Interlocking policy jungle needed for tech success

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This article is part of our special report The Internet: Europe’s future growth driver?.

SPECIAL REPORT / Interlocking policy initiatives covering education, seed funding and access to broadband are all part of the policy mix required to boost European technology start-ups, but the sector also fears that proposed data protection rules might have a chilling effect.

Underpinning Europe's successful technology regions are dedicated investment or venture capital funds designed to promote start-ups, such as the Finnish Technology Agency, Tekes, with an annual budget of €600 million and a staff of 360.

Tekes works in tandem with a venture-capital fund, Finnvera, to find early-stage companies and help them get established.

As a result, Finland has become more market- and entrepreneur- friendly, producing an impressive number of start-ups, including 300 founded by former Nokia employees.

Ireland is another tech magnet. “If you look at a heat map of start-up activity around Europe, it'd be hard to ignore Dublin,” said Noel Ruane, who works in the Irish capital for US investment fund Polaris Partners, investing in seed- and early-stage technology companies.

Ruane said there was more capital available for these start-ups now than ever before, thanks to Enterprise Ireland's Competitive Start Fund, which invests in 15 seed-stage start-ups every quarter.

These work together with local “accelerators”, small operators offering start-ups seed funding, including Launchpad, which Ruane founded in 2010.

It is no surprise that attempts in London to expand a technology hub to the east of the city – called ‘Silicon Roundabout’ – have centred on the need for a dedicated technology fund.

In a report last June, 'A Tale of Tech City', produced by the Demos think tank, the need to create new finance tools and a dedicated tech enterprise fund were amongst key recommendations.

Finance only part of the equation

Finance is only one part of the package enabling these regions to outperform others however, as initiatives such as the Baltic region’s ‘Startup Sauna’ shows.

The Sauna attempts to push selected startups to develop to a stage of readiness to move into international markets, using coaches drawn from the region’s existing talented entrepreneurs, investors and other professionals.

The twice-yearly Saunas involve preliminary ‘warm-ups’ across Northern Europe and Russia, with 15 winning start-up ideas selected to go forward with six weeks intensive training. The process concludes with the ideas developed into fully formed presentations ready to pitch to international investors.

It was this environment that helped propel successful companies such as Rovio Entertainment. The video game developer behind the blockbuster Angry Birds is a leading supporter of the Start-Up Sauna. The company has raised capital from outside investors such as Microsoft, and now has 500 employees in Finland.

Harri Koponen, Rovio’s chief executive officer, pointed out the policy mix required to create an ‘ecosystem’ in which start-ups can succeed. These include a general corporate environment in which the taxation of start-ups is sympathetic to the fact that there may be a time lag before profits materialise.

In Finland, Rovio was "undoubtedly assisted by a service-driven environment, where the company was only taxed when it started to generate income,” Koponen explained.

Another factor is the impact of education policies on technology start-ups, visible in the Nordic countries where universities are encouraged to commercialise their ideas and generate start-ups, and schools are asked to inculcate pupils with entrepreneurship values.

Teaching technology in schools

At an event in Brussels examining how public policy is boosting the ICT start-up sector, Norwegian Education Minister Rigmor Aasrud said that the country was drawing up a new bill designed to emphasise the greater need for youth to be more exposed to science, technology, engineering and mathematics (STEM) education, in order to expose them earlier to a "technology economy".

Microsoft’s general counsel Brad Smith subsequently backed up this stance when the US technology giant launched ‘Youthspark’, an initiative designed to raise the profile of technology amongst schoolchildren.

Policymakers are also trying to play their part in the tech boom. In a report for European think tank the Lisbon Council, published last October, the EU's Internal Market Commissioner Michel Barnier outlined a range of policy initiatives in the pipeline that designed to assist start-ups and SMEs in the technology sector.

Barnier emphasised a key signal for start-ups was an agreement to launch a unified European patent regime – albeit between 25 EU member state excluding Spain and Italy.

Under the new system, the price paid by technology companies to protect inventions "will be reduced sevenfold,” Barnier said.

Intellectual property and data protection

Intellectual property (IP) is a crucial ingredient of European policy success in the tech sector, according to Koponen.

“IP is a chance to capitalise on Europe as a hub, because on copyright it is already considered one of the world’s best places. So let’s make Europe fast on IP, because then there will be more developers here and there are already good schools, and this will then become a self-fulfilling cycle,” he said.

Not all policies are seen to be working to the benefit of start-ups however. Notably the EU's proposed data-protection rules, now being debated in the European Parliament, have provoked criticism from some in the technology industries.

The EU's draft data protection regime, as it stands, would hit at the hi-tech ‘app’ innovation market, a strong breeding ground for start-ups. “Many of these companies are actually very small, though they need to handle a certain critical number of data subjects in order to develop the apps,” said one industry source who preferred not to be named.

“Placing burdensome administrative requirements on them would freeze them out of the market.”

Koponen, echoed those concerns, saying small app companies lack the extra staff required to handle data.

The need to hire extra staff would represent “an unnecessary and an unwanted process, kind of ‘big brother is watching you’,” he said.

Since 2008 Europe has been suffering the effects of the most severe economic crisis it has seen in 50 years: For the first time in Europe there are over 25 million unemployed.

New companies, especially smaller firms, represent the most important source of new employment: they create more than 4 million new jobs every year in Europe, according to the European Commission.

  • April 2013: European Parliament expected to agree a position on the draft data protection regulation.

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