COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Europe's next leaders: the Start-up and Scale-up Initiative
Date: 2016-11-22
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, European Commission
Subjects: EU growth strategy, aid to undertakings, business start-up, company growth, economic policy, entrepreneurship, job creation, single market, start-up, technical barriers to trade

EN 

   EN 

   EUROPEAN COMMISSION  Strasbourg, 22.11.2016  COM(2016) 733 final   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Europe's next leaders: the Start-up and Scale-up Initiative {SWD(2016) 373 final}  
 
 
COMMUNICATION FROM THE COMMISSION 

EUROPE’S NEXT LEADERS: THE START-UP AND SCALE-UP INITIATIVE 

INTRODUCTION 

1. 
High-growth  firms  create  many  more  new  jobs  compared  to  other  firms.1  Start-ups  scaling  up  into 
bigger firms form a large share of these businesses. They increase EU innovation and competitiveness, 
strengthening the economy. Such "scale-ups" can also provide social benefits, including offering more 
flexible and modern working arrangements. 

In the Single Market Strategy, the Commission announced that it will look at how to make the Single 
Market  more  efficient  for  start-ups  and  scale-ups.  Ultimately,  improving  the  ecosystem  for  start-ups 
and scale-ups in Europe will have a direct beneficial effect on jobs and growth in the EU. 
Start-ups, often tech-enabled2, in general combine fast growth, high reliance on innovation of product, 
processes  and  financing,  utmost  attention  to  new  technological  developments  and  extensive  use  of 
innovative business models, and, often, collaborative platforms.  

Several  Member  States  have  already  put  in  place  or  are  considering  initiatives  to  create  an 
environment  conducive to innovation  and entrepreneurship. As a result, there is no major  difference 
between the  EU and the US as regards the creation of new firms.3 This is particularly visible in the 
tech sector where EU companies are in the process of becoming world leaders in certain medium/high-
tech sectors (e.g. engineering, automotive). 

A  number  of  EU  initiatives  contribute  to  job  creation  and  growth:  the  European  Fund  for  Strategic 
Investments  (EFSI)4,  and  its  extension  and  reinforcement,  but  also  the  Single  Market  Strategy5,  the 
Digital  Single  Market6,  and  the  Capital  Markets  Union7  have  also  provided  a  framework  for  further 
improvement. In addition, a stronger focus of the European Structural and Investments Funds (ESIF) 
on innovation and SME support, includes venture capital support to 140,000 start-ups and scale-ups8. 
EFSI agreements already target 377,000 SMEs, including start-ups. 

But rather than flourishing and expanding in Europe and beyond, too few European start-ups survive 
beyond the critical phase of 2-3 years, with even fewer growing into larger firms.9  

Whilst the reasons for this situation are many, it has been estimated that there could be up to 1 million 
new jobs created and up to €2 000 billion added to GDP in the EU over the next 20 years if the share 
of scale-ups would match that of the US.10 Due to the positive link between firm size and productivity, 
this would improve Europe’s productivity growth.1112 Additionally, identifying ways to support start-
ups  in  scaling  up  could  also  benefit  traditional  businesses  by  supporting  them  to  operate  and  grow 
within the Single Market. 

1 According to Henrekson and Johansson, 2010, 4% of firms generate 70% of new jobs.  See also:  http://www.kauffman.org/blogs/policy-
dialogue/2015/august/deconstructing-job-creation-from-startups 
2 Connectivity; 5G and broadband etc.. 
3 Although there are differences between EU Member States.OECD (2015), Entrepreneurship at a glance. 
4https://ec.europa.eu/growth/industry/innovation/funding/efsi_en 
5 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52015DC0550&from=EN 
6http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1447773803386&uri=CELEX:52015DC0192 
7 http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52015DC0468 
8 See https://cohesiondata.ec.europa.eu/themes/3 
9 The percentage of firms that grow by less than 5 %  or not at all is over 45 % in Europe compared to 37 % in the US (Bravo-Biosca, 2011, 
A look at business growth and contraction in Europe.  
10 Danish SME Envoy Report, 2016, Scale-up Companies– is a new policy agenda needed? 
http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupDetailDoc&id=26381&no=1 

11  See  Eurostat  (March,  2016),  Statistics  Explained:  Entrepreneurship  —  Statistical  indicators:  http://ec.europa.eu/eurostat/statistics-
explained/index.php/Entrepreneurship_-_statistical_indicators#Small.2C_medium_and_large_enterprises. 
12 Productivity in companies with over 1000 employees is much higher than in other companies. Danish Business Authority. 

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The results of a public consultation by the Commission earlier in 2016 confirmed this picture. The key 
findings13 were that: 

 

 

start-ups  looking  to  scale  up  still  face  too  many  regulatory  and  administrative  barriers 
especially in a cross-border situation; 
for both start-ups and scale-ups, too few opportunities exist to find and engage with potential 
partners in finance, business and local authorities;  

  accessing finance is one of the biggest barrier to scaling up. 

