The state of European tech policy, according to 5,000 industry voices
For the past seven years, this report has led an annual survey to gather insights from participants into the European tech ecosystem. This is one of the largest regular surveys of European tech industry leaders, with insights from: more than 2,000 founders, C-level executives and department heads of European tech companies; more than 1,000 investors, including VCs, institutional capital allocators and angel investors; and over 100 public sector employees, including policymakers dealing with tech regulation.
Regulation is perceived as one of the greatest challenges facing the European tech ecosystem
We asked survey respondents what they perceive to be the greatest challenge facing the European tech ecosystem in the next 12 months, and mapped the free text responses using keywords to identify common themes. Regulation was outranked only by obstacles related to funding and talent as the most frequently-cited, mentioned by 19% of respondents. Just 2% of respondents shared concerns related to Big Tech. Founders placed regulation second only to funding in terms of challenges - regulation was cited by 21% of founder respondents.
What if anything do you see as the greatest challenge facing the European tech ecosystem in the next 12 months?
- Founders
- All respondents
- Notes
- Numbers do not add to 100 as respondents may have mentioned keywords assigned to multiple themes. Free-text responses were analysed through a keyword analysis method Pegged to themes.
How can policymakers embrace the flywheel that is underpinning European tech growth and help to make it spin faster? Is there scope to increase the upside potential for European tech through smart policy, removing some of the unnecessary friction for European tech companies?
Policy: a competitive advantage on the global stage?
Signs of progress in the regulatory environment
Once again, we asked survey respondents to reflect on the state of the regulatory environment for European startups - whether things are better or worse than they were this time last year. We found mixed views. 26% of founders and leaders felt the regulatory environment had changed for the better, while 20% felt it had worsened; the majority (54%) perceived things to have stayed about the same. Policymakers are more optimistic with 37% indicating improvement in the regulatory environment over the past 12 months and only 12% that felt things changed for the worse. The investor community landed between these two groups with 31% perceiving the regulatory environment to be better than a year ago.
A window into European policy initiatives: our methodology
In addition to collecting our own data, we have partnered with POLITICO Europe to obtain further insights into European tech policy initiatives - this table sets out the structure of the data used throughout this article. ‘Activities and press releases’ provide a sense of what is being talked about by elected legislators and the responses to those discussions that are communicated back to the public. ‘Legislative documents’ reveal what makes it into draft policies - they are a proxy for the outcomes of activities. Taken together, they provide a useful insight of the changing policy agenda. This analysis is also focused thematically: POLITICO Europe created a mapping of the most common keywords, which are included in the table below.
The pandemic outweighs all other discussion around tech
It's no surprise that the pandemic has been the dominant theme in European Parliament activities once again in 2021. Looking beyond discussion related to Covid-19, the focus is still very much on issues related to 'US Big Tech', which has remained the single most frequently discussed tech-related theme receiving attention from European policymakers, as measured by the frequency of mentions in European Parliament activities and press releases.
We need to give individuals the incentive to regulate for innovation and reward them when they get this right
Regulation can be critical to unlocking new business models where the technology has moved quicker than the market structure, for example by providing necessary "rules of the road". Take the EU Regulation on Markets in Crypto Assets (MiCA) – in some senses the law provides clarity where there has been uncertainty, but it is also heavy-handed in places such as its ban on interest-bearing crypto assets.
The EU could have leveraged the significant work being done on models of regulation that instead of being reactive and blunt – such as banning or limiting activity – are anticipatory, inclusive, experimental and proportionate. The challenge is that very few policymakers, whether in national governments or at an EU level, have the personal incentive to be creative and take a “risk on” approach to policy, particularly when it comes to new and potentially disruptive technology.
ESNA: aligning with founders' priorities
The policy issues that are top of mind for Europe's founders, operators and investors are simplified immigration/visa procedures, simplified employment regulations and better taxation policy for employee stock options. So it’s great to see that the European Startup Nations Alliance (ESNA), which launched in early November 2021, aims to help countries to become ‘startup nations’ - its focus on attracting and retaining talent and stock options has potential to improve outcomes for each of these. Investors also frequently cite tax incentives to foster early-stage investment - but this isn’t currently a focus for ESNA.
