What does the Commission’s New Industrial Strategy mean for startups?

Accounting for more than half of Europe’s GDP and employing 100 million people, the Commission has issued a package of initiatives to implement the New Industrial Strategy. Its goal is to lead green and digital transformations within the European market.

You might not have heard of this news, but under the package, SMEs and startups are given a key role in this new industrial approach. But what does this mean exactly?

More support for startups

The Commission’s goal is to make easier for SMEs and startups to operate in both the European single market and globally, and to remove regulatory and practical obstacles of doing business and scaling up.

The proposed measures help to solve some of the key challenges in Europe for startups, such as the shortage of successful scaleups, frictions during visa processing and the retention of talent due to lack of incentives, to name just a few.

The ‘EU Startup Nations standard’: new funds, female founder support and digital trainings

To this effect, the Commission will launch a new political initiative, an EU Startup Nations standard with the aim to promote best practices and to support startups and scaleups, for instance, by providing one-stop shops, favorable and more attractive employee stock options arrangements, and streamlining visa and residence permits processing so that it is easier to start up and grow cross-border.

They also plan to increase funds available for SMEs and startups. The Commission has set up an SME Initial Public Offering fund (through the InvestEU initiative), that will support SMEs through and beyond the listing process. This is also good news for female entrepreneurs, as they intend to promote investments in women leading companies and increase the size of venture capital funds, to help high-potential enterprises to grow, under the ESCALAR initiative. Additionally, measures to enforce the Late Payment directive will be made available to avoid companies going out of business.

Plus, the Commission will set up digital crash courses to help SMEs and startups become proficient in areas such as AI, cybersecurity or blockchain. Digital Innovation Hubs will be increased to allow SMEs and startups to test new technologies, access networking opportunities as well as finance advice.

Startups as SMEs

It is relevant to note that under the new strategy, startups are presented as a subcategory of SME´s, rather than being introduced independently. Considering the differences between startups and SMEs in terms of business models, intent (with startups scaling and growing cross borders, and SMEs maintaining a suitable place in a local market), and funding arrangements (startups look for diluted equity while the SMEs do not want to relinquish control), the European Commission should consider an independent startup strategy to account for these differences. But for now, no such action has been taken.

But will it work?

The Commission’s proposal will be a major step only if the above-mentioned measures are implemented in all European member states. Market fragmentation is an obstacle for doing business cross borders, and market integration has never been easy. Therefore, there are still challenges to overcome.

In order to promote market integration, the strategy proposes that member states should inter-link their services in a one-stop-shop and provide SMEs with a coordinated reply to all queries. Additionally, the Commission will identify legislation that is too burdensome and make it SME-friendly. For instance, the lack of tax harmonization between states remains one of the main obstacles faced by business when operating cross-border.

Final thoughts…

The industrial transformation brought in by the new industrial strategy offers many opportunities for businesses of all size to scale and prosper. A new European Union space will be created to do business seamlessly, providing access to public procurement and making business transfers easier. New products and services, markets and business models will be required. The market will become more competitive, and having the right digital skills and creating new business models will be a great advantage for startups. Innovation will be the key to success.

The SME strategy actions will be executed as part of the European Parliament strategic agenda 2019 -2024 and the comprehensive long term industrial policy strategy with a vision for 2030, therefore, we should see some actions starting soon while others will be implemented alongside to meet the 2030 agenda. Keep checking the EU startups website for any progress, or go direct to the EC press corner.