In 2021, a majority of EU governments signed up to an initiative to create a better legal framework for start-up formation and growth. Now, after a long silence, there is progress to report
Two years on from its start, the EU Startup Nations Standard is finally showing signs of life, with a baseline version of the scoreboard that is intended to track progress towards meeting the standard published at the end of January, showing EU states are working on the underlying issues.
As one of the front runners, Spain has enacted a start-up law that is likely to move it near the top of the scoreboard when it is first published in full in October.
“One of the main take-aways of the baseline is that all countries are working on the standard, which is good to see,” said Arthur Jordão, interim manager of the Europe Startup Nations Alliance (ESNA), established to monitor the standard. “There is no country that is not paying attention to it.”
Progress to meet the basic requirements of the standard is likely to be swift, but this is just the beginning. “Then we will have to work on the next stage, which is the quality of implementation. It’s one thing for a country to say that it has a policy in place, but another to see if it is being implemented in a proper way and being useful to the start-up community. That will be the true added value,” said Jordão.
An advocacy group, Allied for Startups has been following the initiative closely. “We are encouraged by progress, now seeing three member states that have either passed or are in the process of making, specific start-up laws, which we’ve never seen before,” said Inés Moreno-Alonso, operations and growth director. “Spain was the first nation to pass a start-up law. It was followed by Germany, and now Romania has announced that it wants to make a start-up law.”
The more countries that follow, the better. “Harmonising business-friendly conditions to start companies will be key to completing the Single Market, and the Startup Nations Standard will be a great step in achieving this central goal of the European project,” she said.
The EU Startup Nations Standard was devised by the Portuguese government in its EU presidency in early 2021, and launched by the European Commission in March of the same year. It sets out eight areas of policy to support the creation and growth of innovative start-ups. These cover:
- fast start-up creation and smooth market entry;
- attracting and retaining talent;
- stock options;
- innovation in regulation, including regulatory sandboxes;
- innovation procurement, including tech transfer policies,
- access to finance;
- social inclusion, diversity, and protecting democratic values;
- ‘digital first’ for interactions between start-ups and the authorities.
Twenty-four EU member states signed up to the Startup Nations Standard at the time, along with Iceland, with another two following later. But after this initial flurry of activity, everything went quiet.
The missing piece has been ESNA, whose role is to keep the initiative alive and help nations make progress. “We needed to create an operational arm to help countries achieve all of these standards, to create a unique platform that combats fragmentation, and help Europe as a whole to achieve a leading economic position,” said Jordão, who was an adviser to the Portuguese government during its 2021 presidency before taking over at ESNA in July last year. This followed the award of a €1 million grant from Horizon Europe.
In addition to setting up ESNA’s governance structure, and beginning the search for a permanent management team, Jordão started data collection. “We aim to create a data platform that will harmonise and give more credibility to the data sources that can be combined from each of the countries,” he said.
This will form the basis for regular reports on progress towards meeting the standard. “We will have an annual scoreboard to show how the countries are performing, so that ESNA can support them in a consultancy way, sharing best practice and benchmarks from other countries that are performing better, and exploring ways to implement these policies,” said Jordão.
The baseline version of the scoreboard published in January relies on publicly available data and responses to a Commission survey from 2021, both of which have significant gaps. Nevertheless, it is possible to see some degree of activity towards the standards in all of the signatory countries.
The highest level of achievement can be seen for fast start-up creation, talent attraction and retention, and stock options. The lowest is found for social inclusion, innovation in regulation, and access to finance. And across the board, the EU compares poorly to third countries such as China, Israel, Singapore, the UK and US.
While the timing is fortuitous, the Startup Nations Standard cannot take much credit for the Spanish start-up law, which came into effect in January. The law was first proposed five years ago by the Spanish Startups Association, and the government was already consulting on it at the end of 2019. But, over the past two years, the two initiatives have run in parallel, and a positive influence is likely.
