Startups call for new legal status to boost Europe's growth

While Europe’s startup scene is thriving — more startups were created in the Old Continent than in the US for five years in a row–fragmentation constrains its ability to establish growing companies. For this reason, a group of European startup founders and investors launched EU Inc, calling for establishing a new legal entity (a 28th regime) with uniform regulations for European startups to operate within the EU. This would restore Europe’s competitiveness and help companies develop and stay in Europe.

“EU Inc is an attempt to create a unified voice for a step change in the European startup economy. We now have 27 fragmented ecosystems with different tax and legal entities. As things are nowadays, it is implausible to give startups room to grow and build on their momentum,” explains Philipp Herkelmann, one of EU Inc's initiators.

Some of the most influential figures in the European startup ecosystem—including paying system Stripe CEO Patrick Collison and several venture capital firms, such as Sequoia and Point Nine—are backing the call. Over 12,000 people have signed the petition launched by EU Inc. As the newly appointed EU Commissioners set their working program for the next five years, the campaign aims to put the topic on the priority list of the policymakers' agenda.

What a single entity could mean

EU Inc's vision for a “single pan-European startup entity” outlines some of the actions needed to shape the 28th regime:

• Standardization of the investment processes to enable genuine pan-European investments;
• Establishment of a unified employee stock options program to share startup success more widely;
• Simplification of cross-border operations, such as employment and capital flows;
• Digitization of the incorporation process, reducing it to just a few hours – entirely in English and online.

According to the proponents, these actions would result in faster scaling, more breakout successes, and an influx of global capital. “If we make it easier to start a global company in Europe, more talent will come to work in Europe, and more capital will be deployed,” Herkelmann comments.

Bottlenecks

Although Europe has excelled in creating new startup companies in past years, bottlenecks arise when scaling up, so growing big in the Old Continent is hardly done. A recent analysis by consulting company PwC on the global top 100 unicorns in September 2024 shows only ten of them are European—the US has 58, and China has 23.

Atomico’s 2023 state of European tech report pointed out that European companies raised $45 billion in VC funding, nearly three times less than their US counterparts, which raised $120 billion. The same paper underlined how European tech firms are 40% less likely to raise funds after five years than US ones.

This limited capital mobility is one of the sore points underlined by Herkelmann. “It is highly unlikely that a German investor will fund a Slovenian startup. It takes time and effort to understand the ecosystem one operates in– not to mention the high transaction costs. The likelihood of a European startup having an investor from another European country or the United States is the same.”

Competitiveness: a hot topic

The EU Inc proposal builds on the momentum created after the release of former European Central Bank head Mario Draghi's report on European competitiveness. The paper advocated for strong investments in innovation to give a new impulse to Europe’s growth.

In Herkelmann’s view, Mario Draghi’s recent European competitiveness report clearly pinpointed problems and proposed solutions. He highlights two relevant aspects. “A comparison graph about innovation focus in the US and Europe shows how overseas this shifted continuously in the past decades, following the trends of pharma and AI, for instance. In Europe, this remained centered on automotive. Besides, the report also calls for abating regulatory barriers and establishing a true single-market for startups.”

Europe can do it

With over a decade-long career in the startup ecosystem—as a founder and investor—and a past at Google, Herkelmann now works as an advisor and investor. When Andreas Klinger, one of the other co-initiators, contacted him to tell him about the very raw idea of EU Inc, he did not hesitate to help elaborate on the concept further.

Having sensed different ecosystems worldwide, he is convinced that Europe has many trump cards. “Europe has excellent R&D centers and universities that produce fantastic talent on scale. I do not believe Europeans lack ambition or a working attitude, but the system limits them. Our initiative wants to articulate the voice of an industry that might be small in headcount but holds a huge potential impact for the future.”