Franc Smidt  Editor & Venture Capital Investor
January 30, 2025, Germany

The European Union faces a major challenge: in the global competition with the US and China, it must foster a favorable ecosystem for startups and scalable companies that can become the foundation of Europe’s technological sovereignty. The European Commission is preparing an ambitious Startup & Scale-up Strategy, aimed at removing existing barriers, improving access to funding, and creating a unified regulatory environment for innovative businesses.

Europe Has Everything It Takes to Win the Race to the Top. At the same time, we must address our weaknesses to restore competitiveness. The Competitiveness Compass transforms the excellent recommendations of the Draghi Report into a roadmap. So now, we have a plan. We have the political will. Speed and unity matter. The world will not wait for us.All EU member states agree on this. So, let’s turn this consensus into action.

Ursula von der Leyen, President of the European Commission

Towards Unified Rules: The “28th Regime” for Future Companies

One of the most debated initiatives of the Startup & Scale-up Strategy is the introduction of a standardized legal framework for startups across the EU, known as the “28th Regime.” Currently, entrepreneurs must navigate 27 different national legal systems, making cross-border expansion complex and costly. The new regime aims to streamline company registration, corporate governance, insolvency procedures, labor laws, and tax regulations, allowing startups to operate under a single set of rules regardless of their country of establishment.

The proposed EU Inc. model, developed by a group of experts led by Austrian entrepreneur Andreas Klinger, envisions a system where companies can be created entirely online, without minimum capital requirements or mandatory notarial certification. This reform is expected to significantly reduce administrative costs and accelerate business launches, enabling companies to be established in under 24 hours for approximately €100. Additionally, there is a proposal for unified tax reporting, allowing businesses operating across multiple EU member states to file a single VAT declaration, reducing bureaucratic hurdles and increasing efficiency.

Access to Capital: Closing the EU Investment Gap?

Startup financing remains one of the biggest challenges for Europe’s innovation ecosystem. Unlike the U.S., where venture capital is widely available, private investments in Europe remain highly fragmented. To address this issue, the European Commission is launching several new initiatives:

“Savings and Investments Union” – A Mechanism to Attract More Private Capital into Startups, Set for Launch in Q1 2025.

Expansion of the European Tech Champions Initiative – A Funding Program for European Tech Companies Managed by the European Investment Bank (EIB).

TechEU Investment Program – A New Investment Platform Combining EIB Funds and Private Investors, Aimed at Supporting “Future Unicorns”.

These initiatives aim to bridge the gap between Europe and the U.S., where startup funding far exceeds European levels. The EU is working to ensure that startups no longer need to leave the region in search of capital but instead thrive within its ecosystem.

Startup Growth Without Bureaucracy: Accelerating Innovation in the EU

Another major goal of the Startup & Scale-up Strategy is to eliminate bureaucratic hurdles that slow down startups and their ability to scale. Currently, launching a business in different EU countries involves complex administrative procedures, but the new system will streamline regulations and lower market entry costs.

Furthermore, the European Commission is considering new measures to simplify IPO access and strengthen intellectual property protection, ensuring that young companies can effectively monetize their innovations.

Why This Strategy Could Be Historic

For years, the EU has struggled to compete globally in the tech sector. Unlike Silicon Valley or China’s innovation hubs, Europe has faced challenges such as complex legal frameworks, lack of venture capital, and limited talent mobility. However, this new strategy could change the game by introducing uniform, transparent, and business-friendly conditions for startups.

If successfully implemented, this strategy could elevate Europe’s competitiveness against the U.S. and China, fostering homegrown tech giants and securing long-term economic sustainability.

The final version of the Startup & Scale-up Strategy is set to be officially adopted by the European Commission in Q2 2025—a key milestone for the future of Europe’s innovation ecosystem.

Weaknesses in the EU’s Startup Strategy: What Still Needs Work?

Despite the ambitious scope of the Startup & Scale-up Strategy, there are concerns about its actual impact in making Europe truly competitive in the global tech race. While the proposed measures are logical, several key challenges remain:

1. Lack of Strong Incentives for Private Investors

A major issue in Europe’s startup ecosystem is the shortage of private venture capital. Unlike the U.S., where investors actively fund high-risk projects, Europe’s investment climate is far more risk-averse.

While initiatives like the “Savings and Investments Union” and new investment programs are promising, they lack clear incentives for private investors. In the U.S., tax benefits for VC funds and faster liquidity for assets play a crucial role in attracting investment. In the EU, complex tax and legal systems continue to discourage venture funding.

To close this gap, the EU should introduce tax breaks or subsidies for startup investors, mitigating risks and making venture capital more attractive. Without these measures, Europe will continue to lag behind in securing large-scale private investments.

2. Challenges in Attracting and Retaining Talent

Successful startup ecosystems rely not just on funding but also on top-tier talent. The U.S. and China aggressively compete for skilled professionals, offering flexible immigration policies, grants, and strong employment incentives.

In contrast, the EU faces significant challenges:

For the EU to build a thriving startup ecosystem, it must introduce a “Digital Citizenship” program or a unified startup visa system, enabling top talent to move freely and work for innovative companies without bureaucratic obstacles.

3. Bureaucracy Remains a Major Barrier

Even if the “28th Regime” is successfully implemented, questions remain about how it will integrate with existing national regulatory frameworks.

Will EU countries voluntarily hand over part of their corporate law authority to Brussels?

How will the “EU Inc.” format align with national tax systems?

How will intellectual property protections be enforced at the EU level?

If these issues are not clearly addressed, delays and new administrative complexities could emerge, potentially undermining one of the strategy’s core advantages—ease of doing business.

4. No Clear Plan for IPO Growth

One of the key reasons European startups relocate to the U.S. is the lack of a strong IPO ecosystem.

Nasdaq and NYSE provide highly liquid stock markets, allowing tech companies to raise massive investments.

The EU lacks a unified high-liquidity stock exchange tailored to scaling startups.

To fix this, the European Commission should explore:

A dedicated European stock market for startups. Programs easing the transition to public markets within the EU

What Needs to Be Improved?

The EU is making an important step toward building a startup-friendly environment, but without stronger investor incentives, talent mobility reforms, and improved IPO infrastructure, the strategy may fall short of its potential.

To compete effectively with the U.S. and China, Europe must implement deep tax reforms, flexible immigration rules for skilled professionals, and a more attractive investment landscape. Only then can the EU truly become a global hub for innovation.

Recommended Reads:   “The Future of European Competitiveness: Mario Draghi’s Report”

  “The EU’s Competitiveness Compass: Restoring Growth & Ensuring Prosperity» 

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