EU start-up initiative “too late” to compete with US and China

“EU running for a train that has already left the station”

By David Beach | 1 June 2018

Earlier this month, France and Germany teamed up to demand an EU-wide initiative designed to fund innovation and research in tech start-up projects to compete against China and the US fintech markets.

But Spiros Margaris, venture capitalist and senior advisor at Arbidex, suggests it is too little, too late.

“The politicians have only just realised what’s happening,” says Margaris. “The gap is actually widening between the EU and US or EU and China. The EU is trying to run for the innovation train that has already left the station.”

Margaris puts the success of US and Chinese start-ups down to the structure of their markets: “It’s much easier to become a huge player in single entity markets like the US or China where everyone speaks the same language with fewer cultural and business barriers. I think the US start-up scene has better sales people who are more willing to take risks while the government is an integral part of any successful Chinese start-up and its business case.”

“It’s not necessarily a bad thing that the EU wants to throw money into their initiatives,” he says, “but who will decide where that money goes?”

But Margaris, himself having successfully seeded and mentored successful start-ups, is optimistic about the EU’s tech and fintech prospects.

“There are a lot of excellent start-ups in Europe with some very smart people behind them,” he says. “Europe will have its ‘European Google’ moment but the US and China are likely to develop many more as a product of their work ethics, mindset and culture. Often a great idea will originate in Europe and is executed far quicker in China or the US.”

A similar sentiment is echoed by the vice-president of the European Commission, Jyrki Katainen, responsible for jobs, growth, investment and competitiveness: “Europe has world-class research and a strong industrial base. But we must do better – much better – at turning that excellence into success. New megatrends, such as artificial intelligence and the circular economy, are going to bring profound changes to society and the economy. We need to act fast to be able to lead the new wave of innovation and set the standard for global competition."

The push comes from the Commission who presented the Renewed European Agenda for Research and Innovation report at the Heads of State and Government Summit in Sofia, 16 May 2018.

“The EU is being outpaced by China and the US in levels of investments in the technologies that are set to dominate in the future” reads the report.

According to the report, 2016 saw venture capitalists invest €6.5bn in the EU, compared to €39.4bn in the US. As a result, the EU only homes 26 Unicorn startups (start-ups valued at $1 billion) compared to 109 in the US and 59 in China.

Europe contributes 20% of global R&D while only accounting for 7% of the global population. The report also proposes that funding must back good research culture with bilateral cooperation and fewer regulatory barriers.    

"With growing international competition, Europe needs to act urgently on research and innovation. The proposed €100bn for the next EU research and innovation programme would be a huge boost,” writes Carlos Moedas, Commissioner for Research, Science and Innovation, in the report.

“But Europe also needs to reform the support for breakthrough innovation through a new European Innovation Council and reconnect with citizens through a mission driven approach to research and innovation. We need to future-proof regulations and attract more private investment, in particular in venture capital." Says Moedas.

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