EU proposes new rules to boost start-ups and catch up with the U.S. and China on tech

LONDON — The European Commission, the executive arm of the EU, proposed Friday a new set of start-up standards for member states to adopt as the bloc seeks to play catch-up with the U.S. and China.

The EU Start-up Nations Standard calls on countries to change their laws on stock options and immigration visas so that start-ups can attract the best talent from anywhere in the world.

So far, 25 countries across Europe have signed up to the framework. The only ones that haven’t are Hungary, Bulgaria and Croatia. Those that have signed up will now be expected to change their rules over time.

“We need more start-ups in Europe that grow quickly into innovative small and medium-sized enterprises (SMEs) and then eventually scaling up into even large successful corporations that contribute to Europe’s digital sovereignty and strategic autonomy,” the Start-up Nations Standard reads. “To do so, start-ups in every corner of the EU need favorable and fair conditions to grow at every stage of their life cycle.”

Tech founders in Europe have long called for reforms to help start-ups flourish and catch up to the U.S. and China, which have produced the world’s largest digital companies. In the U.S., there’s Google, Facebook, Apple, Amazon and many others, while in China there’s Alibaba, Tencent, Huawei and Xiaomi. All of these firms are substantially bigger than Europe’s largest tech companies.

One key complaint in Europe has been around employee stock options, which give start-up employees the chance to own a slice of their company.

The Start-up Nations Standard says that employee share options should not be subject to capital gains tax until they are cashed in and that start-ups should be allowed to issue stock options to employees with non-voting rights.

It also says that the process for creating a new company should be fast-tracked to just one day, and cost less than 100 euros ($119). Visa processing times should also be accelerated, it says.

Last year, Germany said it would introduce new legislation on stock options, as well as other reforms to incentivize investment into the country’s tech sector.

Thomas Jarzombek, Germany’s commissioner of the Federal Ministry for Economic Affairs and Energy for the Digital Industry and Start-ups, said on Friday: “At the beginning, there might have been some irritations about the positions from Germany, but that shows that this is a truly good initiative, because it helped us in the government also to defeat these forces which were too bureaucratic.”

Meanwhile, France has also sought to improve stock options policies for start-up staffers.

A number of European start-up executives and venture capitalists welcomed the commission’s proposals this week.

Hanno Renner, CEO and founder of German human resources software unicorn Personio, said Europe needed “effective startup policies — most importantly those that govern employee ownership  — to enable startups to attract the best talent globally.” Index Ventures Partner Martin Mignot called for a harmonization of start-up policies across Europe, and said the EU’s Start-up Nations Standard was “a step in the right direction.”

Mignot told CNBC: “It’s essential that these commitments are turned into legislation urgently … we stand ready to support governments as they move forward to implementation.”

European start-ups last year attracted more than $41 billion of funding, according to a report from the venture capital firm Atomico, setting a fresh record in terms of annual tech investment and shrugging off the devastating economic impacts of the coronavirus pandemic.

— Additional reporting from CNBC’s Ryan Browne.