It’s boom time for tech startups on both sides of the Channel. British startups are believed to have raised more than $30 billion this year, while European startups raised over €24 billion in Q3 alone.
However, securing funding is no guarantee of success, even for the most innovative companies. Startups continue to face the challenge of scaling up into a secure business. As many as nine out of every ten fail.
Policy-makers are not short of strategies to try to deal with this. The UK is still Europe’s leading startup nation and the government has published both an innovation and an AI strategy in the past few months. In Brussels, the European Commission has come forward with several startup strategies, including the Startup Nations Standard (SNS), the European Startup Nations Alliance (ESNA), and Global Powerhouses. The French government has also proposed the ScaleUp Europe Initiative ahead of its European Council Presidency.
These initiatives demonstrate how popular startups are in government circles. This is understandable. Startups are at the cutting edge of innovation and many have the potential to be future national industrial champions. Governments are prepared to take a chance on them, and to publicly support them. This support doesn’t always translate into an attractive regulatory framework, however. In addition, if a particular startup gets too successful, and disrupts existing industries, governments can quickly turn against the innovation they were initially attracted by.
However, at the moment, startups are the flavour of the month in capitals around Europe. The key question here is whether this political support will translate into practical action on the ground.
Britain is still the destination of choice for many startups. The regulatory environment, English language, ease of starting a business, proximity to venture capital and tax environment all make it an attractive place for them. The government is also working through existing EU law on the statute books and aims to create a more tech-friendly regulatory framework. It has already opted out of the EU copyright reforms and is also likely to make amendments to the Data Privacy Framework. Its AI regulation is also likely to be more light than the current EU proposals.
It’s traditional place as a stepping stone between the US and EU for tech companies is also still in place; however Brexit has complicated access to the European single market as British-based tech companies are now outside the EU digital single market. As a result, they can’t be confident that data adequacy with the EU will still remain in place long term, something that would significantly complicate their ability to service EU customers in the future.
On the other side of the Channel there is also broad political support for startups, demonstrated in part by the plethora of new strategies coming out of the European Commission and the member states.
In particular, 26 countries signed up to the Startup Nation Standard (SNS) and committed to a set of practices to foster entrepreneurship. Although non-binding, it includes a number of commitments that would create an attractive regulatory environment for startups. These include: ensuring that companies can set up in one day; Visa reform to attract talent; and tax reform of stock options.
The aspiration is ambitious, but translating it into action will be much harder. However it demonstrates that there is the will to have a more startup friendly ecosystem in Europe. The practices included in the SNS are not limited to Europe, but could be applied to any prospective startup nation.
Startups in Britain and the EU face the same challenges, both are trying to find a niche within a highly competitive global market currently dominated by US and Chinese firms. Policymakers in both London and Brussels want a new generation of startups to mature into world-leading tech businesses. To do that, they will try to foster regulatory systems that encourage and nurture domestic startups, and crucially ensure that the regulatory, venture and business environments are all fit to allow that growth. This will undoubtedly lead to divergence and some regulatory competition.
While that is healthy, in tech policy at least, the UK and EU will need to work together to ensure that digital services and data can flow across the Channel. If they can do that, the future will be bright for startups.
Daniel Dalton is a former Conservative MEP for the West Midlands