Europe’s poor investment in digital is threatening prosperity. Here’s what its start-ups need

Juncker 2018 startups

© European Union , 2018 / Source: EC – Audiovisual Service / Photo: Mauro Bottaro

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum. 

Authors:  Felix Staeritz, Founding Partner and CEO, Michael Stephanblome, Founding Partner and CSO and Andreas von Oettingen Founding Partner and CTO, FACTOR10


Europe is one of the biggest economic regions in the world. The European Union’s impressive $17 trillion GDP in 2017 was second only to the US’ $19 trillion, and ahead of China’s $12 trillion. Europe is well-known for its industrial assets, knowledge and infrastructure. It has leveraged these to its advantage over the past 30 years, while globalization has been the dominant driver of growth. However, its position is increasingly under threat now that digitization is the primary driver for economic prosperity and overall growth.

European companies missed the first big wave of digitization, which contributed to a major part of economic growth in China and the US. None of the top ten internet companies originated in Europe. The US alone has approximately 3.5 times the number of unicorns – private companies valued at $1 billion – compared to Europe. Shockingly, current investment numbers suggest that this problem has still not been addressed. In 2018, overall investment into digital transformation reveals a significant gap between, on the one hand, the US ($437 billion) and China, and on the other, Europe, the Middle East and Africa ($280 billion combined). This points towards a potentially major economic gap arising. Europe needs to challenge and drastically change its economic roadmap if it is not to lose significant influence or ultimately risk impoverishment of its population.

So far, a majority of the efforts to increase new digital business creation have gone into copying successful start-up methods from the US and trying to apply them in Europe, primarily by increasing available venture capital and using it to build a larger number of technology companies. While this has been a reasonably successful approach, the problem is that the majority of scale capital is mostly available to a relatively narrow range of business models (e-commerce, mobile apps, software-as-a-service etc.).

This results in some fairly significant investment gaps, especially in later VC rounds supporting growth companies in less proven categories such as medical hardware or heavy industrials. However, since Europe’s biggest strengths lie in having industrial market leaders in sectors such as energy, automotive and healthcare, it needs to start exploiting scientific breakthroughs and innovations in these areas much more aggressively, and with significantly more capital investment.

Large corporations have huge research and development resources at their disposal, but they are typically focused on optimizing and growing their existing core business. A lack of digital commercial know-how and an almost non-existing equity-driven incentive system that rewards digital entrepreneurs to start and grow successful digital businesses often leads to failures in this area. That’s why many large corporate organizations have often approached digitization as simply an effort to digitize the processes of their core business, rather than using large investments for new digital market bets. This is not least because of capital constraints due to stock market listings, and private equity ownership that mostly favours short to mid-term financial objectives.

Therefore, Europe needs to start thinking about models that can leverage the assets of its industrial market leaders better, and combine them with entrepreneurial skills and incentives to achieve quick scale-ups of innovative business models. These include new frameworks, such as ‘entrepreneurial co-creation’, between entrepreneurs and corporates. These would encourage experts from both worlds to collaborate in finding a product-market fit quickly and scaling new business together.

Specifically, this model involves large companies and external entrepreneurs creating joint businesses with shared equity that are detached from the core business of the corporate. This gives both parties the freedom to implement technological, methodological and cultural elements that would not necessarily work in an existing corporate environment. Moreover, entrepreneurs benefit from immediate access to industrial innovations, knowledge and customer networks.

Entrepreneurial models such as this are still in their initial stages. New centralized investment incentives by institutions such as the EU would motivate established companies to pursue similar models more aggressively. The launch of a digital single market would be a step in the right direction, eliminating current difficulties when offering digital services across EU borders. However, this will not be appealing enough to change the overall approach to digitization significantly. Europe needs something bolder, such as a large-scale industrial policy that actively incentivizes and supports the creation of new digital businesses that are detached from the core corporate business.

The idea is simple, yet impactful. Every single euro invested from a corporate’s balance sheet to launch a separate, digital business, with external entrepreneurs and an equity model in a EU member state, should be matched euro for euro by the proposed EU investment start-up policy. Every EU industrial start-up joint venture in need of both growth capital to expand outside Europe and a corporate follow-on round should also be matched euro for euro through an EU international investment expansion policy.

