Scaling startups top priority, as EU reboots its top team

Europe must get much better at scaling startups. That’s the prognosis of the European Union’s president, Ursula von der Leyen, who’s on the cusp of taking up her second five-year term steering the bloc of some 449 million people — with a December 1 start date now locked in.

Giving a speech to the European Parliament, ahead of a vote which confirmed her top team (aka the “college of commissioners”), von der Leyen said the EU’s competitiveness will depend on closing what she dubbed an “innovation gap” — by unlocking more support for startups to scale and reducing red tape that may be holding business back from making the most of access to the EU single market’s 27 Member States.

Support for innovators is a key plank of von der Leyen’s second term — hence the decision to create, for the first time, a commissioner with a portfolio focused on startups (Ekaterina Zaharieva).

While her speech to MEPs highlighted the “good news” that Europe’s share of global patent applications is “on par with the U.S. and China”, von der Leyen underscored that only one-third are commercially exploited.

“We are roughly as good as the U.S. at creating start-ups. But when it comes to scale-ups, we are doing much worse than our competitors. We have to close that gap,” she warned.

When it comes to reforming conditions for scaling startups, she boiled her strategy down to “invest more and focus better”.

Invest earlier also seems to be a core piece of the plan — given the decision to have a commissioner (Henna Virkkunen) whose tech-heavy portfolio includes a specific brief to foster “frontier technologies”, too.

“For us to be competitive, Europe must be home to the next wave of frontier technologies,” von der Leyen stressed.

On the funding side, she said the EU “urgently” needs more private investment if it’s going to deliver on its ambition to lean into innovative business ideas to drive competitiveness — so financial reforms are planned, too.

“Business expenditure for research and development in Europe accounts for about 1.3% of GDP. That is compared to 1.9% in China and 2.4% in the U.S.. This private capital gap is the main reason we lag behind on overall R&D spending, and thus on innovation,” she said.

“This is why we have proposed a European Savings and Investments Union — a task I have entrusted to Maria Luís Albuquerque [Commissioner for Financial Services and the Savings and Investments Union]. She will help ensure that European companies can find the capital they need here in Europe.”

Red tape that may hold back entrepreneurs is also in the EU president’s crosshairs.

“For Europe to catch up, we will also need to make things easier for our companies,” she told MEPs. “They are telling us that the regulatory burden weighs heavily on them. Too much reporting. Too many overlaps. And too complex and costly to comply with. We need to streamline our rules to reduce the burden on businesses.”

Valdis Dombrovskis, von der Leyen’s commissioner pick for “Economy and Productivity; Implementation and Simplification”, will be tasked with introducing “new omnibus legislation”.

Von der Leyen said this will look at different sectors and assess rules that apply — with the goal of simplifying the legal landscape to help business scale.

“The greatest strength of the Single Market is that it replaces the myriad national standards and customs, with a single set of rules. So we need to get back to what the Single Market does best. And make business easy across Europe,” she added.

The speech’s focal framing of support for innovation as key to Europe’s future competitiveness is likely to be music to the ears of the local startup ecosystem. Though some may wonder whether the notion of the EU simplifying its sprawling mass of regulations is an oxymoron — especially as Brussels has historically prided itself on being a leader in rule-making.

But the further-right skew of this EU undoubtedly signifies a change of direction.

Ultimately, though, a cultural shift may be required to deliver the pipeline of innovation von der Leyen is reaching for — one that requires regional investors to get a lot more comfortable with risk and big bets vs stable and predictable returns.