EU start-up rules overhaul risks weakening scale-up push in Europe

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EU start-up rules overhaul

Highlights

The European Commission is advancing a Scaleup Europe Fund managed by EQT, seeded with €1 billion and targeting €5 billion to address the EU's venture funding gap.
OECD data shows venture capital investment in major EU economies is at best 0.1% of GDP, compared to 0.5–1% in the U.S., highlighting the structural financing deficit.
The EU Inc initiative to harmonise incorporation is being watered down, with key features like a single registry and unified insolvency rules removed, risking limited uptake compared to Delaware incorporation.

Funding plan and corporate regime face diverging prospects

As reported by Financial Times, the European Commission is pursuing two parallel tools to keep high-growth companies in Europe, a Scaleup Europe Fund managed by Swedish investment firm EQT, and a proposed “28th regime” for corporations, known as EU Inc.

The financing gap remains stark. OECD figures cited in the analysis show U.S. venture capital investment has amounted to 0.5% to 1% of GDP over the past decade, while the largest EU economies have reached about a tenth of that or less. Even stronger European performers such as Sweden, the Netherlands, Switzerland and the UK have reached only about 0.2% of GDP at best.

The new scale-up fund appears to be in better shape than the regulatory track. Seeded with 1 billion euros from Brussels, it is targeting 5 billion euros in total funds raised and invested, reflecting an effort to address a financial system in Europe that is still far more bank-based than the one in the U.S.

Victor Englesson, partner at EQT and co-head of the scale-up fund, says Europe needs trillion-euro companies and much larger pools of capital to support cloud computing, AI and advanced robotics. He argues that keeping successful founders building in Europe matters because the wealth they create can be recycled into the region’s technology ecosystem instead of flowing abroad.

Watered-down harmonisation could limit regional impact

The larger structural obstacle is scaling across the bloc. Although the EU offers a market large enough to support domestic growth comparable in theory to the U.S. or China, founders still face 27 national systems covering corporate, insolvency, tax and labour law.

The EU Inc proposal is meant to reduce that friction by allowing entrepreneurs to incorporate once and operate across the bloc. But key elements have already been weakened, with a single EU company registry and a common insolvency regime removed, while harmonised employee stock option rules are limited to companies below a certain size, creating what critics see as a deterrent to growth.

Debate in the European Parliament now risks further dilution as some lawmakers seek to protect national systems. Critics of that approach argue the practical alternative for many founders is not to remain purely national inside the EU, but to incorporate in Delaware instead.

Englesson says EU Inc, in its current form, may not be attractive enough for founders to use. Eva Maydell, a member of the European Parliament, says the framework still has the potential to become a major EU integration project if policymakers choose a more ambitious version that offers something more compelling than U.S. incorporation options.

In our earlier article on Mario Draghi’s warning about the growth risks of restrictive monetary policy, we explained his view that fighting inflation and stabilising debt should not come at the cost of undermining productive investment. He argued that Europe needs complementary pro-growth measures such as deeper EU market integration, targeted industrial policy, and a dedicated EU budget allocation to de-risk investment in areas like AI.

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