Founders and VCs back a pan-European C corp, but an ‘EU Inc’ has a rocky road ahead

It’s become a common refrain in political discourse: Europe needs to take radical action to remain competitive. On the long list of potential reforms, one that’s gaining particular traction is a new, EU-wide corporate status for innovative companies.

Known (somewhat obscurely) as the “28th regime,” the innovation is being billed as Europe’s answer to a Delaware C-Corp, and would add to what already exists in the EU’s 27 member states. It is now supported by an entrepreneur and VC-supported grassroots movement that also brought along the much more palatable name of “EU Inc” — and some unexpected momentum. Launched on October 14, the EU Inc petition has already attracted some 11,000 signatures.

The U.S. connotation of the term Inc is not a coincidence; while startups and VCs all over the world are now familiar with the Delaware C Corp, Europe still has a gap in that regard. An existing formulation dubbed ‘Societas Europaea’ (Europe does love its Latin) was aimed at larger companies but has failed to gain traction or any widespread usage. As a result, expanding across the continent is still a demanding process that needs to be conducted country by country, adding to the reasons why pan-European tech champions are still a rarity.

Seeing as a new company vehicle would likely facilitate cross-border investments into European startups, the EU Inc petition has been endorsed by entire VC firms and a who’s who of startup founders and investors, such as Niklas Zennström and Patrick Collison. 

One of the petition’s four leaders, entrepreneur-turned-investor Andreas Klinger, is reminded of how all his first companies ended up being UK Ltds because at the time, the ability to distribute options was so tortuous in places like France or Germany. He says the main issues for startups in Europe are “very fundamental structural problems.” He and the EU Inc backers have effectively marched on the EU Commission. “A, the startup community needs this and wants this; B, it has urgency; and C, make sure it’s implemented the right way,” he told TechCrunch in an interview. 

In a recently added roadmap, the EU Inc movement set out the goal to submit its final petition on December 1, with hopes that the new college of EU commissioners taking office then will make it part of its agenda for the next five years. 

It will certainly help that the call has tacit support from inside the house, or rather, the European Commission, with recently commissioned reports from Enrico Letta and Mario Draghi both vowing for a 28th regime, not to mention President Ursula Von der Leyen herself. But with so many problems and sectors competing for attention, the campaign will have to be careful not to lose momentum. Hence the campaign’s call for the European startup ecosystem to unite around the initiative.

Rallying does seem well underway, in no small part by way of French startup and VC lobby organisation France Digitale. Its working document calling for a 28th regime was already in the works before the EU Inc campaign took off, and has now been endorsed by several other startup associations across Europe. 

This kind of national support could be key for success; but perhaps even more so, given the level of detail included in the proposal that France Digitale penned and amended after conversations with peers. For instance, co-author Antoine Latran pointed out to TechCrunch, it calls for a “regulation” rather than a directive to avoid unwanted differences in national transpositions. This is one of the lessons learned from the Societas Europaea, a cross-border legal form that France Digitale says “has proven to be virtually unworkable for startups, SMEs, and high-growth companies.”

EU Inc and its backers are certainly keen to draw from past experiences, including the Not Optional campaign that contributed to improving stock option policies in 11 European countries. Index Ventures partner Martin Mignot told TechCrunch while he and his team are enthusiasts for EU Inc, leading this previous campaign has shown it’s a long road: “With all things lobbying, you have to be willing to go the distance and keep on applying pressure.”

And some observers are concerned the aspiration for the European equivalent of a Delaware company structure will be dragged down by red tape and nation-states. 

“When it comes to the EU Inc, I have my serious doubts that the countries will be able to agree on a common standard which is simple to understand and most importantly not too bureaucratic,” specialist lawyer Steve Jeitler told TechCrunch. An Austria-based partner at law firm E+H Rechtsanwälte, he gave the example of the very different capital maintenance regimes across the EU countries.

“Applying the (strict) Austrian or German capital maintenance regime to each and every EU Inc,” Jeitler wrote, “would make it rather unattractive in countries with a ‘not so strict’ regime.” France Digitale addressed this specific point in its non-paper, calling for a “1€ company.”

Still, there will be many other similar hurdles along the way. “The devil is in the details, and that’s going to be where we’re going to be very, very watchful,” Mignot said.

Brexit is another can of worms, but Mignot is hopeful that the U.K. could still follow suit, “They could say, ‘Look, if you are an EU Inc, it works for us too.’” The EU Inc shares a similar outlook in its FAQ, noting that while “starting EU centric solutions has the biggest leverage,” its focus is “Europe, not the EU.”

Whether it’s Europe or the EU, there’s growing consensus that the region needs to take action not to stay behind. Says deep tech investor Michael Jackson: “Europe is in a much more competitive landscape than it was 30, 40, years ago, right? China is the big panda in the room. You’ve got other parts of the world that are starting to really grow their economies and focus on tech and innovation. Europe can’t be on the sidelines.”

With all that said, it’s hard to contain the enthusiasm of EU Inc campaigners like Klinger: “The crazy thing about all of this is it’s actually going to happen. […] This is us as an industry saying very clearly on one topic, very focused, not like a list of 20 requests, but like one thing, ‘This is important.’ Plus it can become a platform for other important things like stock options, exits, all this kind of stuff that’s very complex in Europe.”