More than half of the European start-ups surveyed by Stripe said the time spent on compliance processes is the greatest threat to their business.
One out of three start-ups has considered starting their business outside of Europe due to the scale of regulatory burdens and compliance issues to consider, according to a new Stripe report.
The company’s European Tech Voices report claims that “unnecessary friction” caused by European legislation is making it hard for the region’s start-ups to maximise growth opportunities.
Stripe surveyed nearly 200 of its European start-up users, looking at their experiences of the region’s tech ecosystem and the role of policy and regulation.
More than half of the start-ups said that the greatest threat to their business is the time spent adhering to compliance processes.
Just under half (47pc) believe current regulation is fit for large companies but not designed for start-ups, while 35pc said regulation is outdated and not suitable for a digital economy.
The report highlighted the benefits Europe has to offer start-ups, with the region becoming a “credible tech leader” in recent years. For example, the accelerated growth rate of unicorns in Europe was 400pc in 2020, compared to 124pc in the US.
An annual report from VC firm Atomico last year noted record-breaking levels of investment in Europe, a growing number of unicorns and high levels of start-up activity comparable to the US.
In the Stripe survey, 73pc of start-ups said the availability of talent and the level of education in Europe is an advantage compared to other markets.
Other advantages that were noted included access to capital, collaboration and an accelerated rate of innovation.
More than half said the geographical proximity to other markets is an advantage, which allows start-ups to operate across European borders and experiment with different products and services.
However, adapting to different regulations in different countries was cited as an issue. Half of the companies surveyed said they would be able to sell into more markets if legislation was harmonised.
“Start-ups are frustrated with the way policy is implemented and enforced, as well as the processes by which they have to comply, rather than by specific pieces of regulation or policy prohibiting growth,” the Stripe report said.
It added that GDPR is a key example of this issue, with its research suggesting that an absence of clear guidelines and a lack of enforced execution across borders is causing “frustrations” among small businesses.
Only 12pc of start-ups surveyed believe policymakers understand the reality of what smaller companies are facing. More than 80pc said current policymaking appears designed for larger businesses, while 20pc believe it is designed for early start-ups.
“For European start-ups to come out of this period stronger than before, and for the ecosystem to be set up for future success, it is crucial to understand the role that public policy and the legislative and regulatory environment play as it relates to success or failure, and how it can hamper or bolster growth and innovation,” the Stripe report said.
It shared a number of areas that it believes policymakers should prioritise to ensure start-ups can thrive going forward, such as digitising government processes, harmonising regulation across countries, and having more structured communication between start-ups and policymakers.
Stripe said the research for the report consisted of one-hour in-depth interviews carried out between January and February with 10 Stripe users. A survey was then conducted online and completed by 172 Stripe users between March and April, with respondents from countries including Ireland.
Following a feedback period that ended in May, the European Commission is expected to present its New European Innovation Agenda soon, which will outline plans to help European start-ups and scale-ups grow faster.
A recent report by the European Patent Office and the European Investment Bank found that deep-tech businesses in the EU are lagging behind their US counterparts. This report found that SMEs based in the US “make a higher contribution to innovation” than ones in the EU in areas such as IoT, cloud computing, 5G and artificial intelligence.
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