In the early 20th century, Delaware transformed its fate and the global economic landscape by embracing a business-friendly approach. This strategic decision, made over a century ago, has had lasting impacts, serving as the bedrock for modern industries ranging from technology to automotive.
In 1913, Delaware capitalized on New Jersey’s stringent corporate policies by creating a welcoming environment for businesses. The state streamlined its corporation registration process, reduced red tape, and became an attractive hub for companies across the nation. While initially aiming to attract traditional industries like steam engines and gunpowder, Delaware’s innovative structure unexpectedly paved the way for the success of contemporary giants in sectors like smartphones and electric vehicles.
Europe faces a similar crossroads today. Despite producing successful companies like Adyen, Spotify, and Revolut, European entrepreneurs encounter significant challenges when scaling their businesses compared to their American counterparts. According to MIT’s Andrew McAfee, the valuation of European startups that have gone public in the last 50 years is around $420 billion, starkly contrasted with the nearly $30 trillion valuation of similar U.S. companies.
This disparity highlights the hurdles of fragmentation in Europe. A U.S. startup, structured as a Delaware Inc., can effortlessly raise capital and expand nationwide. European startups, however, must navigate a complex web of regulations and employment codes across different countries, complicating their growth trajectory.
Challenges in the European Startup Landscape
The absence of a unified market for startups in Europe results in 27 distinct regulatory environments. This fragmentation stifles growth and limits the success potential of new ventures. A report by Mario Draghi, former Italian Prime Minister and European Central Bank President, emphasized the need for increased investment in the EU, which currently attracts only 5% of global venture capital compared to the U.S.’s 52%. Regulatory challenges are cited by over 60% of European companies as a primary investment barrier.
Despite these challenges, there is a growing movement towards the creation of a pan-European corporate entity, EU–INC. Unlike Delaware Inc., this would not be a direct copy but a new standard that simplifies business formation across Europe. With EU–INC, entrepreneurs could seamlessly incorporate, raise funds, and expand operations throughout the continent, benefiting from standardized investment and employment practices.
The EU–INC initiative has gained significant support, with over 18,000 signatories and backing from prominent figures and organizations like Mistral, DeepMind, Stripe, Supercell, Index Ventures, and Y Combinator. European Commission President Ursula von der Leyen has also expressed commitment to necessary reforms.
However, concerns arise as discussions in Brussels lean towards incremental changes rather than a comprehensive solution. Partial measures may not address the root issues of fragmentation or provide the competitive edge Europe needs to foster innovation and economic growth.
Delaware’s bold move in 1913 catalyzed a century of American economic leadership. Embracing a similar approach with EU–INC could position Europe as a global innovation leader, providing a fertile ground for businesses to start, scale, and succeed.
More information is available at eu-inc.org.
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Original Story at fortune.com