Thank you for that kind introduction. It is a pleasure to be here today. I know that the U.S. Mission to the European Union has worked with the European Young Innovators’ Forum for a number of years, and I am proud that we are a partner of this important event.
Although I have never been an entrepreneur, I have always admired entrepreneurs’ creativity and willingness to embrace change and assume risks. I have met quite a few in my professional career. And I believe that they, not government bureaucrats, are the ones who really drive change, innovation, increased productivity and job creation. You and others like you are Europe’s vital force and future.
But admiration for entrepreneurs is only part of the reason I wanted to be here today. Another reason is that I have some experience in your industry. In the decade prior to starting my current duties as U.S. Ambassador to the European Union, I was active in the private equity industry – initially in the leveraged finance departments of GE Capital and Bank of America, and subsequently as Managing Director responsible for financing and legal issues in a pan-European private equity firm that provides growth capital to small and medium-sized businesses in a wide variety of services sectors, including financial services, healthcare and education.
Another reason why I wanted to be here today is that I am also a European who believes in Europe. I have spent half my life here, I am proud of my Italian heritage, I married a Spaniard and I am teaching my children to be proud Americans and Europeans. I want Europe to succeed and it pains me to see Europe’s continuing sluggish growth and largely jobless recovery that continues to penalize the young in particular. Europe is certainly not short of ideas and is certainly not short on talent, which it continues to export to the United States. There are 50,000 Germans in Silicon Valley and 500 startups in the San Francisco Bay area with French founders.
Just before starting my job in Brussels I had the opportunity to spend two days at H-Farm, Italy’s leading start-up incubator, located a few kilometers from Venice. I felt energized by the passion of the young entrepreneurs there and have helped to connect them to businesses and financing sources, including the Keiretsu Forum, a global community of accredited angel investors. Europe knows what to do in order to promote an entrepreneurial culture; every year the stack of reports setting forth recommendations in this regard grows taller. The problem has been that these recommendations are all too often not implemented.
Today we are meeting at a time of change with a new European Commission and new European Parliament. Many of the changes necessary to promote entrepreneurship will have to be made at the Member State level, including in labor laws and tax and bankruptcy codes; but the EU institutions will play a significant role in creating a single market in the digital economy. President Juncker is completely right in pointing out that Europe cannot afford fragmented regulation, 28 times, for digital products and services: the internet is global and digital technologies do not know geographic borders.
Yes, I know: Europe’s struggling entrepreneurs have heard many fine words before. Will the EU and Member State bureaucracies deliver change now, when pasts proposals have had limited impact? Time will tell, but I take comfort from the initial signs, especially from the economic agenda of the new European Commission.
I note with interest the emphasis in President Juncker’s Mission Letter to the Commissioner for Internal Market, Industry, Entrepreneurship and SMEs on “ways of stimulating investment in new technologies, improving the business environment, easing access to markets and to finance, particularly for SMEs.” Finally, the Commission is recognizing the importance of entrepreneurship by specifically naming it as a core mission in a Commissioner’s portfolio.
And I also note with interest the statement in President Juncker’s Mission Letter to the Vice President for Jobs, Growth, Investment and Competitiveness that “…jobs, growth and investment will only return to Europe if we create the right regulatory environment and promote a climate of entrepreneurship and job creation.” It is significant that a new position has been created to focus specifically on these issues.
Finally, it is significant that President Juncker has identified as one of his top priorities the creation of a fully digital Europe and a fully singly digital market. In his public statements, the President has been very bold in stating that “the Internet and digital communications can transform our economies as profoundly as the steam engine did in the 18th century or electricity did in the 19th century.” He has called upon the new Commissioner for Digital Economy, Guenther Oettinger, to focus on the following: “Contributing to activities that turn digital research into successful European innovation stories, encouraging entrepreneurship and providing a framework that drive start-ups, the take-up of new business and job creation. The Commission needs to play its role in ensuring that promising new developments such as the cloud, the Internet of Things and big data can thrive in Europe and that citizens, innovate web entrepreneurs and other businesses can take full advantage of their potential.”
The new Commission will be building upon important work already underway. Commissioner Neelie Kroes has made entrepreneurship a key focus of her mandate: she created a Start-Up Europe Leaders Club that has published a “Manifesto for Entrepreneurship and Innovation” containing many good ideas of how to stimulate entrepreneurship. These include recommendations relating to the skills and education needed for an increasingly digital economy; making it easier to small companies to start a business and to hire and fire; improving access to capital, including by increasing private and institutional investment in startups; making it easier for high growth companies to access the public markets; and changing the tax code to reward risk-taking. European early stage investors from all 28 Member States have also issued a “Startup Investors Manifesto” on policies and actions to be implemented toward a better investment climate for startups. You can find both of these on the internet.
I think this emphasis is absolutely right. SMEs are the backbone of both of our economies, creating 85% of new jobs in Europe and 63% of new jobs in the United States. The digital sector can grow seven times faster than EU GDP in the coming years. The internet economy in the developed markets of the G-20 is forecast to grow at an annual rate of 8% over the next five years. According to the European Commission, the “app economy” alone will create 3 million new jobs between now and 2018, with revenues tripling to 63 billion euros.
But these opportunities can only be realized if private capital is harnessed. There are literally hundreds of billions of euros of private capital sitting in pension funds and corporate balance sheets waiting to be deployed, including into private equity. Government investment can help in specific instances, such as to catalyze private investments, but it cannot be the solution and should not distract the EU and Member States on improving the climate for entrepreneurs and investors. Some Member States, especially the UK, have taken significant steps to promote the startup economy and are reaping the benefits; others remain suspicious of entrepreneurship.
In Europe there appears to be far greater faith than in the United States that government, or rather taxpayer, money can be instrumental in promoting startups. Last week the European Commission announced that European startups can access EU funding worth 80 million euro if they use an open internet platform to develop their web-based businesses. Last year the Commission announced a new 100 million euro funding round as part of a public-private partnership to develop apps and other digital services. These sums are a drop in the ocean of what is required to promote a vibrant startup economy. More seriously, the programs reflect a questionable assumption that governments are good at choosing winners. It is not healthy that 40% of all the funds pumped into European VC funds last year came from state-backed sources (much of it from the European Investment Fund), up from just 14% in 2007. A number of studies have shown that the track record of the public sector as a direct investor is weak.
In order to attract more private capital, the European VC industry will have to improve the returns it has delivered to its investors – just 2.1% a year since 1990, making European venture capital perhaps the worst investment class outside Japan. In order to improve returns, the regulatory climate for entrepreneurs and investors in startups will have to be improved considerably.
Yes, Europe has had notable successes, including Spotify, Rovio and Minecraft. But significant regulatory and cultural change needs to happen in order for the next generation of Apples, Facebooks and Microsofts to be European. There are many vectors of future growth, but among these the sharing economy clearly offers enormous opportunities; the European Commission has estimated that it can generate 25% growth per year.
Experts at MIT estimate collaborative consumption to potentially become a $110 billion market. BlaBlaCar, the French startup that created an online ride-sharing service to match drivers with passengers in need of a ride, recently raised $100 million from European and American venture firms. Airbnb and Uber show that the sharing economy can work in many sectors, not only tourism and transport but also equipment hire and finance. The market for peer-to-peer lending is recording growth rates of about 250%.
You in this room and others like you have the opportunity and the responsibility to push for the change and to convince the bureaucrats to unleash the market forces that will drive the growth, innovation and competitiveness upon which Europe’s future depends. Don’t give up!