EU Unveils Plan to Relax IPO Rules to Boost Deep Tech Funding

The European Union has published the European Innovation Agenda, a new plan that would help startups and scaleups in Europe to obtain private funding, have access to public markets or use stock options for employees, according to a Tuesday (July 5) press release.

The EU presented a list of 25 actions that will help to increase the number of deep tech startups in Europe by attracting 45 billion euros (about $46.1 billion) from private investors. Deep tech is an umbrella term for advanced technologies, including artificial intelligence (AI), blockchain and quantum computing.

After the EU lost the race over consumer tech, and arguably over cloud computing, it doesn’t want to repeat the same mistakes with some of the latest technologies, although competing with the United States and China, the two superpowers in some of these areas, won’t be an easy task.

“The new European Innovation Agenda will ensure innovators, startups and scaleups, their innovative businesses to become global innovation leaders,” said Commissioner for Innovation, Research, Culture, Education and Youth Mariya Gabriel in the release.

While 2021 was European startups’ biggest funding year to date, the EU has far fewer deep-tech firms than the U.S. and China. The European Commission attributed this to the “fragmented and risk-averse nature” of venture capital markets in Europe, Bloomberg reported.

“Europe needs to draw in institutional investors to invest in deep-tech innovations,” Gabriel said, per Bloomberg. “…This can result in companies relocating their corporate headquarters to Europe.”

The 25 actions under five pillars, will seek to address issues like facilitating companies to list their companies in Europe, lure venture capital firms to invest in EU companies, create “regional innovation valleys” or even offer new options to companies to retain talent in Europe, according to the release.

In this regard, the EU said that it is “losing the global race for talent,” with researchers and academics moving to the U.S. where salaries are higher, Bloomberg reported. The commission will launch an initiative to train 1 million people in deep tech, backed by 20 million euros (about $20.5 million) from the EU budget with further contributions coming from public and private organizations.

Another important initiative on the EU’s agenda is the EU Listing Act. This new law, which may be put forward by the end of the year, will “simplify” listing requirements. This could also include a proposal to EU countries to match their regulation regarding dual class share structure.

Additionally, the new rules will allow founders and families to retain control of the companies post-listing, while raising funds. The proposal also includes regulatory sandboxes, so startups can experiment with flexible regulation without fearing that they may be breaking any rules.

However, the effectiveness of some of these measures is yet to be seen. For instance, the EU is planning to help startups to offer stock options to new employees with the aim of hiring or retaining talent. This gives employees the chance to cash in when the company grows.

Yet, entrepreneurs have largely complained that tax treatment of stock options in some EU countries is unfavorable, and to make things worse, the European Commission has no power to change the countries’ regimes, as taxation is a matter of national legislation. The EU could urge countries to harmonize their tax schemes or come up with an EU scheme if there is agreement among EU member states, which have been very elusive for any tax proposal in the past.

Public Investment

While the European Innovation Agenda will mostly focus on access to private investors and public markets, the European Commission has also committed significant public resources to boost investment in key technology sectors.

In this regard, the EU is proposing the European Chip Act in which the institution will provide 11 billion euros (about $11.3 billion) for research, design and manufacturing of semiconductors. The measure sets a goal of marshalling 43 billion euros (about $44.1 billion) in public and private investment.

Read more: Europe Continues Regulatory Spree With European Chips Act