In short, the still too fragmented Single Market14 may in particular constrain start-ups and scale-ups in 
their growth potential. It appears that regulatory and administrative barriers often disincentivise them 
from innovating, valorising their intangible assets, and scaling up, EU-wide. Companies may choose 
to operate in non-EU jurisdictions with more growth potential, possibly resulting in EU job losses. 

European public authorities, start-ups and their business partners must act collectively to avoid that the 
valuable efforts of start-ups are wasted. A partnership with national, regional and local authorities, and 
especially with the start-ups themselves, is needed. This involves authorities promoting conditions that 
ensure start-ups can scale up. In return those start-ups can create jobs, compete on the market and be 
socially responsible. The recent Scale-up Europe Manifesto15 shows that start-ups are ready to engage. 
The Commission welcomes this initiative from the actors in  the field and its recommendations have 
informed the Commission's own reflections as far as these issues are concerned. 

This  initiative  addresses  three  issues:  barriers;  the  shortage  of  partners  and  opportunities;  and 
difficulties as regards finance. It is based on: 

 

a  coordinated  approach  across  EU  policies,  building  on  measures  in  place  or  being 
developed, including sectoral approaches such as in the space sector; 
a limited and targeted set of practical measures; and, above all, 

 
  partnership. 

2. 

REMOVING THE BARRIERS 

Many  innovative  young  firms  fear  that  if  they  grow  too  big  they  will  be  penalised  by  more 
burdensome rules, even without cross-border expansion. Many ongoing initiatives with the objective 
of lowering barriers to cross-border activities are not limited to start-ups, but can have a particularly 
positive  impact  on  start-ups,  e.g.  the  work  on  collaborative  economy16,  the  ongoing  initiatives  to 
further improve service provision in the Single Market and eGovernment, or the ICT standardisation 
priorities17. 

First of all, identifying and complying with regulatory and administrative rules and formalities can 
be time-consuming where information about national and EU rules is often dispersed and difficult to 
digest  .  Understanding  all  the  tax,  company,  labour  law  and  other  requirements  is  a  real  challenge, 
especially for a start-up with limited resources or expertise. The consultation revealed that even once 
start-ups  understand  and  comply  with  all  relevant  requirements,  they  find  them  overly  burdensome. 
Nearly 40% of respondents found scaling up harder than expected.  

Start-ups, in particular digital ones, also find it difficult to hire staff based in other EU countries (as tax 
and employment rules vary). Setting up a subsidiary is often too burdensome and does not match their 
needs (e.g. hiring only one person). 

So  public  authorities  at  all  levels  –  local,  regional,  national,  European,  -  must  act  to  remove 
unnecessary barriers and burdens and assist businesses in dealing with the unavoidable barriers.  

13 http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=8723 
14 Including the Digital Single Market. 
15 Scale Up Europe: A Manifesto for change and empowerment in the digital age, 2016. 
16 http://ec.europa.eu/growth/single-market/strategy/collaborative-economy_en 
17 http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=8852 

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The  Commission  has  already  taken  action  and  announced  further  measures  in  a  number  of  these 
areas18. In 2017, the Commission intends to present initiatives for a Single Digital Gateway to provide 
easy online access to Single Market information, e-procedures, assistance, advice and problem solving 
services  for  citizens  and  businesses,  as  well  as  possibilities  to  complete  cross-border  procedures 
online19. 

National  authorities  in  the  Member  States  Expert  Group  are  looking  into  the  overall  regulatory 
framework  for  start-ups,  supported  by  the  Horizon  2020  Policy  Support  Facility,  which  allows 
individual  Member  States  to  seek  recommendations  on  how  to  improve  the  business  framework  for 
such firms. To ensure that the Commission and Member States have detailed information and evidence 
on start-ups and scale-ups, under the revamped European Observatory for Clusters and Industrial 
Change20, the Commission will for the first time systematically collect information on start-ups and 
scale-ups,  conduct  detailed  analysis,  and  provide  feedback  and  evidence  to  Member  States  to  help 
them improve policy design and streamline implementation tools.  

Second, start-ups are particularly concerned about tax and the burden to comply with 28 different 
tax  regimes:  58%  of  respondents  to  the  Commission's  consultation  reported  high  tax  compliance 
costs.  Small  and  medium-sized  businesses  (SMEs)  spend  around  30%  of  tax  related  expenditure  on 
compliance costs, and even more if they expand cross-border21.  Addressing this issue would make a 
tangible difference and could help start-ups to grow.  

