European Business Creation After Brexit: No Longer Dominated By One Ecosystem
Entrepreneurship in Europe has increased steadily in the last five years: Business creation grew 13% from 2012 to 2016, according to statistics updated in November by Eurostat.
The UK especially boosted the bloc in rate and volume -- business creation grew 35% in that time. The country’s robust ecosystem of investment, access to talent and business-friendly legal framework made Britain the entrepreneurial center of gravity in Europe.
But with the UK set to leave in March, that is likely to change.
A new analysis and compilation of business creation data from Eurostat shows a wider geography of entrepreneurial leaders are set to make up Europe's venture creation economy post-Brexit.
France, which has aimed to reduce bureaucratic barriers to entrepreneurship, is driving volume in business creation. Ireland has welcomed global tech, bolstering a local startup scene creating high-growth and resilient enterprises. Baltic countries with nimble founder-friendly policy are driving business birth rates. Founders in southern European countries, such as Portugal, are increasingly taking on the new venture risk.
“There used to be this saying that the next great bet for tech company will be within a bike ride from Cambridge or Oxford,” said Natalie Novick, research editor at Tech.eu. “That really isn’t the case anymore because you have great things happening on the continent that in the past there wasn’t the support for or understanding of.”
Where Businesses Live
France created 346,804 new businesses in 2016, about 10% behind the UK, and Tech.eu research from November shows that the country is nearly even with the UK when it comes to early-stage funding.
“We’ve seen this growth in France for business creation,” said Novick. “It’s something the country has worked hard to do, really changing the culture, mindset and approach to entrepreneurship and putting a lot of public support behind that.”
Spain, Italy and Poland, follow in volume ranking. Germany is next, though its business creation rate has actually declined.
Where Businesses are Born and Die
However, business creation volume is largely impacted by the population and geography of the country itself. When comparing business creation (births) with business failures (deaths), a few surprising ecosystems come to light.
France’s high volume of business creation statistics are bolstered by the comparison: It had double the business births compared to business deaths in 2016. But smaller countries are also surprisingly strong. In Lithuania, three businesses were born for every one that died in 2016. And in Ireland eight businesses were born for every one that died – though to be fair, it only created about 5% of the businesses that France created in the same time.
Enterprise birth and death rates add further nuance to the picture.
High birth rates— which is the number of enterprise births divided by the number of active enterprises-- are scattered across the continent, showing that business creation is growing outside Western Europe. Baltic states Estonia, Latvia and Lithuania show a particularly high enterprise birth rate, as do Malta, Portugal and Iceland.
Business failures, however, are just as stratified: Bulgaria, Portugal, Denmark and Slovakia have some of the highest business death rates.
It isn’t necessarily bad, however, if countries have both a high enterprise birth rate and death rate such as in Portugal, said Novick.
“When you’re starting a lot of things and failing a lot of things, that means you’re trying,” she said. “That’s the entrepreneurial mindset.”
Where Businesses Survive and Thrive
Business creation will only bolster Europe’s economy if those ventures stick around. Looking at five-year survival rates and share of high growth enterprises reveals another set of promising ecosystems post-Brexit.
Five-year survival rates offer insight into the ecosystems that can support business over time.
Ireland took the top spot retaining 80% of businesses over a half-decade as of 2016. Belgium followed with 64% and Sweden with 60%.
Share of "gazelles," or high-growth companies that grew 10 percent year-over-year among active enterprises, indicates the ecosystems where business creation has a hand in driving economic and employment growth.
As of 2015 (the most recent statistics available), Ireland took the top spot with 16.32% and Malta following closely behind with 16.19%. Spain—which also had a high rate of business creation in 2016—was next with 13.92%.
Thomas Kösters, cofounder and CEO of the European Startup Initiative, said these metrics reflect the growing strength he's seen in Sweden, Ireland and Spain.
“If you look at the popularity of places, you see that overall second-tier hubs catch quite a lot of founders,” said Kösters.
While the UK was formerly the entrepreneurial center of gravity, these smaller ecosystems are offering a new variety of settings for founders to grow.
“You don’t have this winner takes all mentality anymore,” he said. “Founders are taking other options into consideration.”