Simon Schaefer, Co-initiator at EU-INC: EU INC unlocks the simplest way to fund and scale a company in Europe

0:00Simon Schaefer:Hello and welcome back to Scaling Europe show. Today is a big day for European tech. EU Inc is just launching a brand new campaign to get the policy over the line in the next 100 days. Today, we've got Simon, one of the co-initiators of EU Inc joining us to talk us through what is going on. Simon, thank you for joining me. Thanks for having me. For those who don't know, can you kind of get us up to speed on where EU Inc is today? sure sure so probably worth noting it started off as a community-driven grassroots movement we could say and with a huge supporter list so 26 000 people signed up for it really quickly different to what's been done in policy before we decided to really make it a tangible product and actually handed a legal proposal to the commission to say this is what we want you to do and since lots of work behind the scenes not much going on for a long time classic European Union stuff.

0:52And then in March, the Commission launched a proposal. Now, as the European Union is built on compromise, this now needs to go through a lot of bodies. So it's through the Council, which is the member states getting together, the European Parliament, which is the voted representatives of the member states in the Parliament, and of course the Commission. And they will have their famous trilogues as soon as they got closer to a compromise text on what this regulation would look like.

1:17Simon Schaefer:And it was... Sorry, go ahead. No, no, you go ahead. You go ahead. Well, it's just going to add timeline. So towards the end of this year, we're looking to have a final tax. That's what's been promised. And then they're constantly moving the goalposts on when the first EU Inks can be launched. But end of 28, beginning 29, it's a process. And there was this real moment of excitement back in March where it sounded like, you know, Ersene was like, we're going to do it. We're going to adopt it. It's going to be a thing. And everybody was sort of really excited, but it fell short in some ways. Can you talk about kind of what they, how they've changed the initial proposal and what they're sort of, what they want to run with versus what really the community wants?

1:58Yeah, well, I mean, from a perspective of a startup and a venture capitalist, investor, angel, whatever, you really want to have the simplest way to found, fund, and scale a company across Europe. and the concept that was on the table was the so-called 28th regime and you could say that 28th regime conceptualized as a virtual member state so imagine we have 27 now let's call it the 28th one a virtual one in which you can have legislation have a court can have anything that you want that a member state would have and member states can choose to opt in so it would have been a real european solution imagine then the eu inc is a corporate law framework inside the 28th virtual member state and now you know from there member states can say we want to participate in this right now that's what we wanted because it would have been like a pan-european solution one solution only no derivatives no differences just one thing and what it is now is at the bring at the sort of danger of becoming real 20 certain versions of it there's many aspects to it right we're looking at corporate law labor law taxation labor law taxation i'm actively excluded so we don't want to touch too much of the member state sovereignty because this would make it impossible to pass.

3:16But for instance, conflict resolution, courts will have to be localized so the EU Inc. would have to have 27 different courts dealing with it. That's how the commission proposed it. For us, that's a downside. The real upside would be where we still have one interface. We still have, like Delaware, the chance to have one, two or three member states creating the perfect environment for startups. That's where we want to end up with. This is in its current form. It's already a compromise from the original idea. But there's, of course, the proofs in the pudding, devils in the details. So there's now a lot of these features and functions of the actual legislation that need to be figured out and that, of course, are on the chop block, so to speak, from member states and individual ambitions and people that are for it or against it.

4:03Simon Schaefer:And this campaign is now kicking off. We've got 100 days. What is those 100 days? What is it 100 days until? So the parliament will come to a conclusion, the European parliament, of what it wants this to be. The commission has made the original proposal, so everyone follows after and gives their opinion. And with that, the council will do the same thing, and then all three will meet together and negotiate the final regulation. What you see now is that, of course, as a proposal has been released, it's being discussed in many forums, right? And one that is a very important one core rapper, which is the permanent representation, so to speak, the endoculars of the member states debating this.

4:44And, you know, there's various degrees of willingness and various degrees of knowledge when it comes to the startup economy or the innovation economy. And that's kind of how we see our role, trying to be at the table and trying to make sure that what the startups really want remains in there. I'm giving you one stark example, which is the main thing that we're pushing for right now, which is a central digital registry. Sounds extremely boring, but if you look at it and how nowadays companies house in the UK, I forgot the name in German, it's a terrible name anyway, but you have one in every country, right?

5:21And they've changed. So in the beginning, this was only the source of truth. Does that company exist? What is its fiscal number? And what is the name and the address? Nowadays, you expect a lot more or you could expect a lot more. Think about live data points. Think about annual reports. Think about cap tables such as ultimate beneficial ownership. Who are the ones that actually own the company? Which then relates to your business activities operationally. So going to get a bank account. Things like that or compliance with certification. So all of these things now require a almost real-time live access to that database or to that data set and that data set is growing.

6:01And so for us, there's no question on whether we want a single database for all this for Europe or not. Do we want 27? Obviously not. Ask your CTO or ask anyone who's ever put any code on a staging environment, would you like to do that 27 times or one time, right? So it's very clear, but member states don't quite see it as such. If you look at, of course, also previous experience of member states and even everyone with the European Union, handing over responsibility to the European Union hasn't always worked in the favor of who's handing that over, right? So I'm not surprised that the first pushback you get is why would we create another complex institution?

6:43Yet, single economic realm, why would we create 27 versions of the euro, right? I mean, the euro is also, it works because there's only one. And so that's where we're coming from. And there's like a total of five non-negotiables. Happy to touch on every one of them. It's quite geeky. It's a technical matter.

