Towards a more startup-friendly Europe

I took part in a plenary session on jobs and innovation at the European Green Party Council meeting in Glasgow on 3 December. I was asked to talk about startups and how Europe could become a more fostering environment for innovative growth companies.

Dear green friends,

It’s such an honour to be speaking here today. As an entrepreneur and angel investor the topic of jobs and innovation is very important to me.

It’s a great time to talk about this topic, as this week we had the annual Slush event in Helsinki, which is Europe’s largest event for startups and investors. So, I’ve just spent three exciting and action-packed days talking to investors and entrepreneurs from all over the world.

Today I was asked to talk specifically about startups and how Europe could become a more fostering environment for innovative growth companies.

I’d like to start by defining what a startup is, as the term is quite often misused. When I talk about startups, I refer to young companies that focus on research and development and aim for fast, exponential international growth.

So, how can we make Europe better for startups? I want to raise five issues that from my experience as an entrepreneur, investor, consultant and politician are key to a startup-friendly environment.

1) First, and I cannot stress this enough, we absolutely have to hang on to the founding principle of the EU, namely free movement – of people, services, goods and capital.

This week I had a meeting with the CEO of a startup that is developing a sodium battery. It has twice the energy storage capacity of lithium batteries, and it will be a serious game-changer for the energy market.

This company has been set up by a scientist from Hungary. The CEO is American. They are based in Finland. Their product is being tested in Germany. Without free movement this company probably would never have been founded.

There is strong political pressure right now to close borders, make European countries less hospitable, to introduce high tuition fees for overseas students. We must not cave in to this pressure. If we do, it will be a deathly blow to research and innovation. Instead of walls, we need to build more and faster connections to further enable free movement.

2) Building on my first point, we need to speed up the creation of a single digital market. Curbing extortionate mobile roaming prices was a great start, but there are still plenty of improvements to be made. Complex issues such as data protection and copyright need to be resolved.

As services move increasingly into the digital sphere, we need to make sure that the EU offers a good environment for growing a digital business across borders.

3) Third, we need more capital. I talked to a whole bunch of Finnish startups this week, and every single one has received grants or loans from the Finnish funding agency Tekes. It’s great that we have such an agency, but the reason we need it is because there isn’t enough private money to go round.

The way it all too often works is startups get founded in European countries, often utilizing the great academic resources available. They develop their products with the help of public seed money. They get their first customers, and if all goes well, they start to grow.

And this is where they hit a wall. There simply isn’t enough private money around to take startups past the seed stage. So, what happens is a big venture capital fund from the US or Asia steps in, buys a majority share – and, well, the startup is European no more.

There are at least three things that can be done to increase the availability of capital. We need to make it worth their while for private individuals to take significant personal risk and invest in growth companies. We need to encourage large industrial companies to form and foster strategic alliances with innovative small companies. And we should explore ways to utilise EU money to provide capital for venture funds.

4) Moving on to my fourth point, social security networks are a key issue in the new entrepreneurial economy. How do we make sure that self-employed people and entrepreneurs do not fall outside social security structures that have been designed for salaried employees?

More and more people will be earning their living from a variety of sources – they might do assignments through their own company, and sometimes take on short stretches of salaried employment. They may be employed on zero-hour contracts. They may get their income from driving an Uber car. Startups typically run out of money at some stage, and they may need to suspend salaries for several months while waiting for a funding round to close.

For all these people work income is sometimes interrupted. When that happens will all they be able to benefit from some type of social security network or will they be left out in the cold?

In Finland we will soon begin a universal income trial. It has been a key goal for the Green Party for a very long time, and we are anxiously waiting for the results. We believe that a universal basic income would be an equitable way of making sure that regardless of a person’s job situation, entrepreneur or salaried or something in between, they would be secured something to live on in case their work income is interrupted for some reason.

5) Finally, governments need to become more agile at responding to disruptive innovations. Companies innovate faster than governments can legislate, and all too often the first reaction is to try and ban these new business models. Instead, legislators really should look for ways to integrate new businesses into the existing framework.

If Uber drivers and Airbnb landlords are not paying taxes, governments should think about how they can make it super easy for them to report and pay – and super difficult to not do it.

Collaboration with the companies is always a good start. Also, creating open interfaces to public systems is a good way of making it easy for digital service providers to integrate official payments and reporting into their applications.

Digitizing government services and bureaucratic processes should be a top priority everywhere. Here we should look to Estonia, where they have really succeeded in creating well-functioning digital public services.

So, five things: free movement, single digital market, growth capital, social security network and agile digital government. We already have elements of all these in place. Most of these are things that we can do better than, say, the US. Now we need to do our very best to make sure that we keep on going forward and developing, not moving backwards.