Despite what many people may think, there is no real lack in capital supply for Europeans interested in launching their own start-ups in the digital domain.
The rise of (digital) technology start-ups is a global phenomenon, with extensive start-up ecosystems – such as the one in Silicon Valley – being replicated all over the world. Like any other region, Europe is highly interested in reaping the economic and societal benefits of a flourishing start-up economy.
In a recent speech, Neelie Kroes (the former Commissioner for Europe’s Digital Agenda) stated for instance that two out of three (!) new jobs in Ireland are created by start-ups in the first five years of existence.
Not all is rosy, though. Critics often say that it remains hard for European start-ups to get access to the proper financial means to kickstart their businesses.
But is that really the case?
It’s definitely not their biggest problem. Despite what many people may think, there is no real lack in capital supply for Europeans interested in launching their own start-ups in the digital domain.
Virtually each region has done a good job in developing the appropriate funding mechanisms to support start-ups’ launch activities. In other words: it’s not (all) about the money. As a matter of fact, three bigger threats to European start-ups’ longer-term growth can be discerned – culture, regulation and mindset.
A first issue is Europe’s fragmented market – not so much from a geographical perspective, but rather from a cultural one. Indeed, in spite of all good intentions, it remains difficult for European start-ups to sell their products across ‘cultural’ borders. The use of different languages is one obstacle, of course, but divergent social aspirations and cultural values are equally important barriers.
For example, selling a solution for personalized online advertising might be perfectly acceptable in one region because of the advantages it brings (instead of being spammed, one only gets to see those ads that are in line with his/her interests), but it may fail completely in cultures where this is perceived as a direct assault on people’s privacy.
Intra-European legal and regulatory barriers present additional obstacles. A concrete example is the burden that accompanies the launch of pan-European digital health solutions, with each European country having issued its own regulations related to the development, sale, usage and reimbursement of products and services in the digital health realm.
And finally, there’s mindset. Contrary to the US, where everything is big and aimed towards rapid international expansion, European start-ups typically have a more ‘provincial’ mindset. In today’s global, digital economy, though, that’s a major shortcoming. In order to really succeed, start-ups should have international ambitions right from the start.
As we observed already, none of those barriers exist in the US – making this geographical and cultural region a single, big ‘unified’ market with more than 320 million consumers.
Both its scale and transparency make it an easier target to introduce products and grow. A bit ironically perhaps, even conquering the rest of the European market is typically easier if done from the US…
So, how can we address those challenges? I see three important lines of action, in which European policy makers have a major role to play:
– From a regulatory perspective, measures should be taken to further unify the European market – so that its full potential of more than 500 million consumers and potential investors can be tapped.
Streamlining regulation in domains such as digital health, for instance, would already open up a wide range of growth opportunities for potentially hundreds of European start-ups.
Obviously, this would not help us overcome the cultural boundaries overnight; but to that end, instruments are already in place, such as the European Network of Living Labs (ENoLL), to help companies investigate how people will respond to new products and features – before the actual market launch.
– To foster the pan-European growth of start-ups and overcome the provincial mindset, a number of good initiatives have already been taken as well.
One concrete example is the creation of EIT Digital, which helps European start-ups accelerate their growth – o.a. by finding European and worldwide customers for their products and solutions, or by helping them raise funds.
– And finally, when it boils down to securing first customers, Europe should investigate the concept of ‘innovative procurement’– a best practice that has already been widely adopted by the UK and US administrations. It requires government bodies and local branches of big multinationals to allocate a certain percentage of their public procurement activities to innovative start-ups.
As such, start-ups can more easily get the necessary credentials and references to continue growing their businesses. According to certain estimates, public procurement is worth €2,000 billion to the EU economy – so dedicating even 1% of that amount to innovative procurement still equals €20 billion per year to support the European start-up ecosystem.
But also for that, a cultural and regulatory shift is required…