1. Scene-setter

Startups and scaleups are key to Europe’s future economy and society1. They are essential players to make the ambitions with respect to the European Green Deal and the European Digital Strategy a reality. In other words, startups and scaleups are at the core of the geopolitical rhetoric enveloping notions such as Europe’s digital and technological sovereignty. The underlying ten-year time political goal is twofold: 1) to boost startup creation and scaleup to shape a trend of EU technological reinvention toward replacing the provision of key services from non-European to European companies2, and 2) to promote the retention of startups and scaleups in Europe, thus avoiding the exodus observed in relocation to other regions, notably the USA. There has been correspondence between political goals, political and regulatory initiatives, and market dynamics.

According to Atomico’s State of European Tech report and to Crunchbase’s latest global VC funding report, European startups had a record-breaking 2021, with 116 billion US dollars invested. That’s 159 percent more compared to the 45 billion US dollars invested in 2020, making the tally about 18% of venture capital invested in startups globally. As for unicorns count, there are currently 150 private companies in Europe worth 1 billion US dollars or more, 84 of which since 20213.

At first glance, this is positive news. However, such an increase follows the global trend, in that most of the VC funding is still happening elsewhere in the world (84%) – that means, outside of the EU. In addition, there is no data available as to the number of unicorns still based in EU27 after their funding rounds. Moreover, despite having the biggest absolute number of startups – notably 246,000, when compared to the USA, Singapore, and Israel – the EU ecosystem loses in all relative indicators per capita, notably on the number of startups, of employed people, and of ecosystem value4.

On the other hand, more European startups today survive beyond the critical phase of 2-3 years, with more growing into larger firms. This fact has largely been underpinned by EU and EU Member States initiatives conducive to foster innovation and entrepreneurship, such as the important role played by publicly funded science. Although improved market conditions and continued entrepreneurs’ tenacity have had their share of responsibility for this result, the challenges startups usually face when intending to grow and internationalize from within the EU Single Market go beyond access to funding.

Apart from the above, the fragmented regulatory and administrative landscape of the Single Market and the chronic enforcement challenges are some of the most important obstacles to startups growth. One other would have to be policy fragmentation throughout the EU, given the existing number of policy initiatives regarding startups. Thus, a better regulatory growth environment and more coordination requires policy action at both the European and national levels.

2. Policy Responses for Startups and Digital SMEs at EU level

The European Commission, hereafter the Commission, has been developing targeted initiatives to address these challenges, as well as Europe’s comparative deficit in terms of boosting and attracting disruptive innovation. Broadly speaking, three initiatives stand out: two of them focus mainly on access to finance, the European Innovation Council5 and the InvestEU programme. The third one is the Startup Europe initiative, a policy-oriented, non-financial structure launched in 2013 and revamped in 2020 within the context of the new EU industrial strategy, which propels a twin digital-green transition among European SMEs. In particular, the Startup Europe initiative focuses on addressing policy challenges of startups and in pushing for policy change through recognizing the specific needs of startups as opposed to other, non-digital-oriented SMEs – particularly, in regard to their growth ambitions, and through connecting startups, scaleups, investors, accelerators, corporate networks, universities, etc.

The most prominent policy feature of Startup Europe was launched in March 2020 – the EU Startup Nations Standard of Excellence (SNS). Undoubtedly, it is the most impactful policy response at EU level to this day.

3. The EU Startup Nation Standards of Excellence

Through an open and inclusive process launched in March 2020, the main promoters of the initiative – the Commission and the Portuguese Presidency of the Council of the EU, during the first semester of 2021 – have identified, with the help of other EU Member States and stakeholders, key practices that are hallmarks of a growth-friendly environment for startups and scaleups.

The output is a set of regulatory principles and best practices focused explicitly on policies that are implemented at member state level, which are designed to foster entrepreneurship in the EU and accelerate the growth of startups into innovative SMEs. According to the Standards, the objective is:

Providing the best framework conditions to help the most promising and strategic startups stay and flourish in Europe and grow to compete globally.

And what are the Startup Nations Standard about?

#1 – Fast startup creation, smooth market entry
#2 – Attracting and retaining Talent
#3 – Stock options
#4 – Innovation in Regulation
#5 – Innovation procurement (including tech transfer policies)
#6 – Access to Finance
#7 – Social inclusion, diversity, and protecting democratic values
#8 – Digital-First

In short, these standards answer to challenges affecting the European startup ecosystem around issues such as the need to curb administrative burdens to mount a company, lack of highly skilled workers, alternative ways of remuneration such as stock options to attract talent6, innovation-friendly regulatory principles, market access and scaleup through public procurement for startups, and access to finance, ideally from EU-origin.

