Europe Entrepreneurship: While the number of
micro companies (less than 10 employees) in the European Union increased by
370,000 (2%) between 2008 and 2013, the number of small, medium and large
companies registered no net growth, showing that SMEs face difficulties in
scaling up and making a significant difference to growth and employment across
Europe according to a new report.
Politicians in Ireland and elsewhere like to
present the growth in micro firms which may have no employees as evidence of
growing entrepreneurship when it is more likely a reflection of poor job
The report, 'Fostering
Innovation-Driven Entrepreneurship in Europe,' [pdf] was launched this week
by the World Economic Forum to provide analysis on the challenges faced by
Europe’s high-growth startups. The report also sets out an agenda to help them
achieve the critical mass needed to reach maturity and compete internationally.
It adds: "Europe includes five of the top 10 most
innovative countries in the world, as a region its innovation capabilities and
overall competitiveness lag behind those of key competitor countries. Multiple
data sources indicate that European conditions are far from ideal for
entrepreneurs and fast-growing companies, and fragmentation hinders access to
markets, sources of capital and supportive initiatives. As the global innovation
frontier moves inexorably forward, Europe is in danger of falling further
behind, putting at risk its outlook for productivity, growth, human capital
development and job creation. "
The analysis, which was produced in collaboration
with AT. Kearney, the US consultancy, comes from a survey of over 1,000 European
entrepreneurs as well as interviews and workshops with policy-makers and other
key decision-makers in Europe and China. The results indicated that the
ecosystem for developing startups in Europe was substantially worse than in
North America across all three phases of the entrepreneurial life cycle.
These phases are part of a new model for understanding how stakeholders can
better support serial entrepreneurs in Europe:
- Stand up – Promoting the attitudes and
skills required to mobilise Europeans with the desire and the ability to
create scalable entrepreneurial ventures;
- Start up – Gathering the resources to start
up a business, with particular focus on access to capital for entrepreneurs
across the European Union;
- Scale up – Enabling ventures to scale, with
particular focus on collaborations between entrepreneurs and large
corporations that simultaneously improve the innovation capacity of both
partners to create growth and jobs across the region.
The report suggests that problems facing
Europe’s entrepreneurs are not because a lack of willingness on the part of
policy-makers or actors in the private sector – 87% of survey respondents said
that they are personally willing to support initiatives in their countries,
while Forum interviews and workshops identified a large number of
multi-nationals which are seeking to incorporate startups in their business
activities. Many senior policy-makers at both the European and member state
levels, including a number of heads of state and government, are highly
motivated to improve conditions for innovative ventures.
Nevertheless, of the three life cycle phases, “scaling up” is seen as the most
challenging for European startups, with almost 40% of respondents believing that
conditions were unfavourable in their country. “Europe has a strong track record
in establishing innovation-driven startups. However, its weakness lies in
helping these businesses grow in and beyond fragmented European markets,” said
Philipp Rösler, managing director, head
of Centre for Regional Strategies, World Economic Forum.
Rösler was vice-chancellor of Germany in
Chancellor Merkel's last government.
It is estimated that only 50% of European
startups survive the first five years and the reports says a key challenge, is
overcoming and learning from failure is crucial for successful entrepreneurship.
"Consider this: Employees of the
Finnish start-up Rovio had developed 51 programmes, none of which was a
After going through this, their 52nd programme,
Angry Birds, finally delivered an overwhelming success and has charted 500m
The Guardian reported last April that Rovio
Entertainment's growth stalled in 2013, according to financial results for the
year that show the company's revenues grew by just 2.5% year-on-year.
reported revenues of €156m (£128.4m) for 2013 compared to 2012's €152.2m –
which represented more than double the €75.6m that Angry Birds made in 2011.
Rovio's net profits also halved from €55.5m in 2012 to €26.9m in 2013, as the
company invested in new games, its ToonsTV cartoons network, and its upcoming
Angry Birds feature film.
The performance of Zynga, the US games maker,
shows that it's a challenge to keep producing popular games.
The report says that the EU is home to 19.0m micro companies (those
with less than 10 employees), constituting the preponderant
majority of the 20.6m SMEs in Europe in 2013.
How many businesses are set up in a given period varies
across Europe: in Spain and Italy, fewer businesses were
started in 2013 than in 2008, while France, Sweden and the
United Kingdom have experienced an increase.
Europe’s major innovation hubs are booming. Between
2008 and 2012, the number of startups in Berlin increased
from 36,700 to 44,200 per year. Yet, venture capital
fundraising in the early and expansion stages amounted to
only €3.6bn in 2012, compared with €8.2bn in 2007
- - a drop of 56%.
From 1980 to
2012 and including the years of the financial crisis, venture
funds reported an average internal rate of return of only
1.27%, with the top quartile earning 18.49%. However,
while data is hard to come by, in recent years the European
venture capital segment has seen a number of notable
successes such as Supercell and Spotify. Many European
venture capital experts say the sector is stronger than the
long-term data indicate.
The report says the supply
of venture capital has seen a sharp decline in recent years.
Part of it is linked to higher levels of risk aversion following
the financial crisis as investors struggle with an increased
This drop in private investment
seen the role of government agencies in venture capital
raised from institutional investors increase from pre-crisis
activity of 14% in 2007 to 38% in 2013. A reliance on
public funds in this way is not a good sign of the health
of the venture market – government agencies’ financing
volumes are typically limited - - in the case of the German
Gruenderfonds, for example, to €500,000 for the first
round and up to €1,500,000 for follow-up rounds - - which
can create ceilings for subsequent financing, thereby
exacerbating the challenge of accessing growth capital.
The report's conclusions:
- European entrepreneurs are at a disadvantage
to counterparts in North America in the entrepreneurial life cycle, but most
significantly in the “scale-up” phase, a World Economic Forum report finds;
- Fostering innovation-driven entrepreneurship
can help Europe remain an innovation powerhouse, but only if measures are
taken to improve support services and address market fragmentation