Europe’s startup landscape is navigating a period of change. Historically overshadowed by Silicon Valley and now facing increasing competition from China, the continent is actively seeking ways to bolster its tech sector. A growing trend in this search is the ecosystem model, which focuses on building interconnected networks of individuals, organizations, and resources.
These ecosystems aim to foster collaboration and shared expertise, producing a multiplier effect that drives innovation and accelerates growth. A central element of European ecosystems is the European Union (EU). Despite facing criticism regarding its tech strategy, the EU has been a significant catalyst of startup success.
Take Nicolas Benady, the CEO of Swan, a successful French banking-as-a-service (BaaS) fintech, as an example.
“Our company wouldn’t exist without the European Union,” Benady states.
Benady highlights the impact of the Payment Service Directive, an EU law that standardized electronic payment regulations. This legislation played a crucial role in the success of numerous global fintech leaders, including Revolut and Adyen, by leveling the playing field with established banks. Swan has also benefited from the directive. Last month, the startup finalized the second part of its Series B funding round, raising €42 million and bringing its total funding to an estimated €100 million.
“Without this directive, I don’t think we’d have so many fintechs today in Europe,” Benady says.
Fintechs are not the only beneficiaries of the EU ecosystem, but more work is needed on the network. At a recent webinar, Benady and other European tech experts discussed the power and obstacles of ecosystems, delivering a clear message: startups don’t scale in isolation. Their success depends on a thriving network of partners.
The 4 Pillars of a Thriving Ecosystem
Jason Lynch, CEO of quantum computing startup Equal1, has seen the positive impact of ecosystems firsthand. Equal1 has collaborated with Arm on computing advancements, partnered with Nvidia to combine hardware and software, and worked with the Netherlands Organisation for Applied Scientific Research (TNO) on product development. Equal1 has also received investment from TNO and established a presence in the House of Quantum in Delft, a national center focused on quantum startups.
“Being in a centre of excellence… is a critical piece of an ecosystem,” Lynch notes.
At the webinar, Lynch outlined four essential benefits of an ecosystem:
- Talent: Proximity to skilled professionals is crucial for startup success, as demonstrated by Silicon Valley. The House of Quantum supplies Equal1 with a steady pipeline of expert candidates.
- Infrastructure: Access to shared infrastructure can lead to significant cost savings for startups and can provide access to technologies that would be too costly for an individual firm.
- Partnerships: Tech companies commonly rely on complex supply chains. Ecosystems simplify these processes. Lynch states, “What a centre of excellence like Delft offers is an ability to work very closely with companies that are just across the corridor.”
- Customers: End users are attracted to areas with a lot of expertise and companies. This helps startups to test and commercialise their products more quickly. Lynch says, “A hub like this really attracts in those end users.”
Despite the advantages, Lynch also has concerns about EU ecosystems, with a key one being a failure to commercialize ideas quickly. “It’s well-recognised that European research is leading the world. People would probably say that bringing that research to market is where Europe has more of a challenge. For me, that’s about speed, getting out of the way of startups, and trying to lower the barriers as much as possible.”
Funding and Regulation
EU policymakers are sometimes criticized for providing insufficient support to startups. However, there are indications of a shift in attitude. Clotilde Hocquard, Public Affairs Lead at France Digitale, suggests that there are positive developments, including expanded funding options like a new EU initiative to mobilize €200 billion for AI investments and France’s Tibi Initiative, which connects investors with VC firms.
“It should be replicated at the European level,” Hocquard says.
Hocquard believes that policymakers are recognizing the need to support startups after the release of the Draghi Report, which revealed a concerning situation in European innovation.
“Policymakers are starting to realize that they need to do something to make sure startups can thrive in Europe,” she says.
Hocquard calls for quicker advancements, specifically the mobilization of pension funds and insurers as is done in the United States, along with directing funding towards VC funds to foster innovation.
Funding is not the only challenge for European ecosystems. The EU’s regulatory landscape, while beneficial, presents its own complexities. The diversity of laws across member states, despite the single market, creates fragmentation. Hocquard notes that the EU doesn’t have anything single. ”We have 27 member states doing what they want with their rules.”
This complexity hinders cross-border scaling. Harmonizing regulations would simplify expansion for startups. Hocquard suggests that company law should be an initial target and urges member states to apply EU regulations consistently.
“If there’s a European law, it should be applied in a uniform way across the continent,” she says.
Scaling Effectively
The desire to scale can lead to decisions that are made too early. Benady advises that early-stage founders focus on the product-market fit. He cautions that once commercial success is achieved, scaling a company becomes a different challenge. Benady emphasizes the importance that ecosystems have at that point. He admits that he paid attention to HR and finance a little too late.
“When you scale, you can’t mess with HR and finance,” he adds.
Benady compares these departments to the rhythm section of a band, stating that they are not the most noticeable part of the process, but they are still essential.
“Finance and HR are the drum and the bass. That’s not what you hear; you hear the singer, you hear the guitar — but if you don’t have a perfect drum and bass, you won’t scale your company. So pay attention to finance and HR.”
For European startups to succeed, ecosystems need the right mix of talent, infrastructure, partnerships, and customers. Additionally, public support and government backing are essential. Hocquard emphasizes the need to persuade citizens that investing in innovation is investing in the future of Europe.
“Once we have the citizens with us, we need the policymakers to make all the legal changes.”
With that support, Europe’s startup community has great potential.
