Is a pan-national ecosystem key to the challenge of European tech startups?

The UK and Europe face similar challenges around creating an ecosystem for technology and science startups to thrive. But is the answer more cooperation between nations or a focus on national policy?

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

You could imagine a dialogue here. As Europe as a whole takes on the task of creating an innovation economy that can successfully compete with the US and Asia, is that goal best served by competition between city centers and nation states or is there a case for cooperation across borders?

Of course, the two approaches are not mutually exclusive. Tech clusters and nations within Europe can compete with each other, while also recognizing that there is a place for countries working together – at least at a policy level – to create the best possible environment for startups and scale-ups across the continent. The question is: what does such a collaboration look like?

Federico Menna is CEO of EIT Digitall, an organization of the European Union to promote innovation within Europe. The showcase event is an annual conference that brings together policy makers, financiers, entrepreneurs and companies. This year’s venue was The Egg in Brussels.

A European ecosystem

Menna firmly believes in creating 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’s 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 with this is to create an initiative that is overarching and can help these companies grow and internationalize,” he says.

Menna invites me to compare the number of unicorns ($1 billion companies) in Europe with that in 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 home markets, they say the US,” he says. “But when I ask European entrepreneurs the same question, they say Finland, or France, or the UK or Spain.”

Blockades

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

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

So what can be done to encourage European startups to think internationally, apart from making the single market more efficient? Menna points to the programs of EIT Digital. Masters schools that combine technical subjects with entrepreneurship require students to spend time outside their home country. 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 finance is also a challenge. “It’s still not on the same scale as in other parts of the world,” says Menna. “We need to find ways to access finance that will allow companies to stay in Europe.” There are fears that US investment could cause companies to relocate. It will take time for the European VC market to grow. This is clearly work in progress.

But now let’s switch to London. In a keynote speech on London Tech Week, Prime Minister, Rishi Sunak sang the praises of the UK’s innovation economy, pointing out – as policymakers often do here in the UK – 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 technology here than France and Germany combined,” he added.

In terms of government support for innovation, the Prime Minister pointed to the creation of a new Department of Science, Innovation and Technology, a $2.5bn investment in Quantum and £900m in computers.

The very British focus was perhaps understandable. Post-Brexit, the UK is no longer in a multi-tiered framework that combines national investment in technology with money from EU programmes. And in the case of key technologies such as electric car batteries, Britain is unable to invest at the levels we have seen in Europe or America. So can the UK carve its own path in the world while maintaining its position as an investment magnet?

Andrew Roughan is the general manager of Plexal, a company that provides workspaces and accelerators while bridging the gap between startups and large corporations. He says Britain is well placed to build on its position as a leader in innovation. But in many ways, the UK faces many of the same problems as its European neighbours.

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

Roughan also argues that startup founders were a little too eager to leave. “We need to encourage founders to scale up,” he says. And just like in 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 start-up companies. Roughan says some training is required. “Investors need to understand the value of technology companies in a market where many companies have not yet gone through the scale journey.”

Roughan welcomes the establishment of the Ministry of Science, Innovation Technology and the government’s financial investment in key technologies. And as he also notes, British policymakers have singled out the priority technology sectors for support. These include AI, quantum computing and semiconductors. He also mentions partnerships between companies and startups that play an important role in turning technology into something marketable. Similarly, public procurement can help startups make their products of their choice.

Perhaps the striking thing is that Britain and the EU have similar – if not identical – priorities. The rapid development of AI has opened a new technological frontier and no one wants to be left behind in the gold rush. Likewise, everyone wants to secure access to semiconductors and benefit from cutting-edge research. The challenge – as Roughan pointed out – is to turn research into world-class products and companies. That requires investments, connections between startups, governments and companies and public investments. But is this organized on a city, national or – in the case of the EU – European level? The truth is, it’s probably a combination of both.

And to some extent, the need for cooperation is recognized by the British government. With Brussels submitting plans for the regulation of AI in line with Europe’s values, Rishi Sunak announced plans for an international conference to discuss global regulation. On some level, nations must work together, even as they compete.