I think the reason for this is that if you're targeting folks for whom Europe-sovereignty resonates as an important factor, those will also care about sovereignty and self-sufficiency in general, and thus just skip your SaaS and go right for (semi) self-hosting.

While for the other side where the sovereignty is not an important factor, it's product quality that matters.

You can absolutely make a European startup that sells B2B SaaS, successfully, it just has to be better than the competition, and being European will not be enough.