As presented in its Action Plan adopted on 6 April 2016, the Commission intends to modernise and 
simplify the Value Added Tax (VAT) system applying to cross border trade within the EU by creating 
a  Single  VAT  Area22.  It  will  therefore  come  forward  in  the  coming  months  with  a  comprehensive 
package  to  reduce  the  complexity  and  fragmentation  of  the  EU  VAT  system  and  thus  creating  an 
environment conducive to companies’ growth and favourable to cross-border trade. In the next weeks, 
the  Commission  will  propose  to  simplify  the  Mini-One  Stop  Shop  (MOSS)  and  extend  it  to  cross-
border  business-to-consumer  supplies  of  goods  and  other  services.  In  2017,  it  will  put  forward  a 
targeted  VAT  simplification  package  for  SMEs,  including  start-ups.  It  will  also  propose  a  definitive 
VAT regime for cross-border trade within the EU that will further reduce the burden for start-ups and 
scale-ups.   

Moreover, the recently adopted proposals to re-launch the Common Consolidated Corporate Tax Base 
(CCCTB) contain incentives for businesses to grow and expand cross-border within the Single Market. 
In particular, for innovative start-ups and scale-ups that would opt in the CCCTB, it includes a R&D 
super-deduction, and an allowance to ensure that equity and debt financing are treated equally from a 
tax point of view23. 

Thirdly,  honest  risk-takers  are  too  often  subject  to  inefficient  and  excessively  long  insolvency 
procedures.  Moreover  viable  companies  don't  have  the  possibility  to  restructure.  In  addition,  there 
seems to be very little room for a "second  chance"  for honest over-indebted entrepreneurs, although 
failure is often part of the path of a successful entrepreneur. Fear of failure and being penalised for that 
failure can discourage investing into scaling up.  

18 The European Commission is continuously managing the corpus of European legislation via the Regulatory Fitness and Performance 
programme (REFIT) which aims to make sure that EU law remains fit for purpose and delivers the results intended by policy makers in the 
most efficient and effective way. It targets removing red tape and lowering costs without compromising policy objectives and EU high 
standards. 
19 The online registration of companies will be addressed as part of the planned Commission proposal on facilitating the use of digital 
technologies throughout a company's lifecycle (see Commission Communication "Upgrading the Single Market: more opportunities for 
people and business" (COM(2015)550, p. 5; Commission Communication "EU eGoverment Action Plan 2016-2020" (COM(2016)179, p. 8; 
Commission Work Programme 2017 (COM(2016)710, p. 8). 
20 This will consult with platforms such as European Start-up Network and the Global Entrepreneurship Network 
21 See Commission Communication: Building a fair, competitive and stable corporate tax system for the EU. 
22 https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_148_en.pdf  
23 The CCCTB could give a boost to start-ups and scale-ups to invest and expand in the Single Market.  It will reward their growth-friendly 
activities such as investment in R&D and equity financing. To support small and innovative entrepreneurship, an enhanced deduction for 
R&D investments will be given to start-up companies. The CCCTB will address the preferential treatment of debt over equity which will 
benefit equity-financed innovative companies and start-ups in particular. 

4 

 
 
                                                            
 As regards company and insolvency law, the Commission has adopted today a legislative instrument 
which will (i) guarantee an early-warning mechanism and the availability of restructuring frameworks 
in  Member  States  in  order  to  restore  viability  and  avoid  insolvency,  in  particular  for  SMEs,  (ii) 
provide  for  a  second  chance  regime  for  individual  honest  over-indebted  entrepreneurs  through  a 
discharge  of  their  debts  and  (iii)  enhance  the  efficiency  of  restructuring,  insolvency  and  discharge 
procedures. The Commission also intends to present in 2017 a company law initiative to facilitate the 
use  of  digital  technologies  throughout  a  company’s  lifecycle,  in  particular  in  relation  to  their 
registration and to the filing of company documents and information, and on cross-border mergers and 
divisions, including updating the rules on cross-border mergers and complementing them with rules on 
cross-border divisions. As announced in Digital Single Market, and in the E-government action plan, a 
large scale pilot project on implementing  the "once only" principle  across borders in the business-to-
government area will be launched in 2016 with  participation of Member States.24 

Fourth, as regards labour law, the Commission will continue to facilitate  compliance and respect of 
workers' rights by start-ups including as regards compliance with the EU rules on working time and 
health and safety. 

Additionally, the EU will continue to use trade policy to open up opportunities for start-ups and scale-
ups  in  foreign  markets,  in  particular  through  trade  agreements  and  appropriate  measures  to  ensure 
predictable and clear trade rules. 

Further actions: 

- 

- 

The  Commission  will  work  with  the  European  Parliament  and  the  Council  and  European 
Parliament  to  secure  timely  adoption  and  implementation  of  the  proposal  on  preventive 
restructuring frameworks, second chance for honest entrepreneurs and increased efficiency 
of restructuring, insolvency and discharge procedures. 

The Commission will broaden the forthcoming guidance on best practice in Member State tax 
regimes for Venture Capital. 

-            To  help  start-ups  and  scale-ups  to  navigate  the  often  dispersed  information  sources,  the 
Enterprise Europe Network (EEN) will expand its advisory services with dedicated Scale-up 
Advisors on relevant national and European rules, funding opportunities, partnering and how 
to  access  cross-border  public  procurement,  link  up  with  Startup  Europe  and  with  the  SME 
access to Digital Innovation Hubs and the manufacturing pilot lines for SMEs, under Horizon 
2020. 

