A DigitalEurope report building on a survey among European high-growth companies sheds light on investment priorities and growth barriers for European scale-ups.
In its report entitled ‘Scaling in Europe’, DigitalEurope, the European organisation representing the digital technology industry, presents the results of a survey conducted among 37 scale-ups from 22 different European countries. While there is no general definition of a scale-up, the report describes them as ‘tech companies with more than $1 million funding raised’. Therefore, scale-ups are the potential Unicorns of Europe (meaning startup companies valued at over $1 billion). DigitalEurope defined a goal for Europe to host 25% of the world’s unicorns by 2025. As the current unicorn share for the continent is 12%, enabling the growth of scale-ups appears essential to reach this objective.
To conduct the survey, the authors selected 37 companies that had been nominated to DigitalEurope’s Future Unicorn Award since 2018. Interviewees were mostly the CEOs of the businesses, and were asked two main questions: (i.) which area of digital investment they believe governments should prioritise to create a favourable environment towards the digital industry, (ii.) what recommendations they have on how to address key barriers to growth.
Regarding priority areas in digital investment, respondents were asked to grade several propositions on a scale from 1 to 5, 1 being the lowest priority and 5 being the highest priority. Respondents rated digital education in schools as the most important, with 90% of companies considering it as a high priority. This includes not only computer science classes but also better basic science education. For the interviewees, digital education allows on one hand to develop the digital skills of the public, and on the other to develop trust in new technologies, which is essential for the growth of scale-ups. Other priorities included various support systems, e.g. support for research and innovation (R&I) through university-industry-government collaboration, for the start-up ecosystem, for continuous education & reskilling and for the digitisation of SMEs. Interestingly, the overall least important area for the interviewed companies was better connectivity; despite the fact that more than a third of interviewees gave it the highest priority score. This shows that opinions on this question were divergent, reflecting the differences in connectivity between different areas of Europe.
When asked about the most important barriers to growth for their companies, respondents rated the lack of regulation adaptation as their greatest barrier to growth. There is a lack of regulation adaptation on two aspects. On one hand regarding new technologies, where legislation is not necessarily up-to-date with technological developments, e.g. for certain artificial intelligence (AI) applications, which cannot be deployed as they do not meet previous legislation requirements. On the other hand regarding smaller companies like scale-ups, for which legislative frameworks are not always adapted as they may focus on outdated criteria. Market segmentation is another important barrier, as European scale-ups have more difficulties accessing a unified market than their peers in the United-States or China, thus preventing their development. In this regard, 74% of respondents view the creation of a Europe-wide e-Administration portal as a high priority. Other concerns cover investment frameworks and access to talent. The last barrier to growth for the interviewed companies touches on data cooperation. Indeed, as the development of new technologies relies heavily on the quality data, the lack of standardisation and interoperability of data between states, but also between organisations becomes increasingly problematic especially for scale-ups. As a result, 90% of respondents considered the creation of European data spaces a high priority, insisting on the fact that a fair access for smaller companies like scale-ups should be ensured.
The European Union plans to tackle several of the concerns expressed in this survey through the rollout of new regulations and programmes in 2021. The Digital Europe programme, which will launch its first calls in the first quarter of 2021, has put digital education, upskilling and reskilling at the top of its agenda. The programme also includes the creation of a European Data Space, aimed at facilitating the development of AI technologies. Research funding is to be strengthened in the new R&I framework programme, Horizon Europe, and the creation of the European Innovation Council (EIC) within Horizon Europe aims at bridging investment gaps for smaller companies and projects. Finally, the AI regulation to be presented in April 2021 should facilitate the development and commercialisation of more advanced AI technologies.