What are the main regulatory change that would have a materially positive impact on the prospects of European startups and scaleups?
- Founders & operators
- Investors
- Policymakers and public sector employees
- Notes
- Numbers do not add to 100 as respondents could choose up to three options.
Tax incentives incentivise
Access to funding remains the greatest challenge across the European tech ecosystem - but particularly for founders. Policy can play a role to create incentives aligned to economic growth and job creation - but these are often at the national level. For example, the UK policy approach to angel investment (so-called EIS/SEIS) means that a greater share of UK angel investors cite ‘tax incentives’ as a factor in their decision to start angel investing. In the UK, 68% of angel investors said it played a role to some extent or greater, much higher than angel investor respondents from any other country. It's important that campaigns which spread best practice in effective regulation continue, eg #notoptional - these promote policies which encourage growth.
Share of respondents that rated highly "tax incentives" as a motivation for starting angel investing by country of residence
- A very great extent
- A great extent
- Some extent
- A little extent
- Not at all
- Notes
- Based on angel respondents that answered "some / great and very great extent" when asked about "taking advantage of tax incentives for angel investing". Numbers may not add to 100 due to rounding.
Regulatory convergence is at the core of the European project, and remains a necessity to bolster the efficiency of the single market.
A number of the recommendations put forward in the report of the Scale-Up Europe community aim at working towards more harmonization in legislations and regulation across Europe. This is a key element to enable our startups to scale up outside of their home country and master that process from 1 to 100 that is crucial to compete on the global stage. This will allow us to unleash innovation brought about by EU startups and reach the indispensable goals of the future of Europe.
Innovation is the first most important driver of future growth and jobs, provides solutions for a sustainable economic model aligned with our climate, and is the cornerstone of our technological sovereignty. I have no doubt that we will collectively overcome the obstacles and seize the opportunities ahead.
Removing barriers to scale
In comparison to the US and China, the main regulatory hurdle limiting startup and scaleup growth in Europe remains the fragmented regulatory regime, pointing to a need for harmonisation measures to support companies scaling across the region. However, ‘over-regulation’ was also cited regularly - while vague, this carries an implicit warning about the need for smart, considered policy.
It is tempting to always seek harmonisation at an EU level, to standardise things for startups operating across borders, but that is really hard to achieve in practice and risks alienating member states.
There are two priorities here. The first is to show clarity and conviction of leadership at an EU level - to identify the levers that policymakers have available, including funding but also well beyond it, and to ensure they are all focused on the same objective of promoting innovation. The fact that startup policy is divided between several Commissioners is not helpful here, but isn't going to change .
The second is to recognise that key startup policies such as employment law, company law and taxation will always be largely national competencies, not EU level ones. Instead, campaigns like #notoptional are spotlighting key issues and showing member states what best in class looks like – encouraging them to reform and reap the rewards of doing so.
All groups stakeholders cite regulatory fragmentation as a key obstacle
All stakeholder groups highlight European regulatory fragmentation as a significant challenge for future tech growth. 48% of VCs cited this; LPs also placed this issue high on their list of perceived challenges, and also frequently cited the issues around the (lack of) allocation of pension funds to Europe's venture asset class; whereas founders also highlighted the need to address funding challenges.
Scaling across Europe is becoming more important to founders
Half of founders and leaders of tech companies shared that expanding into other European countries has become more important for their business over the past 12 months, while expanding to the US has become less important for 40% of respondents. The more that scaling across the region becomes an important priority for founders, the more acute the need to address the hurdles to European expansion becomes.
Covid-19 has put digital transformation in the spotlight
The shifting areas of focus of discussions in the European Parliament are clear to see. The conversation has shifted away from the Digital Single Market (DSM) to the Digital Markets Act (DMA) and the Digital Services Act (DSA). Digital transformation has also become a frequently mentioned theme as Covid-19 restrictions on movement have accelerated the need to operate digitally.