- 

In  2017  under  the  High  Level  Group  of  the  Competitiveness  Council,  the  Commission  will 
support  a  major,  comprehensive  and  detailed  peer  review  of  all  Member  State  rules  and 
practices towards start-ups and scale-ups. 

3. CREATING NEW OPPORTUNITIES 

The  EU  and  Member  States  could  further  simplify  the  life  of  start-ups  by  supporting  them  in  the 
following areas: 

 

 
 

connecting  with  the  right  partners  (e.g.  investors,  business  partners,  universities,  research 
centres); 
accessing commercial opportunities (especially procurement contracts); 
recruiting employees with the right skills, including from outside the EU. 

3.1 

Partners, clusters and ecosystems 

24 See eGovernment action plan 2016-2020 COM(2016)179, http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52016DC0179 

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In recent years, the Commission and EU Member States have supported the creation of ‘communities’ 
to  help  start-ups  connect  with  potential  partners  (e.g.  investors,  business  partners,  universities, 
research  centres) 
through  events,  platforms,  business  clusters,  networking  and  supportive 
local/regional ‘ecosystems’.25   

At  EU  level,  the  Startup  Europe  initiative  has  emerged  as  a  recognised  brand  for  creating  links 
between  ecosystems26,  focusing  on  connecting  people,  local  ecosystems,  international  outreach  and 
providing  information  through  the  One  Stop  Shop  for  start-ups.  Whilst  some  progress  has  been 
achieved,  activities  will  be  reinforced,  in  particular  matchmaking  between  investors,  corporates  and 
entrepreneurs as well as networking of regional decision-makers. 

In  addition,  the  European  Institute  of  Innovation  and  Technology  (EIT)  has  set  up  a  number  of 
Knowledge  and  Innovation  Communities  in  the  thematic  areas  of  ICT,  Energy,  Climate  Change, 
Health, and Raw materials with 25% of public financing, the rest being private investments. The EIT 
is helping on a number of fronts: entrepreneurship skills, mentoring, and start-up accelerators. 
The  EU  has  also  established  Thematic  Smart  Specialisation  Platforms27,  linking  up  regions  and 
businesses and supporting European Structural and Investment Funds (ESIF) investments for scale-ups 
promoted  by  regional  networks  and  European  Strategic  Cluster  Partnerships.  Together  with  the 
targeted  support  they  receive28,  these  projects  will  help  create  opportunities  for  scale-ups.  The 
Commission  will  encourage  Member  States  to  take  part  in  these  Thematic  Smart  Specialisation 
Platforms and to use the Horizon 2020 Policy Support Facility. 

However, despite these initiatives, the public consultation showed that start-ups and scale-ups would 
benefit from more coordinated support: 

a critical mass of effectively interconnected EU-wide clusters and ecosystems 

 
  better use of accelerators and incubators; 
 

an EU-wide platform to connect start-ups with potential partners (alongside existing public 
and private platforms).  

Further actions: 

-  

- 

In 2017, the Commission will reinforce Startup Europe which will take a wider scope beyond 
the  ICT  and  web  start-up  sector.  The  Commission  will  coordinate  EU  work  to  connect 
clusters  and  ecosystems  across  Europe,  as  well  as  bring  stronger  coherence  between  the 
different  EU  initiatives  in  particular  by  linking  up  national  and  regional  Ministries, 
innovation agencies and other stakeholders and ecosystems. 

To connect start-ups with business partners, in 2017, the Commission will launch a number 
of  pilot  measures  on  matchmaking,  linking  start-ups,  mid-caps  and  larger  enterprises  and 
extend the Erasmus for Young Entrepreneurs programme to incubators and entrepreneurs in 
international markets. 

3.2  

Procurement opportunities 

Public  procurement  contracts  can  support  scaling  up  activities,  but  SMEs  are  still  under-
represented29  in particular for so-called ‘above-threshold’ procurement.30  

25 The ‘entrepreneurship ecosystem approach’ explains why some cities/regions have many more start-ups/scale-ups than others, despite 
having the same regulatory framework. Ecosystems drive resources towards the most productive use. They make it possible to design holistic 
policies not achieved through traditional approaches. 
26 e.g. the Start-up Europe Summit, Start-up Europe Accelerators Assembly, Start-up Europe Universities network; raising awareness of the 
funding and networking opportunities available; linking large corporates and start-ups (Start-up Europe Partnership), and celebrating 
entrepreneurship.   
27 So far on Industrial Modernisation, Agrifood and Energy. 
28 e.g. on transforming regions and cities into launch-pads for digital transformation and industrial modernisation. 
29 Flash Eurobarometer 417 on barriers to procurement for small companies. 
30 Procurement with a value equal to or higher than the thresholds set in EU legislation. 

