelerate or delay breakthrough adoption, and tilt the balance of competition. For venture, engaging in policy is therefore not only about managing portfolio risk. It is about co-developing the enabling environment in which founders can scale.
This is where venture’s vantage point matters. Corporates lobby to defend incumbency. Startups fight isolated battles with limited bandwidth. LPs may be concerned by systemic policy risk but rarely engage directly. But VCs see across sectors and stages where business models thrive or stall, and how regulation and governance accelerate or constrain them. That perspective gives them a unique ability to bring market realities into the policy process, aligning incentives between investors, entrepreneurs, policymakers, and the wider innovation flywheel of universities, incubators, corporates, think tanks, and civil society. In this sense, policy engagement is ecosystem-building by another name.
So far, Europe’s VC-policy encounters have been episodic: a hurried call to Brussels, the odd panel slot. But policy is not a drop-in exercise. Trust is the compounding asset here, built over time with policymakers, experts, businesses, academia, and civil society. Like reputation in markets, it is hard-earned, cumulative, and the difference between being a credible partner in ecosystem design or just another opportunist. The funds that approach this as ecosystem co-creation, helping Europe deliver on its stated ambitions and creating the conditions for founders to scale, will be the ones policymakers invite back into the room.
At the very moment the continent is trying to build a globally competitive tech ecosystem and infrastructure, the missing piece is obvious: investors and policymakers barely talk. The task is not to replicate Silicon Valley, but to craft a European policy-capital-innovation stack. Done well, it would propel the ecosystem forward while generating tangible ROI for the funds bold enough to lead.
A lesson from history
The idea that venture capital and policy are inseparable is not new. As Margaret O'Mara recounts in The Code: Silicon Valley and the Remaking of America, the US VC industry’s political awakening came in the 1970s, a decade before the internet boom. VCs like David Morgenthaler and Tom Perkins saw the venture model under threat, and successfully pushed for changes to the “Prudent Man Rule” and favourable tax treatment. These reforms unlocked pension fund capital for venture partnerships.
It was also the period when the National Venture Capital Association (NVCA) was founded, giving the industry a collective voice in Washington. All of that required something unfamiliar at the time: taking a plane east, putting on formal dress, and learning the language of policymakers. The result was a fifty-year head start in bridging capital with policy.
But associations can only go so far. By design, they represent the lowest common denominator. Over the past decade, leading US firms concluded this was no longer enough. Policy had become too critical and too sector-specific to be outsourced. AI, crypto, health tech, or dual-use verticals: each raises unique regulatory questions. That is why some of the best firms built in-house policy teams, embedding the function into their core strategy.
Europe’s untapped interface
Europe has no equivalent institutional muscle and hardly any firm-level policy capacity. The AI Act is only the most recent example where the venture voice was de facto absent. If policy sets the rails for where innovation can scale, it is striking that the very investors financing Europe’s innovation story still have no larger seat at the table.
This is not only about firm-level choices, but about Europe’s structural position. Unlike the US, Europe lacks deep pension markets, liquid IPO pathways, and decades of institutionalised venture. That makes regulatory risk even more material: in an environment where later-stage capital is scarcer, policy and governance friction cannot simply be papered over by abundant growth funding.
Precisely because Europe’s venture industry is younger, smaller, and more fragmented as a ecosystem, the absence of policy capacity is more dangerous, and the potential gains for first movers even larger. Policy engagement here is not just defensive risk management; it is a lever to help build the missing ecosystem scaffolding.
Two barriers explain the gap:
Mindset. Many European investors still treat policy as an external factor rather than a variable they can engage in. Most IC memos go deep on product–market fit or competition risk, but far fewer apply the same discipline to regulatory risk. This creates blind spots: rules can halve or double TAM, delay time-to-market by years, or quietly increase capital intensity in ways that weaken fund returns. Perception compounds the issue: in much of Europe, policy engagement is still not seen as ecosystem co-creation, but as traditional lobbying: costly, reputationally risky, and yielding benefits that are shared by others as well. That free-rider logic discourages individual funds with less overhead than their US competitors from building capacity, even when first movers could secure lasting advantages by positioning themselves at the centre of the innovation flywheel.
Ownership and capacity. Startups rarely have bandwidth to engage with governance and policy until collision with regulators forces the issue. Later-stage companies hire policy teams reactively, when options are already constrained. Industry associations dilute venture priorities into broader industry agendas. LPs flag regulatory exposure but assume GPs have it covered. In practice, European funds lack in-house expertise, and external consultants struggle to command credibility in shaping long-term frameworks. This leaves a gap not of intent but of coordination: everyone acknowledges policy matters, but no actor consistently carries the mandate. The result is an ecosystem missing the connective tissue between innovation capital and policy, one of the decisive institutions Europe has yet to build.
