The EU Is Not Entrepreneur Heaven -- But It Could Be
The Old Continent has been for ages the epicenter of innovation and economic, intellectual and technological growth, producing wonders in human history such as the Roman Empire, the Renaissance and the Age of Enlightenment. So, it is just a matter of time before it regains its primary role on the world stage as the place where empires are built and successful men are forged.
Well, at least this is what somehow lingers in any conversation you strike up with your passionate and enterprising European citizen -- like me -- when somebody points out that, at the moment, the EU is nowhere near the top regions in the world for innovation or entrepreneurial spirit, lagging behind not only the U.S. and Silicon Valley (in 2014 VC investments in European countries were one-fifth of those in the U.S., according to Ernst & Young, with a comparable market size and population), but also China and its many industrial and technological hubs.
There are many historical, cultural and political reasons that we could bring to the table to explain why this is happening, but in this article I want to outline the top three dichotomies between what it currently is and what it could be, what is happening now and what needs to happen to make Europe a place where entrepreneurs feel at home and fully supported in building and growing their ventures.
Risk-avoidance vs. culture of failure
The "fail fast, fail often" mentality is at the center of the entrepreneurial approach in the U.S., and investors regard a track record of failures as a sign of boldness, intelligence and ambition.
Not so much in the EU: While in Germany, for example, a failed entrepreneur, manager or professional is at best regarded with contempt, there are countries like Italy where a personal bankruptcy essentially means that you will not be able to build any other business for the rest of your whole life -- and in some cases not even own anything at all, like a car, a house or an armchair.
While these rules and regulations were introduced to prevent people from scamming the public and investors, the result is that entrepreneurs are now often scared to death by the chance of failing, and sometimes the ones who thrive in such an environment are unscrupulous individuals who have nothing to lose and game the system at the expense of the general public.
In this age of abundance we need a new approach to failure, where the entrepreneurial spirit is encouraged and risk-takers are rewarded and preserved. Above all, it's important that the dignity and career of an entrepreneur is decoupled from his failures and building a private enterprise is regarded as a useful, inspiring and commendable professional choice -- even if it doesn't turn out to be a success.
Public investments vs. private VCs
About 45 percent of venture capitals invested in the EU in 2014 have been backed by (or directly provided by) the European Investment Fund, an arm of the European Investment Bank.
What is this bad? There are a few reasons why direct intervention of public or governmental institutions in venture markets often yields poor results:
- An entity like the EIB -- whose "shareholders" ultimately are the EU member states -- inevitably follows a political agenda, driving growth toward sectors and activities chosen by committees rather than market forces. While this approach could be acceptable and even beneficial in mature or socially critical sectors, the startup world needs exactly the opposite treatment: Let the competition begin, let entrepreneurs struggle and fight, and then see who comes out as a winner.
- Public officers usually have very little real-world business experience and see life in black and white (blindly choosing what's right or wrong based on a set of predefined rules is essentially the job of bureaucrats) while entrepreneurs need to constantly deal with many shades of gray, making gut choices and catching quick opportunities without waiting for modules to be signed or approvals from big brass to be officially granted.
Private investors, VCs and angels are usually entrepreneurs who "made it" and that now want to help younger generations grow and succeed. If public entities like the EIF slowly backed away from this market and instead started lobbying regulators for a more startups-friendly environment, they would do much more good to the movement than pouring capital into a not-yet-fully-formed market.
Bureaucracy vs. infrastructure
This last dichotomy is a bit stereotypical and almost humorous -- if it was not so true, crippling and exasperating.
If there's one thing that makes the existence of entrepreneurs in the EU a living hell it's the complexity of rules and regulations they have to follow. From the troubles and time sucks you have to deal with when setting up a company to all the different tax schemes in the various countries you somehow need to be aware of, down to the continuous new rules -- just think about the "Cookie Law" and the upcoming GDPR regulation, just to name two -- that the Commission, the European Parliament, the Council and then the member state parliaments, local regulators and other parastatal entities decide once in a while to enforce, it's no wonder that entrepreneurs feel that the environment in which they want to build their venture is hostile and full of a seemingly infinite series of arbitrary hurdles.
I'm no advocate for a totally anarcho-capitalist world where the only rule is that there are no rules and laissez-faire is the name of the game, but to make a place startup-friendly governmental bodies should serve as a support, a guide and a "friend," not as a constantly suspicious controller that can't wait to catch you at fault to slap you fine. Though things are improving slowly (a few EU states have recently passed more startup-friendly legislation), in a world where Facebook knows more about you than the local police department, what stops other countries from following Estonia's lead and offering e-residency to everybody who needs it, making setting up a company a matter of hours?
Again, this is just a single, relatively small example -- yet it's a true innovation that has recently come from a country within Europe's borders and so it is also a testament that this mix of people, traditions, languages and cultures can be at the forefront of innovation in entrepreneurship and business.
Europe has been truly the cradle of western culture, progress and growth. It's time for it to start fighting and reforming to become again the place where ambitious entrepreneurs, great innovators and passionate human beings go to make their visions a reality.