It’s the very nature of start-ups to start small – the proverbial spark of an idea that incubates in a bedroom or a garage. Yet to be able to survive, start-ups have to think big – how to attract investment, scale up and explore other markets. Which is why young entrepreneurs have to think beyond the hundreds of kilometres that divide Malta and Brussels and acknowledge how every discussion, debate, item on the European agenda and vote affects them.
Whether you’re involved in a start-up programme, testing your idea in a business incubator or going to market, this May’s European Parliament elections will affect your present and future, as the EU, through its initiatives, aims to empower such entrepreneurial efforts.
For Ing. Joseph Bartolo, manager at the University of Malta TakeOff business incubator, the European agenda is very much in favour of improved business plans with foresight and clear thought.
Based at the Centre for Entrepreneurship and Business Incubation at the University of Malta, TakeOff is Malta’s first business incubator with a primary focus on technology. It was launched in 2014 and is co-funded through EU Structural Funds. The TakeOff Seed Fund Award was also launched, in collaboration with central government.
This incubator brings entrepreneurs, investors, innovators and mentors together to develop skills within start-up projects – this is done by inspiring a knowledge-based enterprise.
“We strive to give start-ups a sustainable edge that keeps them active in their business for a longer stretch,” Ing. Bartolo said. “We are encouraged and supported by the EU to help young entrepreneurs develop new successful business plans and pitch to investors.”
Last year, at the Takeoff Seed Fund Awards, €100,000 were awarded through a competitive process whereby the best written applications were shortlisted for a live pitch in front of a panel of judges, with the top applicants receiving funding.
EU efforts to bring together different ecosystems are embodied by Start-up Europe, which coordinates EU work to connect clusters and ecosystems across Europe and aims at bringing stronger coherence between the different EU initiatives.
In the last two years, Start-up Europe has funded 14 projects to build bridges between the start-up players within European ecosystems. These projects worked directly with more than 700 start-ups, bringing them together with investors, accelerators, entrepreneurs, corporate networks, universities and the media. The consolidated networks and ecosystems provide the right ground for structured and effective growth of European start-ups and entrepreneurs.
Other activities include Start-up Europe Week – during which 250 cities are connected by a single event across EU with 400 simultaneous actions – Start-up Europe Awards and European Maker Week.
The key word within this context is ‘connection’. Because to survive and thrive, start-ups cannot work in silos – rather, they need to connect with mentors, competitors and markets.
Joe Zammit-Lucia, founder and trustee of Radix, the London-based think tank, points out how the European start-up system could do with a stronger joined-up mentality.
“I recently tried to consolidate a number of smaller companies that were in the same business in different European countries. It proved impossible. Each was solely focused on further development in its own country.”
“The main issue is not start-up but scale-up,” Dr Zammit Lucia said.
This challenge was highlighted in the EU’s Start-up and Scale-up initiative, inspired by how too few European start-ups survive beyond the critical phase of two to three years. This initiative includes, among other efforts, a legislative instrument that guarantees an early-warning mechanism and the availability of restructuring frameworks in member states to restore viability and avoid insolvency, in particular for SMEs. The EU has also adopted a new public procurement framework providing opportunities for start-ups to access public procurement.
In recent years, the Commission and member states have also supported the creation of communities, to help start-ups connect with investors, business partners, universities and research centres. This, with the intention of creating a more unified effort.
“Without unified, large capital markets, it is impossible to find the risk capital necessary to take start-ups to the next stage of development, when they can become competitors on a global scale. We have almost no ‘unicorns’ in Europe because it is impossible to find the amount of risk capital that one can easily access in the US,” Dr Zammit Lucia added.
Various reports highlight how the start-up eco-system in the US is bigger, has higher tolerance to risk and attracts more investment than that in Europe. However, the gap is decreasing – the latest statistics published by Start-up Hubs Europe shows how currently there are close to 829,000 start-ups in Europe, generating a total revenue of €426bn and employing some 4.52 million people.
EU efforts to bring together different ecosystems are embodied by Start-up Europe, which coordinates EU work to connect clusters and ecosystems across Europe
The Financial Times last December reported how this gap – especially between tech start-ups in the two continents – is narrowing due to increased investment. In fact, 2018 was an encouraging year for European tech start-ups, with high-profile listings and deals leading to a record level of exits valued at €94bn (compared to €120bn in the US).
