“Do you actually want to win or not?”
Lucien Burm, the president of the Dutch Startup Association, thinks this is the most important question to be asking the European business community.
On a panel discussing European Policies for Startup and Scaleup Growth at Porto’s second edition of its Startup and Investment Matchmaking (SIM) Conference, Burm expressed, to both nodding heads and dissenting voices that, before blaming US tariffs for disrupting growth, Europe should look at the barriers it puts on itself. He cited an International Monetary Fund figure indicating that tariffs for the exchange of services within the EU are at 110%.
“I hate the Europe-bashing,” Luis Roquette Geraldes, a partner at ML/Team Genesis, said in response to Burm. Geraldes believes that, given the relatively young age of the European startup ecosystem, the continent is right on track. Burms disagrees. He said it was exactly this complacency that has held Europe back from fulfilling its own potential.
Many topics at the SIM Conference, such as disagreements over the growth of Europe’s startup ecosystem, are not new. Discussions about bureaucracy, funding gaps for startups and an overreliance on US venture capital have been around for years. But two main factors have cast a different light on old talking points: the uncertainty coming from the US and the arrival of artificial intelligence (AI), arguably the most disruptive technology since the arrival of the internet. For some, regulation, stability and caution are well appreciated in the face of all that disruption. For others, you have to fight fire with fire.
Europe’s relationship to regulation
The bureaucratic nature of doing business in Europe was frequently discussed across different panels. Linda Capuso, a board member at the Europe Startup Nations Alliance, noted that the difficulty wasn’t necessarily in starting a business, but in scaling it across borders. That said, access to finance for startups in Europe has grown thanks to an increase in funding from the European Union (EU).
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By GlobalDataA recent report by the European Startup Nation Alliance found that the implementation of startup funding policies had grown from 55% to 61% from one year to another. This growth came mostly because public funding was increasingly diverted to the startup ecosystem through “grants or indirectly to supporting VCs or even providing a tax exemption for business angels.” She noted that while policies might sound “boring” they are one way in which European countries can support the startup ecosystem.
Louder EU regulatory moves, such as their recent pursuit of major cases against American tech giants like Meta, are also appreciated by smaller players.
“We need to have a level playing field […] ” Andre Florido, senior investment associate for global and Iberia at the venture capital firm Antler told Just Drinks sister site Investment Monitor. “So, in that sense, I think it’s great to have someone with the fiscal capacity and the ability to understand that these people are not doing the things they should […] What does this mean for the smaller companies within the ecosystem? It just means that, regardless of size, the EU is ready to protect you and to facilitate your growth into something that’s going to be a little bit more meaningful in the ecosystem.”
Sacha Michaud, the co-founder of Spanish delivery app Glovo (one of Europe’s few unicorns), highlighted that European regulators could also be innovative with their approach in order to stimulate the startup ecosystem. He alluded to an initiative undertaken by French President Emmanuel Macron a few years ago through which the government convinced institutional investors (“old money,” Michaud called it) to invest in late-stage funding rounds for tech firms, which is often an obstacle for European players.
However, despite European strides and the intense geopolitical headwinds in the US, the American market is still too big and profitable to make firms turn away. One founder put it plainly: “In the US, you play to win. In Europe, you play not to lose.”
Frank Khan Sullivan, the co-founder and CTO of a health tech fertility company, echoed this sentiment. He said in the healthcare industry, the dictum is still that you should get “validated in Europe, but make your money in the US. I think that still holds true because the risk appetite is still there.”
“America didn’t stop being America,” Sullivan added.
Cybersecurity
While that may hold true for the needs of individual startups, the change of course by the US introduced a welcome pressure for the development of certain industries that have national security implications. Multiple speakers and delegates who Investment Monitor spoke with highlighted that cybersecurity and defence tech are two sectors with major growth potential in Europe.
Carlos Alberto Silva, the founder of a cybersecurity-focussed VC 33N Ventures, noted that even European founders didn’t realise the rate of growth of the domestic cybersecurity sector, which he said is faster than that of the US. He said the forecast for the VC market this year is around €60bn. “Even though Europe represents 70% of the market spending, again, growing faster than the US when it comes to VC investment, we are lacking, and we are well below our scale,” Silva said.
For some investors, American hostility has created a sense of urgency to a problem that’s long been talked about in these circles.
“It’s a question of European sovereignty,” suggested Patrick Grescko, the head of institutional relationships at the European Investment Fund (EIF). “This is a topic that has been developing for quite some time at the EIF, but it’s raising importance today, [because] we are realising that we cannot rely, we cannot fully trust the partners that we could trust in the past. It looks like we’re more on our own, and hence we need to increase the capacity for us to be more sovereign in fields like technology and cybersecurity.”
A fragmented union
The difficulty of scaling in Europe, a diverse continent with over twenty jurisdictions, versus the comparative ease of the US market was also a recurring theme.
“You need to remember that when you open your business in the US, you do it once, you have access to the whole country,” Capuso added. “You come to Europe, or you are in Europe, currently, you need to do it at least 23 times to have the same access for geography, for people.” Still, she thinks there is “the right signal from not only the country governments, but from the European Commission.”
Florido noted that the wide range of European cultures and languages also makes it harder to scale across Europe. In this regard, the existence of a unified English market in the US poses a major advantage.
Victoria Valbuena, head of business development and promotion at Spain’s National Cybersecurity Institute, highlighted that this issue could only easily be “short term.”
“Because AI offers solutions to immediate transmission to different cybersecurity products there,” she said. “So, for instance, for me, the key is trying to switch the mind of the entrepreneur, to let them know they can scale for Europe and not become an SME and be sold to a regular company too early.”
