Regulation in Europe has become a meme. While designed to protect, it too often limits the scale of ambition on the continent. With the rise of globally complex and ever-changing new technologies, like AI, European founders can no longer afford to be left behind. 

Across Europe, founders face a series of hurdles in tax, enforcement, legal frameworks, and finances that make it harder to compete globally. The adage used to go. The US innovates, China imitates, and Europe regulates. It’s oversimplified and unhelpful, but for many, there will always be a nagging doubt that Europe will prioritize slowing promising technology over promoting growth. 

While Europe is still an attractive place to build and grow a business, structural challenges remain for founders looking to build generational companies on the continent. The US remains the gold standard for company incorporation, hiring, fundraising, and its loose regulatory framework. Europe must do more to avoid losing strong companies as founders look to the US for easier pathways to growth and innovation. Europe is the best place to live for people, and it also needs to make it the best place to build a business.

For example, earlier this year, Dutch cloud communications startup Bird decided to quit Europe for the US, citing restrictive regulations, particularly around AI. Similarly, Job van der Voort, founder at Remote, previously told founders to leave Europe due to the EU's 'overboard' tech regulation. Instances like this must remain the exception rather than the norm and should be a warning signal. 

These cases are emotional symbols of a deeper structural issue: when regulation diverges at the national level, founders spend more time decoding rules than building products, and capital follows the path of least friction and biggest scale. Entrepreneurs face 27 versions of every rule; fragmentation remains one of the biggest blockers to scale.

As the Draghi Report outlined last year, remaining trade frictions in the EU mean that Europe is leaving around 10% of potential GDP on the table. Creating a true Single Market, enacting frameworks like the 28th Regime, and looking to reduce regulatory fragmentation are crucial to unlocking economic growth for Europe. In fact, obstructions to trade within the EU are equivalent to a 100% tariff for services, and a 65% tariff on goods, according to the European Central Bank.

In 2022, we did a comprehensive survey of European VC, with 437 European investors responding, and it was clear that one of the continent’s biggest issues is market fragmentation. 87% stated that the European market is fragmented, causing competitive disadvantages and barriers to the growth of the ecosystem.

Peter Windischhofer, Founder of refurbed, summarises the issue for founders well: “I would harmonize business rules across the whole EU, from taxes to regulation to bureaucracy. We operate in 16 different countries; it's 16 different rules.”

“While they are somewhat similar, we have to adapt to every single one of them, and it's simply too much.”

In this Build in Europe article, we examine the areas that the continent must address to achieve regulatory clarity, consistency, and portability, to remain competitive. We spoke to Andreas Klinger, founder of EU-INC, Thomas Jarzombek, German Bundestag member and Parliamentary State Secretary to the Federal Minister for Digital Affairs and State Modernization, Conor McNamara, CRO EMEA at Stripe, plus several tech founders and CEOs, including from companies like Bitpanda, refurbed, Uniqa, Payhawk, and ARX Robotics.

“Europe’s biggest strength is its size, and its biggest problem is fragmentation. Anything that unifies and standardizes, especially to create access to liquidity, does the continent a big favour,” Andreas Klinger, the founder of EU-INC, said.

Speedinvest's Policy Proposals:

1. Simplify digital compliance

2. Harmonize sector-specific licensing

3. Fix public procurement

4. Unify Company Formation

Simplify digital compliance

Regulations like the AI Act and GDPR are important, but enforcement must be predictable and coordinated. Today’s patchwork creates more confusion and drives startups abroad. In May, the European Commission announced a €400 million administrative cost-cutting package for EU businesses alongside the Single Market Strategy, and in order to encourage companies to choose Europe.

“It’s a good idea to have some regulation around AI, but we see it firsthand every day when we try to innovate,” said Christian Trummer, Co-founder at Bitpanda. “We always need to ask ourselves, Is this actually compliant with the EU AI Act? Sometimes we have to say, No, we can’t do that. That would be a nice product, a nice feature, but it would be too much hassle to build that in a compliant way. That holds us back from innovation.”