The main political goal is to drive EU Member States convergence and harmonization of startup policies by bringing about one European startup community rather than only national or regional hubs – as well as to ensure all startups and scale-ups benefit from the best practices underpinning Europe’s and the world’s most successful ecosystems. By fully adopting these standards, the signatory countries are officially branded as a Startup Nation, thereby contributing to fostering a more integrated Single Market for Startups.

The SNS is the symbolic and formal recognition of the momentum for startups in the EU, as the main drivers for the twin transition. In parallel, it is the political recognition of the distinctive nature of the startup ecosystem, as well as of the tree of challenges faced to operate and to scale from within the EU. Something that is not solved simply by applying untargeted strategies, but by crafting the specific conditions for these economic operators to take advantage of the Single Market to flourish and gain market access.

As a clarification note, the reason for a recommendations-type, non-binding instrument such as the SNS is due to its multiple scopes. One that touches upon areas that are within the remit of the EU Member States competencies as per EU treaties – such as labour, social security, and education policies or taxation. Therefore, the obvious drawback to the prospects for legislative proposals by the Commission lies in the EU’s formal limitations when it comes to legislating in key policy areas, for which powers remain firmly in the hands of Member States.

At this point, it is relevant to note that under the new EU Industrial strategy, startups are presented as a subcategory of SMEs. Considering the differences between startups and SMEs in terms of business models, intent (with startups scaling and growing cross borders, and SMEs usually maintaining a suitable place in a local market), and funding arrangements (startups look for diluted equity while the SMEs do not want to relinquish control), the Commission should consider an independent startup strategy to account for these differences. In this sense, the SNS emphasizes the commitment of EU Member States and of the Commission to work towards establishing a “clear EU-wide reference-point to define key features of a Startup that will be recognized by all Member States, making it easier to design common policies in support of startups”7. But for now, no such action has been taken.

The SNS was formally adopted by 26 European Member States8 and Iceland during the 2021 Digital Day, on 19 March 2021, under the Portuguese Presidency of the Council of the EU. The signed ministerial declaration, containing context, recitals, and the list of these best practices, carries the enormous political significance of putting into word for the first time a high-level compromise to address startups policy and regulatory fragmentation across the EU.

More recently, on 8 February 2022, during the event «Construire la souveraineté numérique de l’Europe», organized by the French Presidency of the Council of the EU, new developments were made around two of the eight standards, although within the context of a parallel pan European scale-up initiative, the Scaleup Europe9.

To attract talent, it was agreed to work on the creation of a new European one-stop-shop, allowing to speed up the process of issuing Visas for entry into the European space, responding to the challenge of the lack of qualified workforce in the digital area.

And regarding access to finance, it was agreed to the creation of a European fund of funds for European startups and scaleups, to allow access to higher investment rounds, necessary in startups and scaleups at later stages of development.

4. SNS Implementation: the European Startup Nations Alliance (ESNA)

Almost one year into the SNS adoption by signatory members, the obvious, and the most immediate task ahead is to ensure these best practices — ‘EU-made’ and third country — are shared and increasingly implemented across all EU Member States. However, unlike other leading countries, Europe lacked an entity accountable for promoting an EU approach to entrepreneurship and articulating efforts carried out at a country level. For the purpose of SNS implementation, a new European entity, leading the EU agenda for entrepreneurship – and based in Lisbon, Portugal – was announced on 3 November 2021: the European Startup Nations Alliance (ESNA), giving substance to a partnership approach to governance.

Supported by several antennas throughout Europe, ESNA will articulate all policy efforts regarding the startup ecosystem’s SNS agenda. It will do so through focusing on four strategic pillars:

  1. setting a data-driven platform, with an integrated startup marketplace, mapping all startup actors, activities, best practices, etc;
  2. facilitating knowledge on funding programs and fund-raising opportunities through a single point of contact and network for the European startup ecosystem;
  3. the creation of an EU brand;
  4. growth and internationalization.

These pillars will be aligned with the SNS, to monitor the progress and support its uptake by the Member States.

The governance structure will revolve around two principles: representation of each Member State and representation of key relevant stakeholders. These principles will feed a tripartite structure: an Annual Forum, with all Member States represented; an Executive Board, with an Executive Director supported by the DG Connect division of the European Commission, and a Strategic Committee, where relevant stakeholders can participate.

In terms of the state of play of the implementation process, ESNA has already been legally established. The executive team is being set up, and all signatory countries must agree on internal proceedings of the governance structure. Once set, ESNA’s SNS implementation will work in articulation with the Commission and the signatory members, and be guided by the principles of transparency and of independence in monitoring.

ESNA 2022 calendar for activities is now closed, with a focus on talent and financing. On talent, the idea is to establish a European one-stop-shop and to develop a European fast track procedure for Tech Visas in order to facilitate and attract talent to the European market. On financing, the idea is to top up existing venture capital funds and improve their financing capacity through having signatory countries pooling in financial resources to a new “fund of funds”, managed by the European Investment Fund. Considering that the existing financial resources that are properly European are rather directed towards early stages of development of start-ups, the new focus of attention will be the easy mobilisation of large amounts of money to later stages of start-ups development.