Data released during the 2018 Slush tech conference in Helsinki, Finland – one of the leading start-up events in the world – also showed how 69 tech start-ups went public in Europe, compared to 28 in the US.
This is also a result of Europe’s technological advancements. While the US remains home to tech giants like Google and Facebook, and China leads the way in Artificial Intelligence, Europe’s digital revolution is driving its economy.
Moreover, last year, with the enforcement of the new GDPR rules on May 25, 2018 - following adoption by the EU Parliament in its plenary on April 14, 2016 - Europe took the moral lead on one of the most critical issues facing the modern world: data and privacy. Other measures – including those forming part of the Digital Single Market strategy – are aimed at encouraging new and innovative businesses.
Malta, for instance, has positioned itself as a pioneer in the regulatory treatment of innovative technologies – culminating in the enactment of Malta’s regulatory framework for distributed ledger technology, comprised of the Virtual Financial Assets Act, the Malta Digital Innovation Authority Act and the Innovative Technology Arrangements and Services Act.
This revolutionary framework seeks to place technology and innovation within a regulated environment that promotes legal certainty and, in turn, market confidence and consumption.
Another important element in a start-up’s journey is failure. Despite its negative connotations, failure can be a learning curve and a launch pad. From Richard Branson to Steve Jobs, many of their great successes would not have been achieved if it wasn’t for previous failures.
In the US, failure is recognised as part of the journey. In Silicon Valley, in fact, the mantra is ‘fail often, fail fast’.
On the other hand, in Europe, failure is not tolerated. In an article published in Startus, a European magazine focusing on start-ups, it was written how failure in Europe is considered to be shameful. Of course, no one starts a business to fail. Yet failure is important, especially when following failure, a start-up or entrepreneur tries again.
The value of ideas also needs to be enriched – as ideas are critical to innovation, and in turn, to start-ups. This explains why the EU Budget 2019 focused, among other priorities, on innovation and research.
Malta’s tech start-up ecosystem is young but showing courage. In fact, it was billed as ‘one to watch’ by the 2018 Global Start-up Ecosystem Report.
The report highlighted Malta’s progress, especially in the areas of fintech, blockchain, gaming, big data and analytics.
Malta was also described as a dynamic hub that can attract early-stage start-ups who want to work in a location that combines good weather, low operating costs and increasing government support.
EU’s Innovation Policy
Role of the European Parliament
The objective of the EU’s Innovation Policy is to turn research results into new and better services and products, in order to remain competitive in the global marketplace and improve the quality of life of Europe’s citizens.
Over the years, the European Parliament has adopted numerous resolutions, which have further strengthened the EU’s innovation policy, including: May 22, 2008 resolution to increase efforts to reduce the administrative burden of enterprises; October 26, 2011 resolution on the importance of developing closer cooperation between research institutes and industry; resolution of July 6, 2016 on synergies for innovation.
On March 26, the European Parliament voted in favour of new copyright rules for the internet – it is now up to member states to approve this decision in the coming weeks.
Through these new rules – which also contain safeguards on freedom of expression – start-ups are subject to lighter obligations than more established businesses.
Moreover, creatives and news publishers will be empowered to negotiate with internet giants, as the directive aims to enhance rights holders’ chances to negotiate better remuneration deals for the use of their works when these feature on internet platforms.
The annual European Innovation Scoreboard compares the research and innovation performance of the EU member states and selected third countries, and the relative strengths and weaknesses of their research and innovation systems.
The scoreboard divides member states into four groups: innovation leaders (score more than 20 per cent above EU average), strong innovators (score between 90-120 per cent of EU average), moderate innovators (score between 50-90 per cent of EU average), and modest innovators (score below 50 per cent of EU average).
In the latest edition of the EIS, released on June 22, 2018 – and assessing the 2017 performance – Malta was included in the moderate innovators category, together with Croatia, Cyprus, the Czech Republic, Estonia, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Slovakia and Spain.
The scoreboard shows that Malta’s strongest innovation dimensions are intellectual assets and attractive research systems, while the weakest dimensions are finance and support, and linkages, both of which suffered a decline in performance from 2010 to 2017.
In the report’s overview, Malta’s gains were highlighted, with the EIS pointing out how Malta’s innovation performance has increased by more than 10 percentage points since 2010. The scoreboard also mentioned Malta as a leader in the employment impacts of innovation (following Ireland and the UK).
A service brought to you by the European Parliament Office in Malta.
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