'It can’t be yesterday's innovation' – impact voices weigh in on EU’s new scaleup plan

In early January 2025 European Commissioner Ursula von der Leyen established a parliamentary working group for startups and scaleups, hoping to lay the ‘right framework conditions’ for European innovation. Among the group’s goals is the establishment of a ‘28th regime’ for innovative startups, launched last week.

A harmonised innovation framework

For all its recent efforts, the EU’s startup scene – and the impact community along with it – is still struggling to attract the talent it needs, and seeing success stories quickly turn their attention to outside markets rather than scaling further in Europe.

The reason, or at least one of the reasons, is simple. The EU, despite its various mechanisms to unite the member states, is still fundamentally 27 individual markets, all with their own legal and administrative rules.

"Right now, scaling across Europe is like trying to navigate 27 different obstacle courses simultaneously," says Jana Bour, Director of Policy and Advocacy with the impact investment network Impact Europe. "Every country has its own set of rules, from corporate law to taxation, making it costly and complicated for impact-driven startups to expand beyond their home markets. For ventures with a purpose-driven mission, this is a massive barrier. They’re spending more time dealing with red tape than actually growing."

The 28th regime aims to fix this by allowing startups access to a voluntary harmonised status across the single market. It’s something many innovation- and impact-focussed groups have lobbied for, but is yet to come to fruition.

A political minefield

One of those working in Brussels to make it happen is Pascal Canfin, a Member of the European Parliament (MEP) with the Renew Europe bloc. He tells Impact Loop that the continent is lagging behind its global competitors, in part because of market fragmentation.

"We create as many startups as the US, but when it comes to scale, we are far behind," says Canfin. The problem is compounded by how easy it is for companies to turn to secondary markets outside the EU, once established in their home country.

"You just make all the paperwork once, and you have the whole US market," says Canfin. On the other hand, "if you want to move from Italy to France or from Germany to Sweden, you have to change everything."

While the idea of a unified framework for startups to operate in sounds like an attractive prospect, not everyone is on board. There is some resistance from trade unions, for instance, who fear national labour laws could be degraded by an EU-wide regime.

Posing a much larger political obstacle than the unions are the individual member states and policymakers who are against the idea, as it looks to them like ceding further sovereignty to the EU. This is an age-old tension within the EU, as some push for a more complete union while others fight to retain autonomy. In the case of the 28th regime, taxation is one of the thorniest issues.

Take stock options, for example. A more harmonised regime for offering options to prospective employees – one of the main ways startups attract talent – is a key part of the 28th regime.

But some member states are wary of anything that looks like fiscal matters are being taken out of their hands. So, the approach Canfin and others are advocating is to harmonise the tax status of options holders, while leaving the actual rate of taxation to the states where employees are based.

"We’re not trying to create a 28th tax regime," says Canfin. "The point is that if you are an entrepreneur and you want to create some harmonised way to manage your capacity to attract people within Europe, you can use the single stock option regime, and then if you hire somebody from Italy, it will be taxed that way, if you hire somebody from France, another way."

Getting funds where they're needed

While the 28th regime initiative is still early, the problems it seeks to address are already very present for the impact investor community. Servane Metzger-Corrigou, Chief Impact Officer with Ring Capital in Paris and active in the pan-EU #United4Impact initiative, says it’s common for regulatory fragmentation to be such a hassle as to make funds give up on opportunities elsewhere in the EU.

"We really think having this possibility of a 28th regime, where all startups, and impact startups, have a regime that can be understood by investors, this is a very interesting tool," says Metzger-Corrigou.

What counts as 'innovation'?

There is one particular concern for the impact community here, and that’s the definition of ‘innovation.’ The Draghi Report, which advocated for a 28th regime among other competitiveness initiatives, described the creation of an ‘Innovative European Company’ to benefit from a harmonised status.

While the technical criteria of ‘innovation’ are not clear yet, it’s expected they will look at things like R&D expenditure and IP ownership. Some in the impact community worry that purpose-driven startups might be passed over by such criteria.

Malo Bourel-Weeger, head of public affairs with Impact France, says that while the regime is a "promising initiative," it is critical that startups with social and environmental purpose be included.

"If you want to have more and more scale-ups in Europe, we need to also focus on the solutions that can solve tomorrow's problems," says Bourel-Weeger. "It can't be with yesterday's definition of innovation."

The barriers for European impact start-ups and scale-ups are myriad, and the 28th regime proposes to solve only some of them. Other big issues, such as fragmented capital markets and institutional confusion over what separates ‘sustainable’ and ‘impact’ investments, for instance, remain to be solved.

"If we want to foster a thriving impact ecosystem, we need more robust funding options alongside streamlined regulations" said Impact Europe's Jana Bour. "That means building up a stronger pipeline of impact investors, from venture capital to hybrid finance and philanthropic funds, to fuel the growth of purposeful innovation."

Despite these other challenges, all the people Impact Loop spoke to agree that, particularly in light of a shifting global landscape, it’s crucial the EU becomes more united in its innovation efforts if it is to keep up.

"When you compete with American or Chinese startups, they already benefit from a single legislative and regulatory framework,” says Impact France’s Malo Bourel-Weeger. "So it’s important for Europe to converge to one organised framework."