Europe has some catching up to do. There are many examples of successful European internet companies, such as Spotify, a Swedish music streaming service, or the Berlin-based audio distribution site SoundCloud. Compared to the United States or Asia, however, EU companies could be doing even better.
EU cities including London, Berlin, Madrid, Paris, and Stockholm are all keen to be seen as tech hubs, hoping to model themselves as Europe’s answer to Silicon Valley. Yet startups and entrepreneurs often complain about access to financing, and about a fragmented digital market in Europe that is preventing them from growing their businesses. What’s the secret to success? How can EU-based startups be encouraged to grow into ‘internet giants’?
Want to learn more about the tech startup scene in Europe? Check out our infographic below (click for a bigger version):
We recently spoke to Jake Ward and Catriona Meeham from the Application Developers Alliance, a non-profit organisation supporting tech developers and entrepreneurs around the globe.
First up, we asked them to respond to a question from Graaf, who said European entrepreneurs often complain about access to financing or venture capital in the EU. What would be the best way to improve the funding environment for European start-ups?
The response from Jake Ward, President and CEO of the Application Developers Alliance, was that Europe needs to concentrate on allowing startups to better “scale up” their businesses, so that the potential rewards for investors are worth the risk:
A lot is already being done to improve access to funding for early stage companies and young companies [in Europe], but to improve the digital economy and reap the benefits of those investments we need to allow companies to succeed at a higher, more scalable level so that there is more of a reward for that initial investment.
We had a comment from Iulian on exactly this issue. He believes the problem is that the EU’s digital market is still too fragmented and there are too many obstacles for companies wanting to provide digital services across borders.
Progress has been made recently on harmonising Europe’s patchwork legal framework. After nearly four years of negotiations, the EU finally agreed to new data protection rules on 15 December 2015. Fines of up to 4% of global turnover have been introduced, potentially amounting to billions of dollars for large internet firms breaching the rules. Privacy activists have hailed the agreement as a success.
Catriona Meeham, Director of EU Policy and Government Relations at the Application Developers Alliance, agreed with Iulian, but cautioned that there was also a risk of the EU introducing further burdens for small companies:
Yes, I would agree… In order for startups to do better there needs to be greater harmonisation of EU legislation in this area. Obviously, the Commission has come out with proposals and will continue to do so over the coming months and years, and we welcome these. There are definitely issues to be discussed at the EU level.
However, we wouldn’t really want there to be over-regulation, which in the end creates more burden. This would just make it more difficult for startups, especially the smaller guys who can’t really afford legal teams to jump through all the legislative hoops the EU could potentially create. So, I think the EU should focus on having greater legislative harmonisation between EU countries, but I also think the EU needs to look at how it can lower barriers to digital access to other countries outside the EU as well. ‘Digital’ doesn’t have any borders, so that’s something we need to look at as well.
On this point, Jake Ward warned against the EU adopting a policy of “data isolationism”:
Data, generally, has become the new global commodity that is both essential to commerce but also essential for governments to protect their citizenry from. But an isolationist approach is not a successful business strategy. And if you are trying to advance growth and innovation, that goal is diametrically opposed to an isolationist policy and red tape.
How can we encourage more European internet giants? What would be the best way to improve the funding environment for European start-ups? By focusing too much on data protection, is the EU at risk of adopting a policy of “data isolationism”? Let us know your thoughts and comments in the form below, and we’ll take them to policymakers and experts for their reactions!
Cutting bureaucracy for SME ..
stop harassing entrepreneurs, ie, get rid of red tape, lower taxes and keep reporting requirements to an absolute minimum… entrepreneurship is per se risky. government’s job is not to make it riskier still.
We shouldn’t bother. We are already too reliant on the internet and all things related. Travel on any public transport and I guarantee half the passengers are engrossed with their mobiles/tablets facebooking or something. We are losing the ability to communicate with people face to face. We are losing the option to walk down a high street and look in shops. Hands on skills are being lost in favor of “digital” skills and in my opinion if Europe wants to do something really useful it should invest more in encouraging real businesses that deliver something of value
I’m sure some people say this is progress and that I’m the one with the problem longing for a return to old values, well yes I do. If “modern” thinking is that people spend the majority of their time alone in a room only interacting with the outside world though a screen then I feel really sad for you. I feel lucky to be of an age who experienced walking into a shop and buying a record and actually having something in my hand to show for my money, not paying out just to download a stream of data by some talentless you-tube “star”
Paul X: How right you are, I do not own a computer(I use the library)nor a tablet I used to like talking to people, trouble is I do not understand half the words used and grammar is, well, more worster than what it used to be!!
