Europe has ‘mountain to climb’ over EU-wide company status

Arthur Jordão, executive director of Europe Startup Nations Alliance (ESNA), has welcomed the appointment of a European Commissioner for start-ups, but says there is a “big mountain to climb” before a touted EU-wide company status becomes a reality.

ESNA was set up to support implementation of the Startup Nations Standard declaration of March 2021, signed by most EU countries, which sets out eight areas of policy to support the creation and growth of start-ups.

The alliance hopes to provide a link between member states, start-up ecosystems and the Commission, in bringing the new competitiveness agenda to life and helping start-ups to scale.

Ekaterina Zaharieva, Commissioner for Start-ups, Research and Innovation, has embarked on the task of developing a start-up and scale-up strategy, and devising an innovation act that streamlines regulations and improves access to venture capital.

Commission President Ursula von der Leyen also wants to establish a Capital Markets Union (CMU), to integrate Europe’s financial markets and increase the availability of capital. Also on the cards is the 28th regime, a single legal status that will allow companies to scale-up and operate in all 27 member states.

Neither idea is new. CMU was first mooted a decade ago and there is already a European company status, but this comes with strict conditions and is mostly used by large multinationals.

ESNA represents 22 government agencies and national start-up associations, but it is not clear if they are in favour of CMU or a 28th regime. “That’s the question I’m trying to figure out,” Jordão said. “We need to understand why it didn’t happen until now, and why should that change now?” 

One thing that has changed, he suggests, is the recognition of Europe’s urgent need to be more competitive. “It’s kind of not a choice right now,” he said.

Jordão was speaking to Science|Business at the ESNA forum in Brussels last week. During the forum, Armando Melone, policy officer on access to finance in DG GROW, the Commission’s industry directorate general, suggested a “step by step” approach to the CMU would be wise.

“There are of course member states’ markets and institutions that have been in place for decades, centuries sometimes, and dismantling them or somehow trying to create a single market in one go is very difficult,” Melone said.

Both France and Spain have previously proposed testing the CMU among a small number of willing member states.

Jordão said he would not be surprised to see a voluntary approach being pursued for both the CMU and the 28th regime. “I see a couple of countries stepping in, being able to get ready, and perhaps in time, hopefully working. It creates a kind of fear of missing out for the others,” he said.

In the meantime, there is still some “low-hanging fruit”. For example, ESNA standards say it should be possible to establish a company within 24 hours, for no more than €100, and using legal documents from other EU countries.

“That’s still not a reality in Europe,” said Jordão. “Until we get to the 28th regime, or something similar, let’s focus on the goal, not on the format.”

ESNA will publish its second annual progress report on the standards in February. Preliminary results show ESNA members are at a 54% rate of achievement across the eight standards, Jordão said. Progress has been made, but there’s still a long way to go.

Stronger single market

At last year’s ESNA forum, 19 EU countries signed a declaration which called for a start-up and scale-up strategy to strengthen the single market. They will soon get their wish, but it remains to be seen what will be included in the Commission’s proposal.

Meanwhile, President Ursula von der Leyen has said she wants commissioners to work together like never before. ESNA has counted eight commissioners whose roles will have an impact on the start-up ecosystem, including 37 relevant initiatives or programmes mentioned in their mission letters. “In order to draft a strategy for that, you need to connect all the dots,” Jordão said.

The newly published ESNA Compendium lists five priorities the strategy should address: bureaucracy, talent, IP rights and tech transfer, the investment gap, and entrepreneurial culture.

“We are risk adverse in Europe. At least, more than we see in other regions. We need to change that,” Jordão said. “We’re seeing progress, but this takes generations.”

Jordão also supports calls to give the European Innovation Council (EIC) more independence from EU bureaucracy. One of the EIC’s jobs is to invest in “non-bankable” start-ups and SMEs, meaning they struggle to obtain private financing. The EIC should be able to act as a lead investor, Jordão says.

He says EU programmes apply too much scrutiny at the beginning of the application process. “It takes so much time, that in the end, perhaps the opportunity is missed. Perhaps we should be more flexible, faster in the initial part, then invest at the end: Did you deliver it or not? If you didn’t, there will be consequences for that,” Jordão said.

This aligns with the conclusions of the independent expert group advising the Commission on Horizon Europe and the next Framework Programme. The Heitor group recommended adopting a “trust first, evaluate later” approach, a proposal which was warmly received by Zaharieva.

The commissioner’s tasks also include expanding the EIC and its Trusted Investors Network of venture capital funds willing to co-invest in deep-tech companies, as the EU looks to address a lack of private investment.