06 May 2016

Working to promote Europe's start-ups

At the end of March, the European Commission launched a public consultation, under the banner of its Start Up Initiative, with the laudable aim of improving the environment for early stage and fast growing businesses in the European Union. The Commission says that it wants to hear views (by 31 July) on ways it can support entrepreneurs "who will try again when they fail, reinvest when they succeed, and support a healthy entrepreneurial ecosystem". 

The Commission wants interested parties to complete a questionnaire, in which the questions follow the life cycle of a company, divided into three phases: stand-up, start-up and scale-up. According to the Commission – or at least strongly implied by its comprehensive set of questions – these distinct phases all create opportunities for various types of intervention, including: offering more education and apprenticeships; reducing red tape and bureaucracy; supporting incubators, accelerators and buddying programmes; improving intellectual property law and liberalising work visa rules; supporting clusters and university spin-outs; simplifying or harmonising VAT rules; and facilitating access to finance.  

The questionnaire also seeks views on the exit phase, giving the venture capital industry a further opportunity to push for stronger IPO markets, perhaps modelled on the US. Europe's growth markets have something of a chequered history, but that does not mean that the pursuit of a better exit environment is futile – far from it; changes to EU rules on growth company IPOs could help, as could tax incentives and lower regulatory barriers for investors. It is also important that the Commission is asking for views on the definitions of the various types of early stage business, and since these could have significant consequences for future regulatory interventions, it is vital to get them right. That might offer another chance for the venture capital industry to iron out some problems with the existing EU-wide definition of small and medium sized businesses (SMEs), or at least to ensure that previous mistakes are not repeated. 

Of course, member states also have their own initiatives running alongside this EU-wide programme. For example, the UK's National Innovation Plan is currently "calling for ideas" from interested parties, and has in particular started to look into whether non-compete clauses in employment contracts are "stifling British entrepreneurship". Whether this may lead to a restriction in the availability of non-competes, or (as in California) a complete ban, is not yet clear, but it is a discussion which will be closely watched.

The EU and national initiatives to boost growth companies must be welcome, although it is not clear how long the results of the present exercises may take to come to fruition. The industry will, no doubt, engage with governments to support specific initiatives. In the meantime, great work is already being done by a number of independent organisations, including the outstanding New Entrepreneurs Foundation, and policy-makers would do well to study those private sector projects closely.

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
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