And the AI Act shows again that the rules are often especially a barrier for smaller companies. Developers and operators must take appropriate measures to ensure that end users know that they are interacting with AI or verify all used vendors. Both areas pose greater challenges for start-ups and expose them to the risk of penalties if they do not follow the rules. For smaller companies, tracking new regulations is cumbersome, expensive, and risks repeating the GDPR pattern: rising compliance burden, unclear guidance, and outsized reliance on consultants rather than clarity.

Each of these frameworks is important on its own, but the real burden emerges in the cumulative effect of inconsistent enforcement, overlapping obligations, and unclear timelines. Startups face regulatory drag not because rules are overly strict, but because they are unevenly applied or often impossible to understand.

As Jarzombek, a German MP, puts it, “Even when EU regulations are in place, like GDPR, implementation varies widely from country to country. We need to advance the Digital Single Market and the Capital Markets Union. Both are key to scaling.”

A major part of that complexity comes from the pace of regulatory adaptation. Technology now evolves on quarterly cycles, but enforcement guidance can lag years behind, leaving founders unsure how rules apply to real-world use cases in AI, defense, and deep tech.

Regulation in and of itself is not the issue, but inconsistent implementation causes confusion and additional bureaucracy. “What we need is a more consistent enforcement practice,” according to Jarzombek.

Accessing EU funding remains far more complex than it should be. Many startups face lengthy applications, unclear requirements, and slow decision cycles, which often push founders toward simpler funding environments abroad. 

Although funding programs sit outside digital regulation, they mirror the same challenge: ambitious frameworks without predictable, accessible pathways. As Klinger notes, models like India’s UPI and eKYC show how streamlined systems can ease the burden for both consumers and businesses.

Speedinvest Proposal:

• Create a single EU enforcement body for data and AI rules to guarantee consistent interpretations, eliminate overlapping audits, and reduce compliance uncertainty.
• Digitise routine company actions across the EU by replacing outdated notarial requirements with secure digital authentication, following models from Denmark and Estonia.
• Standardise EU-wide technical formats for compliance documentation so companies don't produce different versions for different Member States.
• Introduce predictable, transparent compliance pathways for startups, including clear regulatory-guidance timelines for emerging technologies.
• Provide a single EU compliance dashboard with pre-approved templates, one submission interface, and unified filing workflows (data breach reporting, cybersecurity, AI Act disclosures, GDPR notices).
• Introduce staged / proportional compliance for startups with lighter obligations based on company size and risk profile.

Harmonize sector-specific licensing

The second big problem is that regulated startups, particularly in key areas like healthtech, fintech, and defense, must re-license in every market, wasting time and capital. Smart regulation like the Payments Service Directive (PSD2) in financial services has demonstrated that when done well, regulation can foster innovation rather than hinder it. But this doesn’t always mean that things are smooth sailing.

PSD2 is often held up as a model for how coordinated regulation can unlock entire industries. It opened the door to open banking, enabled new payment providers, and created the infrastructure for Europe’s fintech boom. But even PSD2 shows the limits of harmonization in a fragmented union.

“In our case, in financial services, it is still a very fragmented market,” added Hristo Borisov, founder at Payhawk. “Even though there is a payment service directive trying to synchronize a lot of this, regulators still apply the law differently, creating different experiences. For example, when onboarding a company from Spain or from France, expectations vary completely.”

For founders, this means cross-border expansion is not simply operational but regulatory, requiring multiple parallel onboarding and compliance processes that drain resources at exactly the stage they need velocity.

Fintech has shown that passporting can accelerate innovation, but the principle applies far beyond finance and is one of the reasons why European fintech is often leading globally. But also Health and T, Climate Tech, energy, and defense increasingly depend on the ability to deploy regulated technologies across borders. Europe’s most strategically important sectors are also its most fragmented ones.

Licenses in these sectors are national, not EU-wide: A fintech licensed in France can’t operate automatically in Germany. Healthtech startups, for instance, face different clinical approval regimes in every country. If we want the full benefit of one large market, this needs to change.

And the speed of execution is not a luxury for regulated industries but a competitive requirement. As Andreas Brandstetter, CEO at Austrian Insurance Group Uniqa, told Speedinvest, “we can’t just rely on politics. The private sector must lead by example.” Without faster regulatory cycles, sectors like defense and healthtech simply cannot keep pace with global competitors.