Number of mentions of the DSM, DMA, DSA, and Digital transformation in European Parliament activities and press releases per year
- Digital Markets Act
- Digital Services Act
- Digital Single Market
- Digital transformation
- Notes
- This data looks at the number of keyword occurrences related to key tech topics in European Parliament activities and press releases.
If European governments are serious about digital sovereignty, it would be important that they actually open their procurement process to European start-ups and scale-ups.
There are three elements that need to be present to make Europe a strong player in technology: capital, talent, and a supportive business environment. We’re making good progress on all of those, but there’s always more that can be done. In the past year, we’ve seen governments across the continent publish AI and hi-tech strategies which reflect these needs and, broadly, make the right suggestions. The challenge now is delivering on those promises.
Many are hopeful about the DMA - but gaps remain in awareness
The Digital Markets Act aims to increase competition by creating a fairer business environment. Encouragingly, there were 4x as many respondents think the DMA will be effective at increasing competition for startups and scaleups, as those who think it will be ineffective. This optimistic stance was shared across all the different respondent types, including founders and VCs. But a large share of respondents (31%) either did not have an opinion or did not know how to answer. This suggests there remains a huge need to build awareness and educate the market about the DMA.
Concerns around ineffectiveness of DMA relate to over-regulation
A structured analysis to explore core themes in free text responses of those most sceptical about the expected efficacy of the DMA, revealed that many are concerned about the DMA being an example of over-regulation, as well as that it would be circumvented by Big Tech. Respondents also shared concerns about potential unintended negative consequences, such as a disproportionate harmful impact on smaller companies or a negative impact on the liquidity of capital markets by adding friction to fundraising or exits.
I would argue for the introduction of activity-based regulation, using the principle of ‘same risk, same regulation’. This would protect both consumers and ensure that regulation keeps pace with fintech innovation.
The banking sector is heavily regulated and rightly so. We are in charge of people’s money. This is a big responsibility. But there are firms coming into the market who are also in charge of people’s money that are not regulated to the same standards because they are not banks.
Take, e-money firms or stablecoins that might be introduced. These are not regulated to the same standards as banks currently, yet consumers are not always aware of this. A consumer may not realise, for example, that the Financial Services Compensation Scheme does not apply to these firms. Similarly, firms that extend credit should be regulated to the same standards whether their product is called a credit card or buy-now-pay-later.
After PSD2, could 🌎 Planet Positive be next?
The second pillar of our 'smart policy' framework is focused on the potential to use well-executed, industry-defining legislation as a powerful catalyst for innovation. PSD2 remains the touchstone example in the European context - but there is an opportunity to create a similarly supportive and empowering environment for innovation and entrepreneurial activity focused on climate. It's clear that Planet Positive is already a huge focus in Europe - for both tech and policy - at a time when legacy regulation still represents a barrier to innovation in many Planet Positive areas, such as carbon removal, decentralised energy communities, or fusion energy, there is potential for policymakers to set the stage for Europe’s ‘next act’ (as outlined in article 2.2 of this report).
We are at a pivotal moment where the countries and companies that choose to embrace these developments will have a material competitive advantage over those who don’t.
Fintech in Europe benefits from both great regulators like the FCA who are willing to foster innovation in a constructive way through things like the regulatory sandbox, and a brilliant diverse talent pool supported by proximity to traditional financial centres like London. Europe is the perfect storm of complex regulation, fragmented markets and lots of legacy technology. This is combined with demanding customers who expect more from their financial services providers.
There is also a healthy approach from consumers, businesses and regulators towards digital currency. This is an industry that’s rapidly converging with traditional fintech. I really believe that digital currency, particularly stablecoins and Central Bank Digital Currencies (CBDCs), is part of the evolution of our monetary systems. We can expect to see the continued convergence of finance and fintech with digital currency—which will unlock new business models that we’re only just beginning to imagine.