6 

 
 
 
                                                            
Public procurement, a €2 trillion market, represents a great potential for start-ups/scale-ups to grow. 
Today,  this  potential  is  not  yet  sufficiently  used.  Compared  to  their  weight  in  the  economy,  start-
ups/scale-ups  do  not  get  a  proportionate  share  of  public  contracts31.  Better  support  to  contracting 
authorities  on  using  the  market  opportunities  and  the  modernised  procurement  tools  is  necessary  to 
improve  the  uptake  of  innovative  start-ups/scale-ups.  In  particular,  preliminary  market  consultations 
and  innovation  partnerships  can  be  powerful  ways  for  start-ups/scale-ups  to  pitch  their  innovative 
products  to  public  buyers.  Start-ups/scale-ups  will  thus  more  easily  achieve  success  in  public 
procurement. Rolling out e-procurement is essential in that regard. 

A well designed public procurement of innovation has already helped bring untested ideas to market 
thus creating cross-border growth opportunities. 

In the first FP7 innovation procurement actions SMEs won 2.5 times more contracts than in standard 
exercises (73% versus 29%) and 15 times more contracts were awarded cross-border than the average 
in public  procurement in Europe (29% versus 2%).32 

In 2014, the EU adopted a new public procurement framework providing opportunities for start-ups to 
access public procurement. However, it appears that national or regional/local tendering authorities are 
not yet sufficiently aware of these possibilities.  

Further actions: 

- 

In  2017,  the  Commission  will  introduce  measures  on  EU  procurement  to:  (i)  establish 
innovation  brokers  to  build  networks  of  buyers  interested  in  public  innovation  procurement, 
link  them  with  innovative  businesses  and  help  the  businesses  access  risk  funding33;  (ii) 
encourage  all  Member  States  to  set  ambitious  innovation  buying  targets;  (iii)  provide 
guidance on innovative procurement34, drawing on the Innovation Partnership. 

3.3 

Skills 

Growing companies need to recruit employees with the right skills, in particular technical, financial 
and digital skills. Entrepreneurial mindset, management and leadership skills for scaling up are also 
crucial. 

Based on the ‘New Skills Agenda for Europe’ (June 2016), the Commission is working to improve 
skills quality and their relevance to the job market. 

Three initiatives will address these challenges: 

  The  forthcoming  ‘Digital  Skills  and  Jobs  Coalition’  –  supports  cooperation  between 

education, employment, industry. 

  The ‘Blueprint for Sectoral Cooperation on Skills’ – improves skills intelligence, addresses 

skills shortages. 

  The forthcoming "big data tool" on skills intelligence and forecasting as part of the "Skills 

Panorama". 

The Commission has also set up two frameworks to improve the teaching and assessment of skills: 

  European Entrepreneurship Framework (EntrComp); 
  Digital Competence Framework (DigComp). 

31 This is particularly true for procurement with a value equal to or higher than the thresholds set in EU legislation. 
32 https://ec.europa.eu/digital-single-market/en/news/updated-results-ongoing-pre-commercial-procurements-pcp-projects 
33 These brokers would identify and aggregate the needs of public buyers, identify potential suppliers, funnel ideas and fund the most 
promising ones in particular sectors. 
34 Based on the modernised public procurement directives. 

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It will work with Member States to promote these frameworks nationally. At the same time, the EIT 
will  pursue  and  increase  its  work  in  training  Master  students  with  combined  technical  and 
entrepreneurship skills.  
The Commission is also promoting ICT professionalism  – the European e-Competence Framework35 
for ICT professionals is now a standard. Finally, the ability to attract the best talent, including from 
outside the EU - is another important driver of its success. In June 2016, the Commission proposed to 
reform the EU Blue Card to better attract highly-qualified third-country national workers.36 As talent 
from  abroad  can  also  make  an  important  contribution  in  founding  start-ups,  more  work  needs  to  be 
done within the EU to attract and support them. 

Further actions: 

-  

- 

In 2017, the Commission will build on the New Skills Agenda by looking into scaling up the 
activities of the EIT to promote entrepreneurship, management and innovation skills.  

The  Commission  will  encourage  Member  States  to  make  more  use  of  Erasmus+  Knowledge 
Alliances, and the HEInnovate self-assessment tool. 

3.4 

Enhancing EU innovation opportunities for start-ups and scale-ups 

The  Commission  has  provided  increased  support  to  SMEs  through  the  Horizon  2020  research  and 
innovation  framework  programme,  either  as  partners  in  collaborative  projects  with  research 
organisations  and  other  firms,  or  as  single  beneficiaries.  It  has  also  boosted  support  for  innovation 
including  through  more  demonstration  projects,  facilitated  access  to  experimentation  and  pilot 
facilities, actions on innovative procurement and reinforced financial instruments. As a consequence, 
SME participation has increased and is currently above the 20% target level. 
The  new  SME  instrument  has  already  supported  innovation  projects  in  1,92437  SMEs.    However, 
evidence  and  stakeholder  views38  demonstrate  that  Horizon  2020  is  better  at  supporting  existing 
technologies  and  companies,  than  start-ups  that  are  innovating  in  new  markets  or  at  the  intersection 
between digital and physical technologies. Current support is seen as too complex, inflexible and slow 
for their needs.  