Chief amongst them is ARX Robotics, a company deploying unmanned ground systems for modernized defense operations. 

In defense, especially, iteration speed is itself a strategic differentiator. As Röbel, co-founder of ARX Robotics, adds, “The party that iterates fastest will be the winner of future conflicts.” Regulation that treats defense like any other slow-moving industry risk with long decision cycles is holding Europe back at a geopolitical moment that has changed faster than the continent’s licensing regime. 

Beyond that, Europe needs to streamline processes for digital one-stop shops, putting an emphasis on creating a digital stack that can work across a variety of use cases. 

Speedinvest Proposal: 

• Introduce EU-wide license passports for regulated industries. The EU creates a unified, simplified licensing regime for startups in sectors that are fragmented, following similar regimes like MiFID passporting.
• Streamline sectoral oversight with shared digital registries to do business across all member states. A single EU-hosted portal where startups can upload documents once, pre-validate compliance with EU core standards, and file applications to multiple member states with one click and with guaranteed timelines. National regulators are integrated into the system through APIs.
• Ensure the transferability of licenses to other markets to avoid 27 sets of rules for businesses. 

Fix public procurement

Jarzombek observes that “we are world champions at creating rules, not at turning ideas into innovation,” and nowhere is this clearer than in public procurement. Europe’s procurement systems were built for incumbent vendors, not fast-moving technology teams.

Around 250,000 public authorities spend €2.5 trillion every year on the purchase of services, works, and supplies, about 16% of GDP, according to the European Commission. The state is ultimately the largest potential customer in Europe, with billions to spend each year, much of which could fuel the procurement market.

Europe’s public procurement system excludes startups. Governments must act as early customers, not just a regulator. As Jarzombek puts it, “the state should act more often as an anchor customer. It should launch competitions for products that don’t yet exist.” Access to public markets and contracts for startups is uneven, bureaucratic, and risk-averse. Even when funds exist, the administrative burden of applying and reporting is often a deterrent for startups.

Procurement is where Europe’s innovation ambitions often collide with reality. Startups cannot validate technologies without early customers, and in many domains, governments are the only buyers large enough or credible enough to test emerging solutions, and therefore, they often exclude the public sector from day one.

Back in February, the European Commission published its roadmap for reforming the EU’s procurement framework, a step in the right direction. That process focuses on two main areas: the extension and simplification of binding non-pricing criteria in public procurement, and the use of joint procurement to build up strategic stockpiles of critical raw materials. Both are crucial steps, but Europe needs to go further to remove barriers for startups. 

In particular, Europe needs to establish a passporting system, similar to in compliance, that enables startups with successful government contracts in one EU country to qualify for procurement opportunities in other member states, stimulating innovation in public procurement processes for strategic sectors like defense and cybersecurity. 

Just as passporting breaks barriers in financial services, procurement passporting would allow proven solutions to travel across borders without forcing startups to restart long, bureaucratic qualification cycles.

Defense has increasingly become a major sector within European innovation, spurred by the war in Ukraine and increasingly uncertain global threats. A new wave of tech companies serving European defense is emerging.

“We need to add the ability to iterate fast and build systems at scale in short cycles… regulation must support this,” Röbel told Speedinvest. Ultimately, country-specific rules often hinder fast growth.

Defense startups that iterate weekly face procurement and testing frameworks built for decade-long cycles. While top-down changes to regulation are important for the innovation economy, there’s always more to be done. 

Procurement competitions “attract venture capital and demonstrate public demand for startup solutions,” according to Jarzombek.

Speedinvest Proposal:

• Milestone-Based Pre-Commercial Procurement: Launch small, fast, low-risk public contracts modeled on Germany’s microlauncher competition, requiring public buyers to pilot and validate emerging European technologies.
• Require public buyers to test emerging European technologies. Create small, fast, low-risk procurement contracts with shorter durations and lighter requirements.
• Publish a 6–12 month pipeline of upcoming tenders with faster, more predictable decision cycles. 
• Build a unified, simplified digital procurement portal with one login, one identity, and one standard workflow. Standardize procurement templates and documentation across ministries and Member States.

