Is A Pan-National Ecosystem The Key To Europe’s Tech Startup Challenge?

The U.K. and Europe face similar challenges around the creation of an ecosystem where technology and science startups can thrive. But is the answer more cooperation between nations or a focus on national policies?

Let’s start with a tale of two cities. London and Brussels to be precise, where by sheer coincidence two conferences on similar themes took place at more or less the same time, namely London Week and Grow Digital 23. Both – at least in part – were concerned with creating the right environment for technology startups to thrive. But there are differences in emphasis. In Brussels, much of the discussions were centered around building a startup ecosystem that spans the European continent. In London, Prime Minister Rishi Sunak’s keynote speech focused on talking up the U.K. as a preeminent destination for investment in tech innovation.

You could imagine a dialogue here. As Europe, as a whole, squares up to the task of creating an innovation economy that can successfully compete with the U.S., and Asia, is that goal best served by competition between city hubs and nation-states or is there a case for collaboration across borders?

The two approaches aren’t mutually exclusive, of course. Tech clusters and nations within Europe can compete with each other while also recognising that there is a place for nations working together – at least at a policy level – to create the best possible environment for startups and scaleups across the continent as a whole. The question is, what does that kind of collaboration look like?

Federico Menna is CEO of EIT Digital, an organization by the European Union to foster innovation within Europe. Its showcase event is an annual conference bringing together policymakers, financiers, entrepreneurs and corporations. This year’s venue was The Egg in Brussels.

A European Ecosystem

Menna is a firm believer in the creation of a European ecosystem. When I spoke to him just after his keynote speech, I asked him why that was important.

“The main reason is that Europe is a very diverse market and it is a huge market. But it is too fragmented. Initiatives to build local champions are great but at some point, these companies will have to grow and become European or international players. The only way to help them to do this is to create an initiative that is overarching and that can help these companies grow and internationalize,” he says.

Menna invites me to compare the number of unicorns ($1 billion companies) in Europe when compared to the United States. “The numbers are not very favorable for Europe,” he says. “One of the reasons is that the market is too fragmented.”

And there is, he argues, a mindset around that fragmentation. “When I ask entrepreneurs in America to name their domestic markets they will say the U.S.,” he says. “But when I ask European entrepreneurs the same question, they will say Finland, or France, or the U.K. or Spain.”

Blockages

As he sees it, it is too difficult for European startups to enter other EU markets. “You can only really do this at a European level,” he says. “From the (European) Commission side, steps are needed to boost the European market.”

So what are the obstacles preventing a company in France or Portugal from seeing the whole of Europe as their domestic market? “Accessing a new market is challenging,” says Menna. “There are different languages, different standards in some domains and different rules. Typically these companies – even those on a growth trajectory – don’t have the resources to address these obstacles.”

So what can be done to encourage Europe’s startups to think internationally, aside from making the single market more efficient? Menna points to EIT Digital’s programs. Master schools which combine technical subjects with entrepreneurship require students to spend time outside their own countries. EIT also helps with office space. “As part of our accelerator program we can help our companies find office space elsewhere in Europe,” he says.

But access to funding is also a challenge. “It is still not on the same scale as other parts of the world,” Menna says. “We need to find ways to have access to finance that will allow the companies to stay in Europe.” The fear is that U.S. investment may mean companies relocating. It will take time to grow the European VC market. This is clearly work in progress.

But now let’s switch to London. In a keynote speech at London Tech Week, Prime Minister, Rishi Sunak sang the praises of Britain’s innovation economy, pointing out – as policymakers here in the U.K. frequently do – that it has created 134 unicorns in the last decade. “And the UK is the best place in Europe to raise capital with more invested in tech here than in France and Germany combined,” he added.

In terms of government support for innovation, the Prime Minister pointed to the establishment of a new Science, Innovation and Technology ministry, a $2.5 billion investment in Quantum and £900 million into computing.

The very British focus was perhaps understandable. Post Brexit, the U.K. no longer is within a multilayered framework that combines national investment in tech with money from E.U. programs, And in the case of key technologies such as batteries for electric cars, Britain is not in the position to invest at the levels seen in Europe or America. So can the UK carve its own way in the world while maintaining its position as an investment magnet?

Andrew Roughan is Managing Director of Plexal, a company that provides workspaces and accelerators while also acting as a bridge between startups and large corporations. He says Britain is well-placed to build on its position as an innovation leader. But in many ways, the U.K. faces many of the same problems as its European neighbors.

“We are very good at creating knowledge,” he says. “We need to be better at creating product, scale and impact.”

Roughan also argues that startup founders have been rather too eager to exit. “We need to provide founders with incentives to scale,” he says. And as is the case with Europe, there is an investor problem, albeit a slightly different one. The government is changing the law to make it easier for institutions such as pension funds to invest in early-stage companies. Roughan says some education is required. “Investors have to understand the value of tech companies in a market where a lot of companies have not gone through the scaling journey.”

Roughan welcomes the establishment of the Science, Innovation Technology Ministry and financial investments made by the government in key technologies. And as he also points out, U.K. policymakers have singled out priority technology sectors for support. These include A.I., quantum computing and semiconductors. He also cites partnerships between corporations and startups as playing an important role in turning technology into something saleable. Similarly public sector procurement can also help startups take their products to their chosem.

The striking thing is perhaps, that Britain and the EU face similar – although not identical – priorities. The rapid development of AI has opened a new technology frontier and no one wants to be left behind the gold rush. Equally everyone wants to secure access to semi-conductors and take advantage of cutting edge research. The challenge – as Roughan pointed out – is to turn research into world-beating products and companies. That will require investment, links between startups, governments and corporations and public investment. But is this organized at city, national or – in the case of the E.U. – European level? The truth is, it’s probably a mixture of both.

And to some extent, the need for cooperation is acknowledged by the U.K. government. With Brussels tabling plans for the regulation of AI in line with Europe’s values, Rishi Sunak announced plans for an international conference to discuss global regulation. At some level, nations have to work together even when competing.