In doing so, corporates and entrepreneurs alike would have the incentive to focus their time and resources on making the most of what made Europe strong in the first place: entrepreneurial spirit and smart commercial exploitation of industrial assets in order to create completely new technology businesses.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

How traditional Islamic giving can play a role in the future of aid

G20 LIVE: G20 Leaders’ Communiqué Antalya Summit, 15-16 November 2015

Business uncertainty rises as US grants only temporary exception to EU for steel and aluminium tariffs

Resisting EU budget cuts

Foreign Affairs Council (Trade) of 22/05/2018: EU relations with key trading partners

The US and EU decisively oppose Erdogan’s plans for Turkey and beyond

On youth unemployment: unemployment is even bleaker for youth with disabilities

Commission reports on progress in risk reduction in the Banking Union and calls for faster progress on Capital Markets Union ahead of EU Leaders’ meetings

Brexit talks stalled at launch; issues with European Court’s authority in Britain

Chart of the day: These are the cities where the World Cup threatens productivity the most

Lessons from dealing with the collapse of Lehman Brothers

UN health agency highlights lifestyle choices that can prevent onset of dementia, as millions more succumb each year

AI has huge potential – but it won’t solve all our problems

Myanmar: Conflict resolution at ‘total standstill’, military commanders must answer for crimes against humanity

Eurozone to enter the winter…

Climate change helped destroy these four ancient civilisations

Progress in medical research: leading or lagging behind?

Why the Fourth Industrial Revolution needs more arts graduates

New book honours UN women who made HERstory

Unlock the value proposition for Connected Insurance

A Sting Exclusive: “Climate change-the biggest global health threat of the 21st century, yet overlooked in climate negotiations?” IFMSA wonders from COP21 in Paris

“Two Pack” approved: Is democracy chased away from Brussels?

Outgoing UN official praises Iraq’s ‘exemplary peaceful transfer of power’ at the top

Commuters in these cities spend more than 8 days a year stuck in traffic

The anti-vaccine movement shows the peril of a post-truth world

G7 summit: Trump Vs. G6 leaders on trade and climate change

De Gucht: More gaffes with the talks on the EU-US free trade agreement

How electrification can supercharge the energy transition

Half the world’s population is still offline. Here’s why that matters

Friday’s Daily Brief: UN chief in China, counter-terrorism, updates from Bangladesh, Mali and Mozambique

FROM THE FIELD: Faces and Voices of Conflict

Women’s leadership ‘critical’ to future of Niger

Millions of Bangladeshi children at risk from climate crisis, warns UNICEF

Long live Eurozone’s bank supervisor down with the EU budget supremo

Who should be responsible for protecting our personal data?

A new era of computing is coming. How can we make sure it is sustainable?

These are the top risks for doing business around the world

2019: An unpredictable, confrontational and financially ominous year

Light at the end of the Eurozone tunnel

The secret weapon in the fight for sustainability? The humble barcode

UN agency plan tackles ‘hidden cost’ of gold, paves way for safer, mercury-free mining

The Sahel is engulfed by violence. Climate change, food insecurity and extremists are largely to blame

Beyond self-regulation: dealing with Europe’s consumption problem

Doctors are humans too: the benefits of embracing your mental status

Parliaments broadly agree on next steps for economic, monetary union

Strength in unity: Commission makes recommendations for the EU’s next strategic agenda 2019-2024

Globalization 4.0 must build a better world for working people

EU plans to exploit the Mediterranean Sea and the wealth beneath it

What UK and EU risk if Brexit “wins” these elections

Freshwater is saltier – and it’s bad for the planet and our health

UN must provide redress for minorities placed in toxic Kosovo camps, says rights expert

FROM THE FIELD: Finding refuge in the ‘beautiful game’

Mental Health Policy, a significant driver for growth

10 things you – and your government – should know about competitiveness in the Fourth Industrial Revolution

A Sting Exclusive: “Junior Enterprises themselves carry out projects focusing on the environment”, JADE President Daniela Runchi highlights from Brussels

Eurozone banks to separate risky activities: Can they stay afloat?

Ambassador Zhang wishes from Brussels great success and prosperity for the China-EU relations in the Year of the Dog

It’s Brexit again: Nigel Farage launches a personal campaign to lead the ‘No’ front

Is Eurozone preparing to abandon austerity and stagnation?

It is me

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s