“Let's say that I don't think it was the reference point, but [the standard] has ended up pushing some of the proposals in the Spanish law,” said Agustín Baeza, director of public affairs at the Spanish Startups Association.
The most important measure in the law, as far as the Association is concerned, is the improved taxation of stock options. “It was very difficult for the government to understand this remuneration model, which differs from other sectors and other companies, and which is nevertheless fundamental for attracting and retaining talent,” Baeza said.
The symbolic effect of the law should not be underestimated. “It is the first European law that recognises the uniqueness of the start-up as a business model, that defines what a start-up is, and will certify it, and that boosts the whole ecosystem,” said Baeza. Simply getting the word ‘start-up’ onto the lawbooks is an important step. “This is always taken for granted, but it needs to be highlighted.”
That said, the Association is not entirely happy with the definition of a startup. “It limits it to five years of company existence and many companies will be left out,” Baeza said. “This is our main criticism of the law. We also think that it lacks ambition in some of the measures, as if the government had written the articles with the handbrake on, as it is a new thing.”
For example, there are no measures to promote open innovation models between large companies and start-ups. And some measures, such as the promotion of sandbox models and innovative public procurement, are mentioned without specifics on implementation.
While the Spanish law addresses many of the points in the Startup Nations Standard, it is not strong across all of its provisions. “I think that many things are missing in relation to the Spanish administration’s thinking in terms of ‘small first’ [part of the innovation in regulation section] and ‘digital first’,” Baeza said. “The Spanish administration still has a huge internal innovation challenge to solve.”
In addition to the weaknesses on sandboxes and public procurement, Baeza thinks the investment measures also fall short. “I don't think the law has gone any further into access to funding for start-ups, although it does include improvements in taxation for business angels.”
Much now depends on the implementation of the law. It came into force on 1 January, but regulatory development is still pending. “The government has to open up the start-up accreditation process, and this is going to be a challenge,” Baeza said. The law creates a Startup Forum, where the sector's associations will discuss the implementation of all the measures in the law, and their continuous evaluation. “It will be essential that there is collaboration between the government and the ecosystem in order to implement the law jointly, so that it is a success for everyone.”
Baeza also recognises that the ecosystem has a responsibility for fulfil. “We asked the government for a start-up law and we have it. It is not as good as we would like it to be, it fails in some things, but it is here. The ball is in our court. The ecosystem has to take ownership of the law, use it and put it into practice, and if there are things that don't work, raise them so that they can be resolved over time.”
As for the standard, Moreno-Alonso also sees scope to go further. “The standard is a really good starting point, but there is so much space to do more,” she said. “Whether we want to add to the standard in the future, or other nations want to pick up on this, I think the potential is remarkable.”
Elsewhere in the Ecosystem…
- The German government launched a €1 billion Deep Tech & Climate Fund, to support deep tech and climate tech companies in the rapid-growth phase with co-investments of up to €30 million. Deep tech covers industry 4.0 and internet of things, robotics, artificial intelligence, quantum computing, and process automation. Companies in areas such as digital health, new energy, smart cities, new materials and biotechnology will also qualify. The long-term aim is to ensure Germany is strengthened as a location for innovation and tech-based business.
- A study of start-up funding from the Commission’s Joint Research Centre (JRC) has turned the assumed relationship between public and private funding on its head. The model holds that public funding de-risks research and technology development in a start-up’s early stages, with venture capital coming in once the company is ready to grow. However, the JRC analysis shows that firms receiving European Innovation Council SME Instrument grants (equivalent to the present Accelerator grants) between 2008 and 2017 were on average smaller, less innovative, and older, than those raising venture capital funding in the same period. In addition, venture capital reached more innovative businesses earlier than the public grants.
- Tech Nation, which supports the UK digital tech scale-up ecosystem, is closing after the government withdrew its funding. The organisation was set up in 2010 with a focus on London, later expanding to take in the whole country. Its activities include programmes for company growth and internationalisation, networking conferences, sandboxes and sector analysis. Offers to pick up Tech Nation’s assets are sought by 14 February, with closure following on 31 March.