Is Europe losing its startups?

‣ Relocation of European startups raises concerns about weakening the EU’s innovation ecosystem. A new JRC report provides new evidence on the magnitude and type of startups relocation among European venture capital (VC) backed firms. ‣ The relocation rate of European VC-backed startups is in the order of 3.3% - 4.3%. This number drops down to 0.3% - 0.5% for comparable non-VC backed startups. ‣ Relocation patterns i) differ among startups’ home countries, ii) are higher for asset-light than for manufacturing firms, and iii) happen often in the first years of a startup’s life. ‣ The United States is the dominant destination for relocating startups, in particular the more developed entrepreneurial ecosystems such as San Francisco, Boston, and New York. ‣ Most migrations are not ‘complete’ relocations: 97% of the VC-backed companies that relocate are doing it only partially, i.e., they keep operations in the home country. Only about three-quarters of the CEOs move physically to the new destination when startups relocate. ‣ Startup relocation can be beneficial or detrimental for the country of origin, depending on the context of the firm and its ecosystem. For instance, a ‘virtual’ relocation to tap into VC markets abroad might be positive for firm growth, while losing all activities would be detrimental. Polices ought to accompany startups in their drive to expand to foreign markets, while aiming to retain high-value activities (e.g., R&D) in Europe. These foreign ties will enable positive spillovers to the ecosystem of origin. ‣ To reduce the probability of losing high-value activities framework conditions need to improve. Examples include facilitating access to adequate finance, the supply of skilled human resources, decreasing regulatory complexity, and completing the EU Single Market.