In  light  of  the  above,  the  Commission  intends  to  make  changes  to  Horizon  2020  for  the  period 
(2018-2020). These include: 

 

adopting  a  fully  ‘bottom-up’  approach  —  so  innovative  projects  that  cut  across 
sectors/technologies become eligible for support; 

  making it easier for start-ups to access financial and technical support; 
 

targeting market-creating, breakthrough innovations with scale-up potential. 

Building on this, and based on the results of the mid-term evaluation of Horizon 2020, the European 
Commission  will  consider  creating  a  European  Innovation  Council39  for  future  programmes  to 
contribute to generating breakthrough innovations that can capture and create new markets.  

In  addition  to  consideration  of  specific  SME  needs,  such  as  open  and  facilitated  access  to 
experimentation  and  pilot  facilities,  and  in  cooperation  with  regions  on  innovation  hubs,  the 
Innovation  Radar  initiative  makes  it  easier  to  spot  Horizon  2020-funded  innovations  with  market 
potential early on and the teams behind them (e.g. SMEs, start-ups, spin-offs, universities). 

35 http://www.ecompetences.eu/. 
36 Also in 2016, the reform of the immigration rules for third-country national students and researchers was adopted, giving them the right to 
stay in the EU to look for a job or set up a business for at least 9 months following graduation or finalization of research (Directive (EU) 
2016/801). 
37 Drawing on the Innovation Partnership and  taking  into account social and green aspects. 
38   https://ec.europa.eu/research/eic/pdf//eic_call_for_ideas-overview.pdf#view=fit&pagemode=none.  
39 Working name 

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The  European  Institute  of  Innovation  and  Technology  (EIT)  has  established  pan-European 
accelerators for innovative companies.  In addition, the EIT will explore the setting up of schemes to 
invest directly in the scaling up of existing innovative companies by attracting additional investment 
from public and private sector sources and existing instruments. 

Moreover, it is too difficult for start-ups and scale-ups (and SMEs more widely) willing to do so, to 
secure  and  valorise  intellectual  property  rights  (IPR)  because  of  a  lack  of  precise  information  and 
expertise on how to use IPRs strategically as investment/growth vehicles; relatively high system costs; 
difficulty in getting IPRs valued; 40 and high enforcement costs. 

Only 9% of EU small companies use registered intellectual property and even less use rights with an 
EU-wide  coverage  (3%  register  EU  trade  marks)41.  This  often  prevents  them  from  reaping  the  large 
potential benefits of their innovation efforts. Compared to their peers, SMEs actively using IP generate 
32%  higher  revenue  per  employee  allowing  them  to  offer  more  attractive  wages  and  increase  their 
workforce faster. IP is therefore key for the scaling-up process of innovation small firms. 

Finally,  innovators,  and  particularly  start-ups,  often  face  regulatory  barriers  or  uncertainties  in 
introducing  their  innovations  to  market.  As  part  of  its  Better  Regulation  agenda,  the  Commission  is 
taking into account the potential impact on innovation of current and new regulation42, in line with the 
“innovation principle”43 as requested by the Council. 

Further actions: 

- 

- 

- 

- 

 To improve innovation support, the Commission intends to make changes for the remaining 
period  of  Horizon  2020  to  provide  bottom-up  support  targeting  breakthrough  innovation 
projects with the potential for scaling up, and will consider reinforcing this approach in future 
through a European Innovation Council44. 

The  Commission  will  use  the  Innovation  Radar  to  connect  potential  business  partners  and 
investors with Horizon 2020-funded innovators to support them to scale up.  

The  Commission  will  carry  out  an  evaluation  of  the  Innovation  Deals  scheme  allowing 
innovators  to  work  with  public  authorities  and  other  stakeholders  to  find  ways  to  address 
perceived  regulatory  barriers,  and  if  successful,  expand  it  to  other  relevant  areas.  In  this 
context, the Commission will also explore an enabling framework for regulatory sandboxes.  

In 2017-18, the Commission intends to adopt a set of measures to support the use of IPR by 
SMEs45  namely  (i)  streamlining  awareness  on  existing  IP  Support  schemes  for  SMEs;  (ii) 
developing  an  EU  IP  mediation  and  arbitration  network  for  SMEs;  (iii)  encouraging  the 
creation  of  European-level  insurance  schemes  for  litigation  and  IP  theft;  (iv)  improving 
coordination  of  IP  support  funding  schemes,  including  by  means  of  a  possible  guidance  to 
Member States46. 

3.5 

Social economy and social enterprises 

Globally, there is increasing interest in social innovation as a way to sustainable growth, e.g. fair trade, 
distance learning, mobile money transfer, integrating migrants, and zero-carbon housing. 