Unify Company Formation

Ensuring that companies are able to grow across Europe from day one is crucial to the success of the wider ecosystem. As we discussed in our previous Build in Europe article focused on attracting top talent to the continent, the key areas of concern revolve around company formation and ESOP.

An initiative like EU-INC, a proposed pan-European standardized legal entity, would aid in providing easy and digital company formation without the need for a notary. Founders want to start a company online in minutes, not wait days and pay for mandatory paper processes.

As Conor McNamara, CRO EMEA at Stripe, adds: “administrative processes like company formation remain excessively complex; what takes a day in the US can take three months in parts of Europe like Germany.”

For McNamara, slashing the burden of time on businesses is crucial to growing the wider ecosystem. “European governments should prioritize… drastically slashing regulatory burdens for startups and scaleups. This means enabling company creation within 24 hours, fully online, for less than 100 euros, which is the kind of approach championed by initiatives like EU-INC,” he said.

In a recent survey of Austrian founders conducted by Speedinvest that will be announced soon, respondents indicated that the number one law or regulation that they would want to see changed is to have a simple, fully digital start-up process (without the need for a notary). 

Solving this problem is just one step towards creating a more innovative Europe, where ideas lead straight into execution. The same is true for stock options and ESOP, where each country has its own rules and regulations, stymying international growth for fast-growing companies. 

Ideally, the tax policy for stock options and VAT invoicing would be standardised under one European administration to simplify and unify existing processes and reduce fragmentation. 

Similarly, KYC processes, both for investors and companies, could be similarly centralised, unlocking precious time for businesses to focus on growth. 

These regulatory processes could also be simplified by the 28th regime, or something similar. The idea is straightforward. Instead of forcing startups to navigate 27 slightly different versions of the same rulebook, Europe could offer a single voluntary framework that overrides national discrepancies. This gives startups a predictable foundation for scaling without waiting for full political harmonization.

As the EU’s startups commissioner, Ekaterina Zaharieva, recently warned, a directive-based approach risks recreating the very fragmentation it aims to solve. “We’re not asking member states to replace their own regimes,” she argues, “but equal implementation everywhere is essential.” We now all need to push the member states so that this great initiative does not get destroyed by the member states.

Speedinvest Proposal:

• Launch a fully digital EU-INC structure that lets founders incorporate online in minutes with automatic cross-border recognition.
• As part of it create a unified 28th-regime ESOP framework to standardise employee equity rules and tax treatment across the EU.
• Establish a single EU register for incorporation, cap tables, and beneficial ownership to streamline expansion and compliance.
• Standardise digital identity verification, signatures, and corporate onboarding, such as KYC, to eliminate fragmented national processes.

From Rules to Growth

Europe ultimately needs less regulation. But where regulation already exists, more work can be done to ensure that it’s better: portable, predictable, and pro-growth. Unifying the rules of innovation is the surest way to scale innovation itself.

As a recent Economist article pointed out, the European Commission is to regulation what Champagne is to sparkling wine, a world leader. Attempts at deregulation are the surest way to drive innovation across Europe. Rather than add new rules, adding to bureaucracy, Europe needs to look to reduce its regulatory burden at a supranational and national level. 

“When it comes to working with policymakers, it’s not about being louder or having more ideas. It’s about creating signal within the noise,” Klinger says. “Focus on one well-defined solution, align the whole industry behind it, and push that. Fifty people speaking about one issue have more impact than one person with fifty ideas.”

Build in Europe is ultimately about changing gear. It is about taking what already exists, cutting the drag, and giving founders, executives, investors, and talent the speed they need to build generational companies. Europe excels at writing rules. Now it must excel at updating them or removing them quickly enough for innovation to flourish.

Europe’s competitive advantage should be its ability to align across 27 markets and the UK. Finding strategic alignment and removing barriers to growth can no longer be limited to individual countries’ bureaucracies, but rather should be streamlined to ensure that the best practices from individual states come to reflect a greater, unified single market.