(Science|Business) Competitiveness Compass: right direction, but go further, say start-ups

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Europe’s start-up community is broadly positive about support measures set out in the Competitiveness Compass, the EU’s new strategy for competitiveness, but warns that cultural change is also required if more investment is to flow into the sector. 

Among concerns voiced at last week’s annual Science|Business conference, experts pointed to the fragmentation of the EU market and the lack of venture capital for technological projects, which reflects investors’ risk-averse mindset.

To catch up with its innovation rivals, the European Commission intends to set up a 28th regime, a legal framework that will enable start-ups to operate under a single set of rules, and to create a European Savings and Investment Union to strengthen financing.

The 28th regime is particularly popular with start-up organisations, which see it as a way of smoothing the path for investors. 

“Right now, if you’re trying to invest in a company, you’re confronted with 27 different legal forms, banking forms, stock option forms etc,” said Clark Parsons, chief executive of the European Startup Network. “You need to be able to invest instantly, digitally, across borders, and scale the same way.”

But there is some scepticism about the Commission’s idea that creating a European Savings and Investment Union will set free pent up venture capital in Europe. More needs to be done to change attitudes to investment.

“You can’t legislate a mindset, but you can make some structural changes,” Parsons said. “Investing in equity, whether it’s on the Fortune 500 stock market or it’s a start-up, there’s always risk involved. But venture capital funds are there to minimise [their] risk.”

For Jean-Marc Bourez, head of the European Institute of Innovation and Technology’s Health community, the main problem lies in capital growth, with European venture capital funds five to ten times smaller than those in the US.

But he also thinks there is an important change that could be made to the way potential investors are involved in the start-up process. Venture builders and venture capital funds should be brought in early on, even before the start-up has incorporated, so that they can support the research and academic partners behind the project. 

“That’s the best way to ensure that a private investor will be supporting the research as an entrepreneur, to design properly the target product profile, the market access strategy, the equity story,” he said.

Parsons also sees this early stage as crucial, with many projects stalling because the academic founding teams lack business knowledge. “There’s this valley of death in a lot of these research projects, where they may not be ripe enough to get funding, but they’re too far along to get another research grant,” he explained. 

He urged research institutions and universities in the audience to put 1% of their budgets into entrepreneurship and business training. “It’s the greatest investment you could ever make,” he said.

For Reinhilde Veugelers, a professor at KU Leuven and senior fellow at the Bruegel think tank, the problem lies even earlier, with the way projects are selected for public funding. 

EU research programmes, including the European Innovation Council, must remain open to “the best ideas wherever they come from,” she told Science|Business in an interview. And they should eliminate bureaucratic procedures for high-risk projects that are worth the gamble, in line with the Heitor group’s proposal for a “trust first, evaluate later” principle.