In the last years there has been a significant increase in the number of startups in Europe and many of them have already become successful. However, when it comes to scaling up, the United States is much better placed, perhaps because of their unified market, capital availability or a higher culture for risk.
But what can Europe do? What role is there for policy to address the funding barrier for scaling-up? Do we need a reorientation of the currently pursued policies in European countries? Do we need more public risk funding? Or does it matter more how “smart” the funding is, assuring that the financial markets allocate risk finance to the most promising projects.
To address these vital questions, Bruegel organised a panel discussion on “Start-Ups’ Scale-Up and Innovation” on Tuesday November 21st.
The panel discussion hosted Louis Papaemmanuel, Director; Johan Cardoen, VIB Managing Director; Rudy Aernoudt, Curator TEDx Brussels; François Véron, Newfund Co-Founder and Managing Partner. The panel was chaired by Reinhilde Veugelers, Senior Fellow at Bruegel.
Louis urged for some cautionary optimism, underlining that there are several policy initiatives for startups/scale ups, not just at the European level but also at the local, regional and national level, where we have tremendous support either in terms of funding or more structural to spur growth.
Specifically the SME Instrument has become one of the flagship initiatives in the world, and one of the most successful startup grant initiatives worldwide, funding over 4000 companies, making it one of the most important policy successes of the Commission in the past years when it comes to promoting growth. Finally, while there are still considerable differences with the US, the number of investments in European deep tech in 2015 alone reached 2.3 billion Euro, which must be contrasted to the 1.7 billion Euro invested in a period of 4 years between until 2014.
Mr. Veron mentioned that the European Investment Fund should come with monthly reports on emerging technology; right now, reports mention only general ideas about Artificial Intelligence, which as Internet of Thing, is not a technology but rather ideas.
So, what can Europe do to close the gap with the US?
- First of all, the Commission needs to push to finalise the European Single Market (including the Digital Single Market) in order to eliminate all trade barriers between Member States so startups can expand and grow easily within the EU.
- The European Investment Fund will have an important role to play with the so-called “fund of funds”;
- There is a growing trend of American VCs expanding to Europe and this trend will continue to grow, as evidence from a recent report from EIF suggests.
- Create the Capital Markets Union which will make it easier for companies to enter and raise capital on public markets.
The most important obstacles that persist in the scale-up of startups are the fragmentation of the Venture Capital market and the pending finalization and implementation of the European Single Market. For instance, selling goods or services from Belgium to the Netherlands, the most integrated countries in the EU, is still treated as an Import Export. Until concrete actions are taken to overcome these barriers, Europe will always be one step behind the United States.
The event has been livestreamed and recorded and we welcome our readers to follow the whole panel discussion: https://www.youtube.com/watch?v=ZWczEHkaqY8