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Regulatory ‘friction’ is holding back European startups, according to new research from Stripe

Research conducted among nearly 200 European startups at Stripe shows how long, complex and outdated compliance processes are limiting growth.

1 in 3 considered launching elsewhere because of the scale of regulations.

  • The lack of dialogue between startups and policy makers is partly to blame, with 80% saying policy is geared towards incumbents and only 12% saying policy makers understand their reality.
  • To support startups in the midst of challenging market conditions, and prepare them for future growth, Stripe urges policymakers to prioritize five key areas. These include accessible guidance, digitisation of government processes and greater harmonisation across Europe.

As economic uncertainty continues to affect global technology markets, an abundance of regulatory ‘friction’ poses a serious threat to startup growth in Europe, according to new research from Stripe, a financial infrastructure platform for businesses. 1 in 3 startups have considered taking their business elsewhere because of the extent of compliance.

The research – ‘European Tech Voices: perspectives from Europe’s fastest growing startups’ – is a quantitative and qualitative study conducted by B2B International among nearly 200 Stripe users, including Kry, Alma and Ticketswap. The report examines the European startup experience from the perspective of fast-growing internet companies, and their views on how policy and regulation act as an enabler and a barrier to growth.

Matt Henderson.

– As technology companies across Europe face an increasingly difficult economic environment, it is more important than ever to listen to the voices and needs of the startup community. We wanted to hear directly from companies using Stripe, as the future generation of European technology leaders, to better understand the realities they face and identify the main barriers to growth,” said Matt Henderson, international business lead at Stripe.

The strong foundation of European technology is under increasing pressure

European startups are recognising the advantages that Europe has over other global tech markets:

  • 73% consider the depth and availability of talent and the level of education in Europe to be an advantage over other markets.
  • More than half (56%) cite the geographical proximity to different markets as an advantage for both the speed and convenience it enables for businesses.

But despite these strong fundamentals, “friction” caused by complex regulatory procedures and outdated compliance practices is putting pressure on already stretched resources. Over half (53%) of respondents say that time spent complying with compliance processes is the biggest threat that regulation poses to their business. More than three-quarters (79 percent) say time spent on compliance has increased.

– Kry is one of many new European upscale companies committed to not only creating jobs and value for the economy, but to addressing growing societal issues such as access to healthcare. Politicians are similarly committed to the same vision – and often work with Europe’s growing community to help companies grow and address some of our most complex social issues. But there is still friction. So if we’re serious about strengthening Europe’s potential, reducing fragmentation and driving innovation to benefit more people, we need to look at how we can communicate and collaborate better together for measurable, long-term success,” says Linda Griffin, VP of Public Policy at Kry.

Growing links between start-ups and policy makers

Part of the problem is an emerging disconnect between policymakers and startup communities. 83 percent of respondents say policy is geared toward established companies, and only 12 percent believe policymakers understand the realities they face.

Rather than official regulations, the research shows that startups want policymakers to focus on policies aimed at reducing friction and saving increasingly valuable resources. For example, among the practices outlined in the EU Startup Nation Standard, the commitment to “digital first” was cited as a top priority for agile startups and growth. The Baltic countries were called out by the largest number of respondents (36 percent) for having the most innovative approach. Efforts among the Baltic countries to digitize regulatory processes were seen as driving this perception.

Start-up priorities

Based on the lessons and insights from this research, Stripe has outlined five areas that policymakers should look to prioritise, to ensure that startups can survive and grow:

  1. Collect, coordinate and implement existing policies and initiatives designed to remove barriers to growth and transform startups into scaleups.
  2. Enable one-stop shops and provide consistent guidance to Europe’s entrepreneurs.
  3. Increase the digitalisation of government processes involved in forming and scaling a business.
  4. More structured communication between startups and policy makers to ensure that the priorities and views of startups are reflected in decision making.
  5. Harmonising regulatory frameworks, reducing friction and maximising growth.

– European startups have proved resilient in uncertain times in the past, but this should not lure us into a false sense of security. When it comes to policymakers’ priorities, the focus must now turn to reducing regulatory friction for Europe’s internet businesses, to help them accelerate growth as market conditions improve,” says Matt Henderson.

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