A digital single market would be a good start.
I am currently going through to process of setting up a tech startup.
Here are some of the troubles I have encountered to be deterrent and time consuming that really prevent me of moving faster and thus hinder my ability for growth,
In some member states such as Portugal (where I currently reside)
setting up a limited liability requires 5000€ up front. As a young individual with some ideas seems a huge burden, since that company structure also requires a specialized accountant.
Why not another structure ?
Well considering that I can’t necessarily afford a lawyer all the time when dealing with potential investors, it would give me some leverage and grounds for striking a better deal. On lets say the inject money and thus acquire internal partnership. And to be honest Id like to risk my time, some of my money but not my future ability of buying a house.
If not through an incubator, legal support of any kind is extremely hard and costly. I can’t say how many times I ran into finances department and they couldn’t provide me with useful directions/answers.
It also seems they unless you already know everything they can’t guide you through it.
Schools don’t even teach you how to handle your taxes, and it just happens that when you enter the job market you have to make all of this.
When setting up your company only gets worst, because most of the people working there also don’t know or can’t help because are used to having someone asking specific questions rather then being young entrepreneur oriented where they can explain you the process through.
Going my bank manager (which kindly provided me information outside of his duties) proved to be more useful in knowing about my obligations then going to finances department. This is insane considering the obligations are towards the finances department.
I am a software developer, yet authors rights association doesn’t even think I can copyright my code and benefit from their protection. (remind you this is a paid service. and in portugal there is only one institution for all types of works).
After talking with them for hours, I was able to provide the basis on why I should be able to pay and register my works.
How in 2015, the young entrepreneur has to explain the association dealing with copyright how copyright applies to software ?
To make all things worst, this authors association wants to be able to protect my work on my behalf for more 50 years after I die.
And as a copyright owner I cannot determine for example that ( work A ) should only be protected for lets say 10 years.
If I am the copyright owner/holder I should be able to set the expiration of the copyright. As I have the rights to it. It appears that I lose one the essential rights when signing up with SPA ( Sociedade Portuguesa de Autores – Authors Rights Association )
And since SPA like organizations have to be approved by parliament I have no choice but to either budge to their requirements or go the expensive risky way of not having a way to prove I did something first and have legitimate copyright ownership thus injuring ability to enforce my copyright in the long run.
Above all this, if I have a company, even if I made absolutely no money, I lose the eligibility of retraining through the job center. This means that if I risked opening a company and found myself lagging behind, I have to close it, wait the months required to be eligible for this re-training.
In other words I will be even more time out of the job market and without ability to retrain. This is definitely not encouraging.
And even though I am not a huge fan of the taxation system applied in the USA, I have a friend that in the same period of time, has registered his company and can go to a potential client and just say, here I am legal I can provide you services, have limited liability and for only about 400usd give or take. But most importantly he has his day job, and only has to worry about the taxes of his company when he actually makes money with the company. Which honestly seems more practical.
The potential client has the legal certainty that the individual is for real, there is a legal structure behind and he has the ability of being flexible and not pay magical tax on non-existent profits.
Sorry for such long comment, I could go on for more and probably nobody will read this anyways for it’s length. But the frustration is real and the barriers hit hard.
There is a huge path to go when it comes to making a working digital sector that allows tech giants to emerge.
Darcy, you wouldn’t be the fist one confronting these odds! Assuming you done all the personal soul searching, (prepared to work 16 hours/day, 30 days/month, sacrifice holidays, social benefits, neglect your family first etc.) investigations and preparations to conclude that you are driven, well suited, have a product the market needs, enough financial reserves and guts- than go for it.
Why wanting a company- all the hassles- but making no profit? That’s strange! Did you follow former “hacker” Bill Gates or Steve Jobs carriers? Are you already in need for a “formal” & legal business format with accountant & employees? Did you go through the cycle of employment, met clients, gaining valuable experience & ideas but being dissatisfied? Some start with freelancing & odd contracts or consulting as a sole proprietor & slowly grow. The revenue department, the EU or a lawyer want be your mentor and cannot lighten your burden!
As a start up you need to be prepared, interested to do & learn everything (admin) yourself fist, besides having technical ideas.