40 Report on access to finance for the Cultural and Creative Sectors (European Commission, 2015). 
41 Intellectual property rights and firm performance in Europe: an economic analysis (EUIPO, 2015). 
42 In the forthcoming revision to the research and innovation tool under the Impact Assessment guidelines. 
43 https://ec.europa.eu/epsc/sites/epsc/files/strategic_note_issue_14.pdf 
44 Working name 
45 Additional details on these measures are provided in the accompanying Staff Working Document. These measures will be developed in 
close cooperation with the EUIPO (EU Intellectual Property Office). 
46 SWD(2016) 373 of 22.11.2016, "Putting intellectual property at the service of SMEs to foster innovation and growth". 

9 

 
 
 
                                                            
Social  start-ups47  therefore  have  high  potential  for  innovation  and  positive  impact  in  economy  and 
society  at  large.48  Their  business  model  —  combining  economic  efficiency  with  societal-centred 
objectives49 — has proven very resilient.50 

And there are good prospects for such start-ups, due to increasing demand for social innovation and 
the rise of new technologies and collaborative platforms. In addition, many have potential for scaling 
proven business models which could be replicated in other territories. However, these companies still 
find it hard to secure funding and support, especially due to the following factors: 

 
 

lack of recognition and understanding of their economic potential; 
insufficient exploitation of modern technologies.  

Moreover,  the  Commission  has  launched  with  the  European  Investment  Fund  new  financial 
instruments  to  boost  lending  to  social  enterprises,  as  well  as  new  social  impact  equity  instruments 
under the European Fund for Strategic Investments. 
Further actions: 

- 

- 

Building on the Social Business Initiative, the Commission will encourage social start-ups to 
scale up, including through measures focussing on better access to finance, improved access 
to  markets,  and  strengthening  regulatory  frameworks  by  advising  Member  States  on  policy 
design. 

The  Commission  will  also  explore  measures  to  facilitate  uptake  of  new  technologies,  use  of 
new  business  models51  and  to  support  impact  financing  of  the  social  economy  and  social 
enterprises  throguh  EU  development/neighbourhood  policies  and  international  fora  (e.g. 
G20 Inclusive Business platform)52. 

4. ACCESS TO FINANCE 

Removing and simplifying regulation, and increasing opportunities for matchmaking, public contracts 
and effective recruitment will help start-ups to scale up and create sustainable jobs. Access to finance 
is a key barrier to address.   

Although the problems that EU firms face in the start-up phase are not larger  than those faced in the 
US,  academic  evidence  and  the  public  consultation  confirm  that  there  are  substantial  differences 
during the scaling-up phase. This is partly due to the amount of funding available for venture capital 
investment: it is estimated that in 2014 only around €5 billion was available in the EU, compared to 
more than €26 billion in the US53. 
Additionally, European venture capital funds are smaller on average54 and cannot sufficiently help 
companies  grow  from  start-ups  to  mid-caps  to  global  players.  In  2007-2012,  the  average  size  of 
European  venture  capital  funds  (at  final  closing)  was  €61  million  and  50%  were  smaller  than  €27 
million; the average US venture capital fund in 2014 was $135 million in size.55 This is a particular 
problem for scale-ups, as funding tends to dry up with time. 

47 A social start-up is a start-up that produces societal impact. 
48 http://eureka.sbs.ox.ac.uk/761/1/Social_Innovation.pdf, Oxford Said Business School, Social Innovation. 
49 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:347:0238:0252:EN:PDF .. 
50 http://europa.eu/rapid/press-release_CES-12-60_en.htm?locale=en  
51 In 2017, the Commission will launch a Social Innovation Challenge Platform to incentivise social enterprises to team up with other types 
of enterprises to co-develop solutions to societal challenges. It will also launch a call to analyse and collect best practice on how social 
enterprises can better use the digital economy. 
52 http://www.un.org/sustainabledevelopment/sustainable-development-goals/ 
53 Thomson ONE in BSG Perspectives ‘The State of European Venture Capital’. 
53 Thomson ONE in BSG Perspectives ‘The State of European Venture Capital’. 
54 NVCA report for US figures, data EU report for EU figures. 
55 ‘Assessing the Potential for EU Investment in Venture Capital and Other Risk Capital Fund of Funds’ study. 

10 

 
 
 
 
                                                            
Being able to choose from a range of exit strategies is key for investors. They have to know that they 
will be able to redeem their investments, be it through an IPO, a trade sale to another company, a sale 
to a later stage venture capital or private equity fund, or to resell to the founder(s) of the company. Yet 
the  current  lack  of  information  on  financing  possibilities  leads  to  uncertainty  and  less  investment. 
Equally, the more later-stage financing is available, the more likely first- and second round investors 
are to invest. 

When  accessing  public  funding,  85%  of  respondents  to  the  public  consultation  called  for  better 
coherence  and  transparency  of  funding  initiatives,  and  better  targeting  of  companies  who  could  be 
tomorrow’s leaders. 

