Emerging Trends | Policy/ Regulatory Reform | Regulation | SMEs/Entrepreneurship
January 4, 2018

What are the key opportunities and challenges for tech startups in Europe?

By Lucy Spencer

Europe is rapidly becoming a tech startup powerhouse with statistics showing strong growth.

Startups are increasingly a key driver of employment, innovation and growth for the continent. However, they face significant challenges, such as securing sources of financing and addressing regulation requirements.

Is it possible to turn these challenges into growth opportunities instead?

Reporting for ITU News, Lucy Spencer spoke to some of Europe’s top startups about the challenges they face and how they have addressed them, at the recent Disrupt Berlin conference. Below are some highlights.

Financing from non-European markets

Startups have become a growing part of the European economy, with more than USD 19 billion invested in regional startups in 2017, according to the London-based venture capital firm, Atomico.  This is a significant jump from 2016 when USD 14. 5 billion was invested, according to Atomico’s recent State of European Tech report. But it still can’t compare to the pot of money available in Silicon Valley where United States-based venture capital firms invested USD 69 billion in U.S. startups in 2016.

“What we see in comparison to the rest of the world is there is a lack of cash, to put it brutally, to support those innovators that are emerging in Europe,” Stephane Ouaki, Head of Unit responsible for the European Innovation Council in the European Commission, told ITU News at Disrupt Berlin 2017. “The cash is missing at the early stage.”

This means that a lot of startups are finding money from other markets. According to Dealroom statistics, roughly a quarter of investment into EU tech startups in 2017 has come from the U.S.

“There’s a lot of money in the venture capital; they’re looking to invest,” Carla Perez-Vera, Global Special Events Manager at TechStars, told ITU News at Disrupt Berlin. “Back in the day – like eight years ago – the US only invested in the US. Now, those markets have opened up a lot and they are investing heavily, especially in Europe.”

“Sometimes it is pretty hard for innovative companies to start in a highly regulated market.” — Sebastian Fittko, Innogy Innovation

However, this can drain talent away from Europe; a move to Silicon Valley is highly likely for companies that want to ‘go global’.

“A lot of what we are trying to do with the European Innovation Council is provide another option,” Ouaki said. “We want at least to make it possible to have options to grow in Europe if they want.”

Leaving Europe to overcome regulatory hurdles

Government regulations maintain checks and balances on corporations and businesses, but they can create significant challenges for startups.

“Sometimes it is pretty hard for innovative companies to start in a highly regulated market,” Sebastian Fittko, External Consultant to Berlin Outpost at Innogy Innovation, told ITU News.

In the United Kingdom, for example, while attempts to support Fintech innovation exist through the establishment of ‘regulatory sandboxes’, Uber’s ongoing regulatory battle in London is one well-known example of the types of regulatory hurdles that startups can face.

Using the energy market as an example, Fittko said that turning to other, non-European markets could be the key for startups.

“In the energy space, there is a lot of regulation, and the regulation is there for a good reason,” he said. “It might make sense to look at markets, for example like Africa, where you don’t have a centralized energy system and a big distribution grid, where decentralized energy will be the starting point. And, therefore, it is much easier to start probably in countries in Africa … because there is [less] regulation.”

Tech-based startups offering health-related solutions also face regulatory headwinds in the health sector.  At Disrupt Berlin 2017, Trexo Robotics, a Canadian company that builds exoskeletons for children with walking disabilities to provide mobility and therapeutic solutions to help them learn how to walk over time, told ITU News that there are challenges to entering markets as a disruptive startup.

“There is a lot of work you have to do before you can become a fully certified medical device. We have Health Canada certification right now so we can sell in Canada,” said Dina Nikitina, Business Developer at Trexo Robotics. “But it is going to be a bit of a barrier to entering other markets, because no matter where we go, we will need some kind of a deal with the health authorities there.”

Europe’s tech startup sector is beginning to flourish. But the fact that many startups are leaving Europe to overcome their challenges to secure financing and circumvent regulatory obstacles reveals that there is still room for improvement.

Lucy Spencer (@inquisitivelucy) is a freelance writer whose focus areas include tech startups and how information and communication technologies are improving lives worldwide. She was previously a Communications Officer at ITU. You can read more of her work here: naturally-inquisitive.com

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What are the key opportunities and challenges for tech startups in Europe?

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