Other structures? Or a different approach? A real entrepreneur has no fears, overcomes any obstructions and is always optimistic until he finally created his “going concern”! Its tough! No risks- no rewards! Good luck!
Arrogance…thats really it. Americans are very social and very hard tech workers, Asian have seen ” the light” by entering the tech world…europeans are simply arrogant.
EU is kind of lacking in the software department.
Germany, alone, is the third pole in generating technological development after USA and Japan.
I do agree, EU needs to do something about catching in software and anything related to the internet.
Only if we could focus on important things rather than nationalist ranting…looks at UK and Poland.
no more Americanization. Their children also took guns and killed everyone. We have another coulture except money and imperialism for..money killing the others. I hope so
the answer…is… lobbing… !!!!
When Europe took the way of not producing – except Germany and France – and focusing in “services” killed innovation esprit..is not only in IT, is also in pharma, for example…
If we don’t produce selling transactionable goods the need that drives for innovation dies…
One market versus 28 small markets
Everything is over regulated and limited human resources. Not that many young ppl and they want to study social science, European studies etc.
True, we are far behind any relevant and disruptive innovation. This is only due because the scientific committees are only reflecting the industrial and well established lobbies were money and business is afforded. To improve this at promotion of R&D level, we could have a balance power between industries and new civil society forces with theses committees (50% each) (involving ecologic, EEB ETUC and Consumers associations)
Do you mean Europe of 50 Nations or the EU of 28 (soon to be 27) ?
ΙΤ is a good thing, but Europe is based more on interpersonal relationships that are based on face-to-face encounters. We are not hybrids as a national component of the universe, we are humans!!! And it would be good to stay that way. Use IT as a tool, do not become a biological computer for the use of the elite.
Because regulations? Because being a small company is harder than being a huge one? Because, perhaps, if I am a big company it makes more sense to develop in countries where there is better climate for it like USA or it is Cheaper like in many countries in Asia with as good and sometimes better universities than ours?
an issue that has not been mentioned but is probably worth considering: they tend to be very short-sighted in employment policies. Cannot attract the best human capital and stick to what they have. This makes the path from start-up to grown-up even more difficult. Especially when you end up having naive and incompetent people in key positions. It happens more often than you would think.
For insane paperload. Tree killers.
There are more alternatives to focus on.
Who says the EU innovates less?
@EU Reform- Proactive:
There are a couple things that either due to the concise nature of your response are unclear or you may have misunderstood my position.
First I am driven, I am in this process, I have done things so far despite the barriers. But I guess the intent of looking at this debate is to find ways to remove/reduce the barriers.
For instance, you mentioned 16 hours a day, no holidays, no social benefits and neglect family – This is not the type of society id like to live in. Sure I understand that what you mentioned is the current cost of doing business. I personally accepted, but if you ask me, would reducing this type of barriers make it easy for tech giants to emerge. The answer would be absolutely yes.
I don’t mean, give social benefits for you to attempt to open a company while others pay for your adventure. But keeping all doors and windows closed when you decide to come back to the job market after your adventure failed seems counter productive. It’s almost like punishment for trying.
Another thing that I find amusing is that most people praise
people like “Bill Gates, Steve Jobs” when both assumed that they had to conduct business illegally to be able to start their en devours.
Both are also the known name for the work of other engineers.
So much that there were significant disputes with this engineers who in a lot of times were the driving forces of the success of these projects.
So forgive me If I would like to take other examples to follow as role models as I don’t intend to for one break the law, two take credit for others work.
Why wanting a company and all the hassles without making profit ?
First and foremost you can’t profit without having a legal way of doing it.
Sometimes due to business nature, profitability takes a bit longer, in the meanwhile I don’t intend to be punished for having to spend resources making my product known so that I can start having customers.
My projects come precisely from identified needs while participating in the cycle of employment and not being able to change from within.
I am already a freelancer. But suggesting this model ignores the fact that is not just be a freelancer and it will work, you then need to go implement things unrelated to your product/project, manage that, deal with finances for that. Is pretty much like having a job and doing your company as a second project. Not always the best receip
There is that moment/time that you need to just tight your belt, and work on what you believe. Bring that baby out and have your company registered. This will allow you to reach to a potential client and let them believe that Yes, the product exists, yes it won’t be just unmaintained or unsupported in a couple months because you got sidetracked doing your day job and most importantly the person has the notion they have an entity to deal with.
Why do you think your dear examples dropped out university ?