The Commission is addressing these issues across several policies. In the mid-term budget review, it 
proposed  to  increase  the  budget  for  EFSI56,  and  COSME,  reinforcing  existing  financial  instruments 
and mobilising additional financing for SMEs in the start-up and scale-up phases. 

Since  2010,  the  EU  Programme  for  Employment  and  Social  Innovation  (EaSI)  and  its  predecessor 
have  opened  up  €1  billion  in  microcredits  for  setting  up  or  developing  a  small  business,  providing 
support to over 100,000 micro-entrepreneurs across Europe.  

The  Capital  Markets  Union  launched  in  2015  will  also  help.  The  Commission  is  taking  forward  a 
comprehensive package of measures to support venture capital and risk capital financing in the EU. In 
conjunction    with  the  Single  Market  Strategy,  it  proposes  to  create  a  pan-European  Venture  Capital 
Fund  of  Funds  to  tackle  the  small  size  and  fragmentation  of  European  venture  capital  funds,  attract 
more private capital back to venture capital, enable more SMEs to be financed for longer periods of 
time, and diversify funding  for start-ups, innovation and non-listed companies57. In addition, in July 
2016,  the  Commission  adopted  a  proposal  to  amend  the  Regulations  on  European  Venture  Capital 
Funds (EuVECA) and, as mentioned above, on European Social Entrepreneurship Funds  (EuSEF) to 
facilitate further cross-border financing for SMEs. Complementing the pan European Venture Capital 
Fund  of  Funds  and  EFSI,  the  Commission  will  look  into  the  potential  added  value  of  additional 
incentives  to  venture  capital  through  for  instance  schemes  allowing  privately  owned  and  managed 
investment funds to benefit from public guarantee when raising debt financing in order to make equity 
and debt investments in start-ups and scale-ups. 

The  Commission  will  also  continue  to  monitor  tax  schemes/incentives  for  investments  into  start-
ups/scale-ups, and building on successful approaches implemented by Member States and the results 
of the on-going study on the effectiveness of tax incentives for Venture Capital and business angels to 
attract more patient capital, it will consider further ways to support Member States' policy design.  

To  strengthen  exit  strategies  for  early  investors  in  start-ups  and  scale-ups,  and  complementing  the 
upcoming  pilot  project  for  a  Pan  European  match-making  platform  as  well  as  Start-up  Europe 
initiatives,  in  2017-2018  the  Commission  will  monitor  the  creation  of  SME  growth  markets,  a  new 
category  of  multilateral  trading  facilities  that  will  be  given  legal  form  by  the  Markets  in  Financial 
Instruments Directive II (MiFID II)58. This will make it easier to raise capital for medium-sized firms, 
and to share best practice. The Commission will identify market-led and public initiatives that foster 
the  admission  of  SME  shares  to  trading  and  explore  workable  solutions  to  regulatory  issues  and 
market failures. 

Further actions: 

- 

The Commission and the European Investment Fund will make the cornerstone investments 
in 2017 in the new, independently managed Pan European Venture Capital Fund of Funds 
alongside major private investors to increase the size of Venture Capital Funds in Europe and 
overcome  current  fragmentation.  The  EU  cornerstone  investments  of  up  to  €400m  will  be 

56 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016DC0581&from=EN  
57 A call for expression of interest to select pan-European Fund of Fund promoters has been launched in November 2016. 
58 Directive 2014/65/EU. 

11 

 
 
                                                            
capped  at  25%  of  the  total  capital  in  the  Funds  of  Funds,  bringing  a  potential  of  at  least 
€1.6bn additional investments to Venture Capital in Europe.  

- 

In 2017, the Commission will coordinate a pan-European platform where Member States’ best 
practice  on  crowdfunding  can  be  shared,  together  with  an  assessment  of  financing  gaps  in 
alternative  sources  of  finance,  to  understand  whether  further  public  financing  or  other 
measures are needed.  

5. CONCLUSION 

Despite its many young and innovative entrepreneurs, Europe is not yet fully tapping the potential of 
its entrepreneurial capacity and talent.  

Although action has been taken at national as well as EU level to encourage the creation of start-ups, 
more needs to be done.  

Starting  and  scaling  a  company  across  Europe  has  to  become  simpler.  The  goal  is  for  Europe  to 
become  the  first  choice  for  ambitious  entrepreneurs  to  set  up  and  grow  their  breakthrough  business 
ideas into successful companies in well-performing ecosystems. In return, they will create new jobs, 
foster social responsibility and some will become global leaders. 

The  present  Communication  proposes  a  coordinated  approach  across  EU  policies  to  be  delivered 
through a set of pragmatic measures. Working in partnership with all levels of government, in Member 
States,  regions  and  cities  and  all  stakeholders  -  including  start-ups  and  scale-  ups  themselves  -  will 
also be necessary for its efficient and successful implementation.   

The Commission invites the European Parliament and the Council to endorse this Communication and 
to actively engage in its implementation, in close cooperation with all relevant stakeholders. 

12