Regulatory and process complexity hampers the potential of European startups

The platform, Stripe, has presented a study, European Tech Voices: Perspectives of the fastest growing startups in Europe”, which shows how normative “frictions” pose a serious threat to business growth. At a time when economic uncertainty is affecting global technology markets, one in three startups admits to having considered starting their activity elsewhere due to the magnitude of the bureaucratic burden.

The study gathers the experience of European startups from the point of view of the fastest growing online businesses and their opinions on how rules and regulations are acting as a catalyst and, at the same time, as a barrier to their growth.

«As technology developers across Europe face an increasingly difficult economic environment, it is more important than ever to listen to the voices and needs of the startup community. We wanted to hear directly from companies using Stripe, who make up the future generation of European technology leaders, to better understand the realities they face and identify the main obstacles to growth.says Matt Henderson, Stripe’s head of international business.

The solid foundations of European technology, increasingly in question

European startups recognize the advantages that Europe has, compared to other global technology markets:

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  • 73% believe that the quality and availability of talent and the level of education in Europe is an advantage compared to other markets, and so do 65% of the Spanish startups surveyed.
  • More than half of the startups surveyed (56%) point to the geographical proximity of the different markets as an advantage both because of the speed and the convenience it entails for companies.

But despite these strong arguments, the “friction” caused by complex and outdated regulatory procedures is adding pressure to the scarce resources available.

More than half (53%) of European respondents say that the main barrier they encounter in terms of regulations is the time spent on complying with compliance procedures. More than three-quarters (79%) say that the time spent on compliance has increased.

In the case of Spain, 63% of Spanish startups surveyed considered launching their business outside the EU due to the magnitude of regulatory burdens and compliance issues, compared to just a third of European startups who said the same (33%). Furthermore, more than a third of these Spanish startups (35%) would prefer to start their business in the United States.

Growing disconnect between startups and policymakers

Part of the problem is the disconnect between policymakers and startups. More than 83% of the respondents affirm that the policies adopted are aimed at existing companiesand only 12% believe that policymakers understand the realities that startups face.

In Spain, only 6% of Spanish startups feel comfortable expressing their concerns and priorities to policy makers. As the main obstacles for Spanish startups, 60% of those surveyed in Spain affirm that the fact that regulation is designed for large companies represents the greatest threat to their business, while 53% believes that other startups represent a threat. Likewise, 47% believe that the main threat is outdated regulation that is not suitable for digital economies.

24% of Spanish startups cite the commitment to digital as the main measure to create an environment favorable to the growth of startups, followed by agility in the creation of startups as well as ease of entry into the market (18%).

The study reflects that beyond specific regulations, startups want policymakers to focus on policies aimed at reducing friction and saving increasingly valuable resources. For example, among the measures set out in the EU Regulation for startups, respondents cite the commitment to “digital first” as the main objective to facilitate the creation and growth of start-ups. The largest number of respondents (36%) pointed to the Baltic countries as having the most innovative approach to legislation, the reason being the Baltic countries’ efforts to digitize public administration procedures.

Meet startup priorities

Based on the findings of this study, Stripe has outlined five areas to which policy makers should prioritize, In order to ensure that startups can survive and thrive in the future:

  • Pool, coordinate, and enforce existing policies and initiatives designed to remove barriers to growth and turn startups into scaleups.
  • Activate single windows and provide unified guidance to European entrepreneurs.
  • Increase the digitization of government processes involved in the formation and growth of a company.
  • More structured communication between startups and policy makers to ensure startup priorities and views are reflected in policy making.
    Harmonize regulatory regimes, reduce friction and maximize growth.

Henderson adds: “European startups have already shown their resilience in disruptive periods, but that should not lull us into a false sense of security. As far as policymakers’ priorities are concerned, the focus now must be on reducing regulatory frictions for European online businesses to help them drive growth when market conditions improve.”

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