Thank you for the link you provided. I have already gone through that, and what I have to say, if it was as simple as that site presents itself, I wouldn’t be here complaining. The hidden barriers are the deterrents. Not what is in the front page.
Thanks for your time reading.
Hi Darcy- i acknowledge you’re the only one knowing yourself & your situation best! It’s up to your ingenuity to overcome your remaining hesitations and concerns to eventually succeed within your given environment. I doubt your government can/will make exemptions or risk to create a precedence- you might be an old man by than!
Because we are broke.
We spent all our money on computers, tablets, i phones etc.
Because there are much better things to waste OUR money on like how bent a banana must be!
Not investing much on education
Europe should fix its multi-kulti syndrom before thinking about its sci & tech capability 8-) In short, its political culture stinks ;-)
too small market size. That simple!
sry thats just again some peeps talking who doesnt check their facts again!!!
just a … http://www.independent.co.uk/life-style/gadgets-and-tech/news/researchers-successfully-test-lifi-a-new-type-of-wireless-internet-thats-100-times-faster-a6748811.html
Europe is still trying to build a working system. We have many differences in what is generally called education. That’s why. Those whom you compare with Europe are countries: USA, China, South Korea, Thailand etc.
I worked this year in a €6.5M smart city project (70% EU funding) as analyst and developer of its mobile application. It is intended to serve a 1.5M population area, to allow a better management of public assets and to boost citizens participation in the governance.
At least that is what the official docs stated.
It is a project leaded by a regional government.
You already know where I am heading to, right? :-(
Reading through the technical docs of the systems proposed by all the involved companies, I became aware of the obsolete philosophy of the project (10 years behind of what is supposed to be a real smart city project). And even worst, the lack of definition of the systems architecture integration needs, and absolute disregard for quality (lack of technical definition of security and privacy requirements, and triplicated databases due to the faulty systems integration). Plus, it was supposed to take in sensor data from smart metters on public buildings but the data models didn’t consider that; I don’t know if the smart metters were deployed, but the system was not ready for any sensor data intake.
I reported my superiors, I reported my boss, I reported the project coordinator… none cared, I think they didn’t cause the customer was a government well known for its corruption. And that customer didn’t care about the outcome and the huge potential to create a great data lake where developers could dive to try to find opportunities to create digital services and aggregated data and value. That customer just wanted the cheapest product possible eligible to pass an auditory and justify all the money they took. So investing €1.95M they can get €4.5M from the EU, and just deliver a €400K worth product (including all salaries and 30% profit for the involved companies), then do some accounting magic to cheat auditors, and voilá, you have a strengthed local chieftain and its clientele web, you discouraged competition, and you lost a great opportunity to boost the digital economy.
I reported the European anti-fraud office (OLAF), they asked me to provide them with all the information I could (I provided tech info, but I didn’t have acces to accounting data). Maybe the OLAF office people have ready people, but they told me they had to stop cause the funds were European regional development funds (FEDER by its Spanish acronym), so they cannot do further investigations; I think that’s cause those are delivered to States as part of their national budget, so OLAF has no legal competency over it.
I moved away from my company after I finished my part of the project.
As you see there are big problems on how the EU works.
[eo] Kial ne kategorie puni pekojn kontraux niaj reguloj? Ekzemple la malicajn datum-disponojn de Microsoft, Google, Apple, facebook k.t.p.? Esti humila al tiaj entreprenoj certe ne helpas por krei bonajn proprajn strukturojn.
[de] Wie wär’s wenn wir mal konsequent Verstöße gegen unsere Regeln ahnden würden? Zum Beispiel den böswilligen Umgang mit unseren Daten seitens Microsoft, Google, Apple, facebook u.s.w.? Sich derartigen Unternehmen unterzuordnen, ist nicht gerade hilfreich dabei eigene funktionierende Strukturen aufzubauen.
Plant a cyber beanstalk.
Tax free for a few years plus a start_up grant. A guaranteed minimum income would remove the need for corporations to pay national insurance contributions and would lessen labour costs. Only the mega-rich and multinationals should be taxed anyway. Plenty money waiting there to be put to good use for the majority of humanity.
And why we need a companies which create a fake GDP?
Monopolistic markets suck.
Abolish the copy right laws, borders and geoblocking. The markets are simply to small to become big, not to say giant. Without a big local market you never can grow to be a global leader.
Is mass e commerce sustainable?
Another giant company who will never pay taxes ? Bcz politics..