European policymakers are putting in place a series of new laws and initiatives to help the continent rival Silicon Valley, hoping to promote more investment in European tech startups and also attract talent to the sector.
German finance minister Olaf Scholz over the weekend announced plans to make it easier for companies to give employees stock options, which is a way for small companies with little cash to make big hires.
“A flourishing startup scene is important for our country, it strengthens the innovative capacity of the economy,” he said, adding the law should be agreed next month. “That’s why I am introducing new rules. Young companies should be able to really get started, even in difficult times.”
The news was first flagged at the ‘Not Optional’ event organised by VC firm Index Ventures and startup conference Slush last week, with Jörg Kukies from the German finance ministry saying they would help to “incentivise startup investment in our country”.
This comes amid a sustained campaign by Index and other entrepreneurs to make it easier to give employees options — seen as a way of aligning incentives between employees and their company. France changed its options rules earlier this year.
New startup-friendly policies galore
But this is not the only new policy likely to come into action soon. At the same ‘Not Optional’ event, Gerard de Graaf, a director at the European Commission, said that a new ‘Startup Nations Standard’ should be created during the Portuguese Presidency of the European Council starting in January.
This ‘Startup Nations Standard’, he said, will call for commitments from member states to implement a set of best practices — such as on options or visas. “If you fulfill all of the standards — there will probably be about 10 of them — then you can call yourself a Startup Nation,” said de Graaf.
At the event, Stéphane Ouaki from the European Commission also laid out expectations that the European Commission will invest €3.5-4bn into startups between 2021 and 2027. It will also shift from primarily supporting VC funds towards directly investing in startups.
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This money will be invested through the European Innovation Council (EIC) equity fund, which was formally launched back in June with a pilot programme of several hundred million but is expected to get a much larger budget under the Horizon Europe framework (which is being finalised at the moment).
The EIC has been dubbed Europe’s “unicorn factory”.
Problems to solve
The broader context of the three announcements is that although the European tech and startup ecosystem is growing, most policymakers agree that it needs to accelerate faster to become a truly global force.
According to a report from Dealroom, the combined value of European startups has risen from €155bn to €618bn over the past five years. There are now 2m people employed in tech startups, up 43% compared to 2016. 38% of global seed-stage capital is raised by European startups.
These are the positive points.
On the negative side, while European tech startups attracted $34bn in investment last year, this record number was still well below the $117bn in the US and $63bn in Asia. At the same time, much of the money that was invested came from foreign investors, not European ones.
In Europe, there is still a much-discussed problem of a lack of scaleup capital in Europe able to take companies from the early stages right the way through to IPO. This is seen as one part of the reason why Europe has been poor compared to the US at creating global champions.
A recent McKinsey report says that while Europe accounted for 36% of all global startups launched between 2009-19 it had only built 14% of the world’s unicorns in 2019. “Historically, Europe’s ecosystem has been less effective than that of the US at turning startups into late-stage successes,” the report concluded.
At the Not Optional event, Johannes Reck, cofounder and CEO of Get Your Guide, said that European startup were “losing out” because large pensions funds and insurance companies were unwilling and often unable to allocate capital to VC funds, meaning few funds has the firepower to take a company all the way to IPO.
Last week, Get Your Guide raised a €114m round in the form of a convertible note from mostly non-European firms such as Searchlight Capital, SoftBank Vision Fund, KKR, and Spark Capital.
Also speaking at the Not Optional event was Cedric O, France’s junior minister for the digital economy, who dropped a devastating fact: the last IPO of a tech company at a €1bn+ valuation in France was in 1996 when Dassault Systemes listed.
But he said that France — like the rest of Europe — was stepping on the accelerator. He said that since the election of President Macron, France has implemented tax and labour reforms and a new tech visa to support startups and attract talent.
He said France was looking to create the next tech giant. “Building choices takes time, that’s why we need to invest now: France is pushing hard on investment in AI, quantum and cybersecurity.”
He added: “Europe has an economic opportunity, as the US economy isn’t as good as it used to be, and the European model is attractive. Therefore, we need to create the right environment and framework to nurture our startups.”