Close-Up: How Politics Affect European Startups

When it comes to startups, the discussions about politics revolve mostly around how much certain governments and agencies are doing to help startups thrive in their respective countries. However, even a passing glance at the European startup scene will show that the effects of political decisions on startups go well beyond this.

This is especially true if one dedicates their time to analyze all of the potential fallout a seemingly minor political decision can produce.

The World In Flux

One might argue that the world is in a state of perpetual flux, both politically and in the strictly business sense. However, it is all but impossible to deny that the last 12-odd months have been particularly momentous in the grand scheme of things.

This has also been an unusually hectic period for startups. Across the Atlantic, it took the 45th President of the United States, Donald Trump less than half a year to completely alienate the entire Silicon Valley. In Australia, a similar populism-driven political decision to abolish Visa 457 has already started affecting startups.

In Europe, the United Kingdom unexpectedly decided to leave the European Union and it is definitely the biggest political decision we have seen in decades, certain to disrupt the lives of innumerable startups and people working for them.

Brexit

The decision by one of EU’s largest member countries to leave the Union and to change the entire landscape of the continent is an event of historic proportions and, as such, it is bound to have a profound effect on startups in the UK and the rest of the Europe (and the world for that matter).

The mere fact that the UK will leave the common market and that the relationship between the UK and the EU will become an international one will complicate things immeasurably for any European startup looking to sell in the UK. Likewise, the inevitable avalanche of new regulations will make it far more complicated for UK-based startups to do business in Europe.

Brexit will also have a profound effect on people working in startups or trying to find top talent. For instance, a UK-based FinTech startup will need to register their EU-based employees as foreign workers, opening up a whole can of bureaucratic worms.

These are just some of the complications that will be felt by startups throughout the continent. The confusion and the uncertainty are perhaps best summed up by TransferWise’s co-founder Taavet Hinrikus a few months ago when he said he probably wouldn’t choose London as a base of operations if he were to found a startup today.

Estonian e-Residency

Another unprecedented political decision took place in 2014 in Estonia, a relatively small Baltic state. Namely, that year, Estonia became the first country in the world to offer e-residency to anyone interested.

In essence, you are now able to apply for an electronic citizenship in Estonia, receiving digital documents that will allow you to do business online no matter where you live, just as if you resided in Estonia. By 2016, Estonia granted more than 9,000 digital citizenships and they are proud to say that these new residents opened up a whopping 850 enterprises, many of which startups.

In other words, this radical political move made a small Baltic country an important player on the European startup stage.

Government Support Systems

Across Europe, governments on all levels have realized the importance of supporting startups and they have started providing infrastructure and funding for startups.

Portuguese government kicked off their project Startup Portugal in 2016, formulating 15 different measures through which they started promoting entrepreneurship in the country – from tax incentives for investors to involving various government agencies in cooperation with startups.

The local government in the Veneto region in Italy (Venice) recently also intensified their efforts to provide support to startups and your companies founded in the perfectly-positioned region.

The Austrian government’s efforts have already started paying dividends, with an unusually big number of new startups springing up all over this Central European country, many of them founded by people who came from abroad specifically to start their business in Austria.

These may not seem like political decisions but they are. Politicians have to explain their decisions to invest in startups to many other interest groups that might benefit from that same money if the decisions were different.

It takes a lot of political maneuvering to set up these support systems.

Legislation

While political decisions can have positive effects on startups, they can also slow things down to a virtual halt and make it all but impossible for certain startups to do business. There are just too many cases to even begin with, but it is safe to say that a significant number of European startups have experienced a certain disruption in their day-to-day operations due to legislations being passed or not passed.

Recently, there has been a lot of talk about the EU government’s work on reforming its copyright laws in order to better protect creators of content. At a glance, a perfectly positive piece of news, right?

Well, as it turns out, a number of European Artificial Intelligence startups have already started voicing concerns that their work will be severely impeded by this decision as it will restrict their access to data.

Legislation can have delayed and completely unexpected effects on startups and unfortunately, this is something that cannot be avoided.

Closing Word

Some startup owners think that politics only affect their enterprise tangentially (at best) and this is a big mistake. The European continent and its businesspeople have been shaped by politics for millennia. To think that this will suddenly change is wishful thinking.

This is not saying that European startup founders and employees lose their mind worrying about every single political decision that gets made on the continent.

This is saying that a certain level of political awareness is always welcome.

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