🤖 Disinformation remains a hot topic
Although tech brings enormous benefits, it can also have negative impacts. Disinformation, including deepfakes, is growing as a threat as technology becomes more ubiquitous. This is registering at the European level, where there is increased discussion on these topics including as part of the Digital Services Act.
Number of mentions of Artificial Intelligence, disinformation, US Big Tech, and the DSA in European, French, and UK Parliament activities and press releases per year
- Artificial Intelligence
- Disinformation / deepfakes
- Digital Services Act
- Notes
- This data looks at the number of keyword occurrences related to key tech topics in European, UK, and French Parliament activities and press releases.
Supporting the development of Web3/crypto/DeFi with smart policy
2021 has been a landmark year for crypto, blockchain and the Web3 movement. Discussions on this topic at the European level have mirrored the broader retail interest in crypto, but remain at muted levels compared to other themes. Given the scale of the potential opportunity of being a leader in this space and also the potential transformative impact of a transition to Web3, it surely warrants greater discussion at the policy level to understand how best to realise its full potential?
Future of mobility needs policymaker collaboration
Mobility is another key sector of innovation for Europe. 2021 was a milestone year for a number of electric vertical takeoff and landing (eVTOL) companies in Europe: Munich-based Lilium listed on the NASDAQ; Volocopter, another German-based startup, raised a $241M series D round earlier this year; and Vertical Aerospace, UK-based, announced the intention to list on the NYSE via a SPAC. There have also been huge funding rounds for companies looking to support the transition to electric mobility, such as Sweden's Northvolt or the UK's Britishvolt. There remains a steady level of discussion of these topics at the European level, with higher levels in the UK and France. But the regulatory discussion surrounding autonomous vehicles seems to have slowed down. From eVTOL to autonomous driving, European companies stand to benefit from close collaboration with policymakers as innovations move towards commercial launch.
Number of mentions of drones, electric vehicles, and autonomous vehicles in European, French, and UK Parliament activities and press releases per year
- Drones
- Electric vehicles
- Autonomous vehicles / mobility
- Notes
- This data looks at the number of keyword occurrences related to key tech topics in UK, French, and European Parliament activities and press releases.
A European future of work agenda could help startups overcome key challenges
Our analysis separated discussions around the effects of Covid-19 on the future of work from the broader discussion of the health crisis. While legislation is not in the remit of the European Commission, the topic should be part of the discussion and on the agenda: founders mention fragmentation of European regulation and the talent squeeze as particular challenges. A unified European agenda could help companies to adapt their policies to leverage the changes in working behaviour. Discussions around gig economy and platform workers remain on the agenda - though not on the same scale.
Number of mentions of future of work and lockdown in European, UK, and French Parliament activities and press releases per year
- Europe
- UK
- France
- Notes
- This data looks at the number of keyword occurrences related to key tech topics in UK, French, and European Parliament activities and press releases.
What's talked about vs. what shows up in legislation
The most mentioned themes in activities and press releases do not totally align to the most mentioned in legislation. US Big Tech regulation ranks low on legislative documents, even if it still ranks as the second most talked about topic in the European Parliament. Similarly the Green Deal has also moved down the list to eighth place. Data privacy and GDPR continue to hold a leading spot.
Regulation on research and innovation is losing steam
Mentions of keywords around the theme of research and innovation have steadily fallen since 2015 in the European Union. But there is still a lot more to do to ensure researchers and universities are set up for success and can contribute effectively to the European tech flywheel.
The more we will trust digital technologies, including AI, the more we will use them. And the more we will attract innovative, creative newcomers.
That’s why all regulations that we proposed are there to increase the trust that users put in technology. A large part of these rules are also about limiting the power of the largest platforms specifically to give smaller players a chance to make it. That’s what we do for instance when we ask large marketplaces to share their data with the small sellers that they host. And last but not least, we’ve seen it in many other areas: what helps companies to grow is to have one clear set of “Dos and Don’ts” that lasts in time, instead of 27 different sets of rules. Because that makes it much more difficult to grow.