5. SNS and the link with 2030 Digital Compass

In the 2030 Digital Compass: the European way for the Digital Decade, published on 9 March 2021, the Commission presented a vision, targets and avenues for Europe’s digital transformation by 2030. The Digital Compass aims to establish an annual cooperation cycle and to introduce a governance framework involving the Commission and EU Member States to reach the EU’s Digital Decade targets. More recently, on 15 September 2021, the proposal for a Decision establishing the 2030 Policy Programme “Path to the Digital Decade” seeks to enshrine this policy programme into EU law. In short, the Commission would first develop projected EU trajectories for each target together with the Member States – which would, in turn, propose national strategic roadmaps to attain them. The 2030 Digital Compass embodies the vision to make Europe a sovereign technology continent10.

The 2030 Digital Compass Section II is divided into 4 subsections, each of which representing targets along four cardinal points. The first two subsections focus on digital capacities in skills and infrastructures, and the other two focus on the digital transformation of businesses and public services. And within the digital transformation of businesses subsection, the Commission suggested the objective for 2030 of “growing the pipeline of its innovative scaleups and improve their access to finance, leading to doubling the number of unicorns in Europe” (not European unicorns), to around 250. For the Commission, the SNS is key to achieve this specific goal.

Linking the intention to support innovative companies to concrete goals can help to ensure that the “death valley” between research & development and market adoption will finally be successfully addressed. According to the Digital Compass, Europe is already bringing about as many startups as the US, but seems to lack a truly functioning Single Market for rapid growth and scaling up.

6. What is missing

Regarding the SNS, one of the most important things at this stage is to rank the most pressing standards for implementation – although European officials might think that they are all equally important. As to what is missing within the Standards, there are references as to what could be present and is not11. This task is yet to be fulfilled – and is supposed to be fulfilled by ESNA, in consultation with the relevant stakeholders.

Regarding the 2030 Digital Compass, such a key policy roadmap for the future of the EU digital transformation only mentions startups within the context of this strategic goal. Although the talent section in the SNS is aligned with the cardinal point related to skills, startups are somewhat neglected within the context of the other two relevant cardinal points of the 2030 Digital Compass: the digitalisation of public services, for which govtech startups are an emerging relevant market, is not aligned with the standard on innovation procurement in the SNS – which seeks to ensure “public buyers and procurement services to procure innovations from startups”. The same applies to securing and performant sustainable digital infrastructures, in the context of which startups references are absent.

Another key and horizontal element has to do with how to reconcile not only this policy target but startup-related policy objectives. That is something traditionally portrayed as the feasible outcome of a negotiating context, underpinning a legislative proposal, which often relies on legal techniques which reward startups staying small. In this sense, policy goals and legal texts are often misaligned, although driving economic development through legal instruments is one of the cornerstone principles of European integration.

7. Further reading references


  1. https://digital-strategy.ec.europa.eu/en/news/24-eu-member-states-commit-digital-day-take-action-support-growth-eu-startups
  2. The regulatory work in the DSA, DMA, DGA, AIA, GDPR, the future Data Act also answer to such goal. The French Presidency calls it the “EU tech awakening”.
  3. https://tech.eu/research/45941/european-techs-share-of-global-venture-capital-funding-18/
  4. Roberto Viola, European Commission, during 2021 Digital Day (video).
  5. The fully-fledged European Innovation Council (EIC), launched in March 2021 under Horizon Europe, is a major new player on the innovation landscape. Its unique approach to identifying, developing and scaling up Europe’s breakthrough technologies and game-changing innovation is already delivering tangible results. The fully-fledged EIC key achievements.
  6. France and Germany will introduce new legislation on stock options.
  7. Spain has been the last European Member State to adopt a draft Startup Law. 10 December 2021.
  8. Signatory countries of the EU Startup Nations Standard of Excellence: EU MS include Austria, Belgium, Cyprus, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden. Hungary did not sign the declaration. Iceland, a non-EU MS, signed the declaration.
  9. The Startup Nations Standard is not the only initiative that has emerged aiming to make Europe a more start-up friendly environment. Scale-up Europe, led by the French President Emmanuel Macron, has called all stakeholders to join forces around start-ups.
  10. This goal should be read against all the legislative (GDPR, DGA, DMA, EU Data Spaces), policy (SNS) and stakeholders (GAIA-X) initiatives which are currently in place.
  11. Action Plan to Make Europe the new Global Powerhouse for Startups – 19 May 2021
  12. Action Plan to Make Europe the new Global Powerhouse for Startups – 19 May 2021

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