European Innovation
The inaugural European Innovation Area Summit took place in the last week of June. It kicked off an agenda that leaders are confident will facilitate Europe’s transition into a green and digital economy. The proposed strategy would put the continent on a clear trajectory towards a future that is climate neutral.
The EU Listing Act
Of the proposed agenda is the EU Listing Act, which is set to go into effect later this year. The EU Listing Act aims to: 1) facilitate capital access for small and medium-sized enterprises, and 2) make public capital markets a more attractive option for European companies. It will do this by making the listing requirements simpler. This will allow families and founders to control post-listing and raise larger amounts of funding so they can enjoy the benefits of listing.
Presently, each stock exchange throughout Europe devises its own rules. The Listing Act will likely include a proposition for EU countries to abide by the same regulation with regard to dual-class share structures.
In conjunction with this, €45 billion will be raised to encourage more deep tech start-ups in Europe. By using private funds, founders will more easily maintain control over their firms once they go public.
As of now, Europe has significantly less deep tech firms than both China and the US. This is partly due to European venture capital markets being “fragmented and risk-averse”, according to the European Commission. Traditional bank products (e.g., loans), however, make up for more of the financing that start-ups receive than other options, such as equity funding.
European Commissioner for Innovation, Research, Culture, Education and Youth, Mariya Gabriel, said at the summit that investing in European innovation needs to be a priority. She argues that companies would be motivated to move their headquarters to Europe if more institutional investors bet on EU deep tech.
How does the plan encourage innovation?
The plan also allows for EU countries to take advantage of state aid for testing and experimentation purposes. Start-ups would be permitted regulatory sandboxes. These offer less stringent rules for trialling innovative services, products, and business models within a real-world context. The testing will focus on sustainability, specifically renewable hydrogen and AI. The new regulation will also aid start-ups in their ability to offer new employees stock options.
Significant numbers of academics and researchers are relocating to America. Because of this, the commission will put €20 million towards talent acquisition. This will come from both the EU budget and public and private organisations. The goal is to get 1 million additional individuals working in deep tech. Additionally, start-up visas will be made easier to obtain. This will draw in new talent from third countries (i.e., basically any country outside the EU).
The commission recognises that the wealth of a country plays a huge role in facilitating innovation. Wealthier regions typically churn out more start-ups. This gap will be bridged by creating “innovation valleys” that will ensure all regions across the EU benefit from these plans. The European Regional Development Fund will provide €10 billion, and €170 million will come from the EU budget.
Lastly, the commission discussed how several initiatives will take on the gender inequity issue. Start-ups led by women receive far less capital than their male counterparts. Additionally, more data will be collected on other groups that are underrepresented in European venture capital markets.
A European Innovation Area
European Research and Education Areas already exist, so the purpose of the summit is for the agenda to pave the way for a European Innovation Area. This is something non-profit organisation Knowledge4Innovation (K4I) has expressed their strong advocacy of. The argument for an Area dedicated to innovation is that it would help the EU better compete amongst other leading economies in the rest of the world.
Private Client Consultancy values innovation, which is why we have maintained a commitment to sustainability, established strategic partnerships, and built our own Wealth Network. Contact us today to find out how we can help develop your innovative investment strategy.