A growing number of actors are flagging this blind spot, but momentum has yet to follow. Atomico’s must-read State of European Tech Report, run by Tom Wehmeier, highlights regulatory dynamism as a key dimension. French VC and author Nicolas Colin has argued for more policy engagement for over a very long time (see our joint article on the business case for VCs here). Leo Ringer, who co-founded Form Ventures, Europe’s first regulated market–focused VC firm, has made the case repeatedly (see our article here on why policy is an opportunity, not an obstacle). Kat Borlongan, now at the European Innovation Council, and I chatted about why VCs and startups are not more present in Brussels here. Sandro Gianella, then at Stripe, expressed his puzzlement back in 2021 at why VCs had not yet built policy teams. Linda Griffin, who helped build EUTA, and I called for the need to create a better ecosystem for responsible innovation here. With Johannes Lenhard of VentureESG, we called for a joint VC and policy vision of what good tech looks like here. Philipp Herkelmann shares in our interview about EU.Inc that there is a new appetite in Europe to fix the system. And the list goes on.
What policy roles should look like
The question is no longer whether funds should engage, but what that engagement should look like to lean into regulated markets and responsible innovation. The answer runs in two directions: vertical, where sector-specific rules in AI, health, or fintech can define entire markets; and horizontal, where issues such as capital markets, stock options, innovation hubs, or cross-border scaling set the ecosystem flywheel conditions every startup depends on.
At fund level, the case for policy plays out on three fronts:
Enduring Companies. In regulated sectors, rules shape TAM, time-to-market, and capital intensity as decisively as customer demand. When policy shifts are missed, companies face longer sales cycles, compliance overheads, or delayed launches that erode ownership and pressure fund DPI. Integrating policy expertise into diligence sharpens risk-adjusted underwriting, while signalling to founders that the fund is a genuine strategic partner - not just a source of capital. Done well, this builds resilience at the portfolio level and contributes to healthier sectoral ecosystems that scale responsibly with direct spill-over effects on good corporate governance.
Venture perspective. Venture is very distinct from private equity, startups or corporates. Without its own perspective, rules on capital, governance, or incentives are written by others, potentially in ways that decrease incentives for early-stage risk-taking. Engaging in the policy and governance conversation ensures that frameworks enable entrepreneurship rather than constrain it, and cab position a fund as a credible interlocutor for policymakers to advance trustworthy, responsible innovation and agile governance frameworks that work in practice. By articulating how venture capital fits into the broader innovation economy, funds help build the institutional scaffolding of the ecosystem itself.
Ecosystem building. Unlike corporates, VCs operate with a portfolio perspective. Their incentive is not to tilt the field for one company, but to create conditions for entire sectors to flourish now and in the future. Campaigns like EU.inc or Not Optional showed what is possible when investors rally stakeholders to remove barriers and unlock growth. First movers gain clear advantages: earlier intelligence on market shifts, reputational leadership with founders, privileged access to deals, faster fundraising cycles, and greater appeal to LPs looking for durable platforms rather than commodity capital. But ecosystem building goes beyond targeted campaigns. Policy engagement, at its most effective, becomes a way of co-creating the broader flywheel of innovation: linking venture with universities, accelerators, entrepreneurs, corporates, think tanks, and civil society. VCs, by virtue of their vantage point and incentives, are uniquely positioned to convene this wider architecture.
A recent example of this co-creation approach is the EU AI Champions Initiative, launched as a flagship outcome of President Macron’s AI Action Summit in Paris. Spearheaded by US VC General Catalyst, the initiative brings together more than 60 European AI companies and was unveiled in direct dialogue with high-level leaders such as European Commission President Ursula von der Leyen. For General Catalyst, this translated into a de facto seat at the table that shapes both the regulatory landscape and the ecosystem flywheel of Europe’s AI economy, complemented by direct engagement with policymakers and corporate key actors.
A strategic imperative
For VCs, policy is part of the investment equation. Frameworks set by policymakers shape markets as much as customer demand. Choosing not to engage means outcomes will be determined without you.
The case is straightforward: policy capacity sharpens diligence, protects returns, and builds the reputation that attracts both founders and LPs. In regulated sectors like AI, fintech, or health tech, understanding regulatory shifts before they hit can mean the difference between doubling TAM or watching markets contract overnight. Policy expertise is an asset that helps VCs lead on responsible innovation when taking board seats in startups.
Europe still needs structural reforms, from pension fund allocations to capital markets union. But firm-level policy engagement is one lever funds can pull today - and one that compounds advantages over time. In markets where capital is thinner, regulatory foresight becomes a decisive source of competitive edge.
The US industry internalized this lesson half a century ago and institutionalized it. Europe has yet to develop its own version of a well-functioning policy-capital-innovation stack. The question now is which funds will seize the first-mover advantage and with it, the chance to define not only return trajectories, but the ecosystems their founders depend on.
Not every fund will build dedicated policy capacity. Some will lead, as General Catalyst, a16z, or Paradigm have in the US. Others, like Sequoia, have shifted from dedicated teams to networked models, leveraging their scale and decades of compounding relationships. Smaller European funds may collaborate through a future vehicle, which could take the form of a European Venture Council. The model matters less than whether engagement is credible, consistent, and long-term.
What Europe cannot afford is inaction. If venture does not contribute to building a functioning policy-capital-innovation stack, the frameworks for AI, health, quantum, and energy innovation will continue to be shaped by the business view of incumbents. And incumbents rarely design for cutting-edge innovation and agile governance.
