Brussels’ new innovation plan likely won’t meet startups’ demands – POLITICO

The European Union is taking steps to ensure it doesn’t miss out on the next wave of technology, but that may not be enough.

The European Commission will present a list of actions on Tuesday to help digital companies grow their business. It’s part of the bloc’s push towards so-called deep technology, an umbrella term for advanced technologies with strong roots in science and research, including artificial intelligence, blockchain and quantum computing.

After Europe lost the battle of consumer technology, it does not want to repeat the same mistakes, but to start competing with the United States and China, it must address various concerns.

While 2021 was the biggest year for European startup funding yet, reports show that the bloc still lags its geopolitical rivals when it comes to AI and blockchain spending. The number of information and communications technology specialists in the bloc is also still far from its 2030 targets, betraying gaps in recruitment efforts. The Commission’s new innovation agenda is expected to address both issues, according to several projects seen by POLITICO. The agenda also includes nods to the innovation gap between Western and Eastern Europe, as well as national governments ability to support the growth of start-ups, whose agenda promises five “flagship” initiatives.

It remains to be seen whether the effort will impress startups in the bloc – which already have uneven communication with institutions at the EU level – given that a pot of money or a full-fledged settlement is not on. the table, while some key competences belong to an individual member of the countries.

Resolution of actions

Martin Mignot, a partner at venture capital firm Index Ventures – which invests in Deliveroo, Adyen and other European scale-ups – has clear expectations of any European plan: “[The role of governments is] make it attractive for companies to hire talent across Europe, that is [No. 1] …facilitate funding, facilitate exit, and create value that you can reinvest in the tech ecosystem.”

Startups have a major advantage when it comes to attracting talent from more established companies: they can distribute shares in the form of stock options, which gives employees the opportunity to cash in when the business reaches its climax. This asset, however, can become a headache as businesses scale up across Europe.

“The EU’s goal is to have a single market,” Mignot said. “Well, that’s clearly not the case in the talent market.”

Startup entrepreneurs have complained for years about the unfavorable tax treatment of stock options in some EU member countries. The Commission’s hands are tied here, however, as taxation is a national competence. What it can do is encourage members to harmonize their different plans. Mignot sees two options for squaring the tax circle: an EU-wide plan, or “passport,” where countries recognize each other’s tax plans.

While an action point on stock options is included on the agenda, according to a draft seen by POLITICO, it could prove disappointing: the Commission simply commits to setting up a working group to “explore” how member countries can reduce bureaucracy around inventory.

promises, promises

Access to finance and barriers to exit, such as going public, are other common startup issues that the innovation program seeks to address.

Despite a banner year for EU startup funding, lobby groups are eyeing sources of cash that are still intact, which could help bridge the funding gap for cutting-edge technologies. European pension funds are an untapped seam: “Pension funds and insurance companies have a lot of money and need to be more active in it,” said Sabrina Caroli, head of the European office at German digital association Bitkom . “So we see huge potential there that could be fully exploited in the future to really help these startups grow.”

The Commission gets the message and promises to act – of sorts: “The Commission will bring together the heads of major institutional investors (pension funds, insurance funds and sovereign wealth funds) to explore the opportunities and requirements for increasing investments in venture capital funds,” the draft agenda reads.

More concrete is the wording of the agenda to ease the way to a public listing, with the promise of a European listing law, intended to “simplify” listing requirements, before the end of the year.

Despite pledges of support, Brussels’ strained relationship with startups could make it difficult to make concrete progress. The bloc’s recent focus on regulating Big Tech has left startups feeling neglected in comparison when it comes to policies that help them grow, according to an industry survey released Monday.

Eighty-three percent of Irish fintech company Stripe’s 172 customers said the EU policy process was designed to serve larger, more established businesses, while 61 percent said they felt “disengaged”, therefore not expressing their concerns in Brussels. When startups take the floor, they struggle to determine who is in charge: Internal Market Commissioner Thierry Breton or Innovation Commissioner Mariya Gabriel.

Whoever ultimately owns the innovation agenda must be creative in helping startups in various fields, Mignot concludes – including talent recruitment: “I don’t see why the EU shouldn’t attract aggressively Russian engineers,” he joked.

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