Europe needs to make it easier for its startups to do business

For any startup that wants to set up in Europe, there is huge competition from other territories falling over themselves to offer an easy path to incorporation and markets.

The US has always made it simple to do business, and business-friendly states like Delaware and Texas host numerous European companies that consider themselves European but have their headquarters there

In recent years, there is now the UAE offering fat and tasty carrots for companies to set up there. Moreover, the time zone benefits from being positioned between Europe and Asia, making it almost perfect as a location and a bridge between continents.

Even in post-Brexit UK, which doesn’t exactly feel like a place of innovation right now, it is extremely easy and cheap for new companies to register at Companies House and start their businesses. 

It is also cheap and there is no need for expensive third parties to guide founders through bureaucracy and so-called red tape. Looking at the European Union’s web page it looks similarly easy to do, but the reality is sometimes very different, not least because of the cost of setting up a company.

According to the EU it ‘encourages all countries to meet certain targets for helping to set up new companies’ putting the onus on startups to be compliant from the start. It says it costs less than 100 Euros, it can be set up through three working days and all procedures can be completed through a single administrative body and where all registration formalities can be similarly completed online.

This sounds great and there are other pledges of EU support as well. Startup Europe is an initiative that brings together investors, accelerators, universities, corporate networks, and the media to support startups.

InvestEU portal also brings together investors and ‘project’ promoters on a single EU-wide database of investment opportunities and Startup Europe Partnership is an integrated platform that offers cross-European open innovation and a database of investment opportunities.

So far, so very good, but what’s the like in the real (European) world?

Cristobal Alonso is the charismatic CEO and general partner at Startup Wise Guys and is not a man who shies away from saying it like it is. His company was set up in Estonia in 2012 and in the intervening 13 years has supported more than 800 founders of all nationalities across Europe resulting in more than 20 successful exits.

In conversation, he cites the fact that unlike China and the US, innovation and tech growth in Europe are not confined to a few major cities. With more than 65 cities, Europe’s startup ecosystem is built on diversity and local talent. 

Startup Wise Guys has championed decentralisation for years beyond traditional hubs, investing in places such as Vilnius, Oporto, Bucharest, Bilbao, Malaga and Tallinn, but Alonso understands the problems for startups. 

One important issue is how bureaucracy impacts time and money. Many EU-based startups do establish in US states such as Delaware as it can be done within a day and very cheaply... and obviously in an electronic manner. 

This is not the case in many European countries, even if the UK, Ireland and Estonia offer fully online company registration, minimising traditional notary fees. 

However, in countries like Germany, Austria and Belgium, notary services remain integral to the incorporation process, delaying and making the processes significantly more expensive when companies are in the most fragile state. Even worse is formalising capital increases in later rounds. 

We have cases where an entire funding round was delayed several times at the notary level for months! This is the time for the EU to streamline the process across all member countries.

Alonso’s comments chime well with Benoit Vandevivere, tech founder and policy advisor to the EU. Vandevivere has advised (and advises) governments, institutions including Europe on improving laws to become more competitive, attractive and grow. 

He also supports entrepreneurs and investors in making governments and institutions more ‘friendly’ with scientists, creators, founders and the ones who support them. With a background as an entrepreneur, engineer and lawyer he is well-positioned to talk about the problems Europe has in attracting startups. 

Europe must match the world’s top business headquarters destinations such as the US in speed, agility, and pricing. Imagine investing in seconds, fully online, 24/7, without the cost of notaries and registry filings that can be done in an hour, not 15 business days as in the EU. 

But what of the startups themselves? Chris Skinner is a serial entrepreneur and much in demand as a global speaker on FinTech. Based in Poland after relocating from the UK, he appreciates that the local environment is positive with government support and great investor interest, but problems remain.

Living in Poland. I’m involved in many start-ups, particularly in Fintech obviously. But it varies by country. Estonia and Lithuania are very popular because they are small European countries where you immediately do business with 27 countries - that’s why Revolut moved to Lithuania.

In general, however, Europe has to build something that is pan-European and can compete with China and America. In that context, most of what we see is America innovates, China replicates, and Europe regulates. This is the big issue in the European mentality.

Patrick Newton is a partner at Form Ventures, an early stage fund dedicated specifically to regulated markets and is a firm advocate of regulation and accelerating the process for startups. 

It is true that we need regulatory reform to ensure startups can easily be formed and scale in Europe, but what’s often overlooked is that the regulators themselves need to be well resourced and incentivised to take risk. 

We should be aiming to make Europe the best place in the world to build in regulated markets - whether that’s in Fintech, HealthTech or in newer regulated markets as lab-grown meat

As Europe enters an uncertain time in its history, it's clear that tech innovation will continue to suffer if bureaucratic realities make it easier for startups to relocate. Now is the time for all of those in the European tech ecosystem to make themselves known... and fast.