7:02Simon Schaefer:And what has been the general pushback so far? Has it been an aversion to the kind of centralizing more power within the EU? Is it a sort of cynicism that actually maybe the EU itself won't run it that well? What has been the pushback to these proposals? So I think, first of all, the good thing there is that it used to be nice to have innovation economy. and since the Draghi and the latter reports, which I wouldn't want everyone to have a look at because they're really important for what's going on right now. Since those two reports, it's become not nice to have, but a must-have. Innovation economy is also relevant for our security.

7:38We see how sovereignty is a big topic nowadays and has never been as on top of the agenda as it is today. Now, of course, we're touching several monopolies, dare I say, right? One example is notaries in Germany. Believe it or not, you've seen the posts recently. People actually have to read out loud every contract you sign, almost every contract you sign, stark simplification. And then you have the notary sitting there going through a series A stack of documents and reading it out loud, right? And you have to be there. And if you're not there, you have to give them a power of attorney. And they have to do this manually, completely offline process.

8:17You can do it online, but you need to be certified, yada, yada, yada. So it's an old structure. Andreas, my partner in this EU Inc. team, he almost put it like, you have to ask the elderly for approval to actually get a transaction done. And I thought that's a very fitting comparison, actually, because it's so anachronistic. And, of course, they don't want that. Second big adversary, which even personally I don't agree it's an adversary, it's just a downside protection that they're looking for as trade unions. So if you look at worker protection, right? I mean, obviously, if you look at industrial age and industrialization and the results from that, worker protection is an extremely important topic.

8:59But is it really necessary for a German startup, fast-growing company to have employee representation in the board decisions when they're meeting with their VCs? I don't think so. I think the appropriate tool for today's time is to have them be shareholders, employee stock options, right? and have them sit on the table as shareholders and vote for whatever it is that the board decides shareholders need to be voting for. So I think some of these pushbacks are from a challenging position or a lack of knowledge even about the innovation economy. If you're not in the trenches, if you've never raised capital from a VC or invested in a company, how can you know these things, right?

9:40And so people tend to stick to what they've built as the zone d 'être, the thing that they're looking to protect. and, you know, we're rattling a lot of cages here.

9:50Simon Schaefer:Yeah, it's really interesting. So, yeah, the notaries has been a big one, of course, has been very viral. It's interesting about the trade unions. You know, the notaries are obviously German. Are there markets or countries which are more cynical or more aggressively pushing back? Yeah, of course. So it's not the country Germany, but it's German trade unions, obviously. If you look at one of the shadow rapporteurs, the leader of the pack, actually, René Reparty, he's a social democrat from Germany, his mandate, his constituency is social democrats and of course trade unions are a big part of that, right?

10:24And so co-determination is a big topic in Germany. It's not a topic at all in Spain. So there's these various levels. But see, that's precisely and this touches on another non-negotiable that we're trying to keep in there that member states want to delete, which is insolvency. We can get to the details of why and how, but that's another indicator of like a lack of understanding of this innovation economy where you know in the end insolvency is a really rare case for the startup economy like your normal case would be you know you have venture capitalists on board okay venture capitalists on board okay you find a way for fire sale or you unwind the company professionally and close it right but for the company to lose its revenues and no longer be able to pay its obligations for a court to close the company that's kind of like not really our case to optimize for and so yeah there's a lot of these where you have gap of knowledge and germany is definitely a country that has an industrial backbone right and as such some of the structures that they've come to live with are not necessarily compatible with what we're looking at in the innovation economy and how do we get through

11:35Simon Schaefer:that is it a case of convincing them to get on our side or is it a case of i don't know trying to bypass it or convince people in charge that actually they're not well informed, they're making the wrong decisions. How do we get over those objections? My European answer would be find compromise. My entrepreneurial answer is, you know, that's their problem. I have two hearts beating here because the one thing is compromise where compromise is possible, yes, but not at the cost of the original goal. And let's put a framing around that because what's the original goal? We currently, I don't know, yesterday or the day before yesterday, one of the guys from Dealroom pulled a chart on how much value was created by European founders abroad, right, in trillions.

12:19And, like, that's what we're trying to get away from. We're trying to have Europeans found in Europe, scale in Europe, and finance in Europe, right? Yeah. And our competitor is Delaware. And we see EU Inc. from the team's perspective. We see that as a first building block of, like, getting somewhere. This is infrastructure. This is a base layer component, but this is by no means the end goal and it's not touching IPOs yet, right? So really there is this, yeah, I want to say from an entrepreneurial perspective, whatever is in the way of this might one way or the other have to be overcome in whichever way possible.

12:58We would be used to hack it, hack the system. But at the very beginning of EU Inc., we actually thought about it. Why not approach it like Deal or Remote have done it and build this cluster of companies that we make available as a service for people so you can easily scale across Europe, right? But it sounds like a 10-year time frame to do that. Yeah, that's right.

13:19Simon Schaefer:Probably 70 billions raised. Yeah, but that's the normal solution entrepreneur would get to, right? Yeah. And what's it been like working with the people in the EU itself, right? because there's so many memes about the EU and I don't think it's particularly fair. A lot of the anti-EU propaganda that we get, especially from the US, it actually feels like the EU has been pretty receptive to a lot of this stuff and it's actually been surprisingly willing to engage and to try and get it over the line and to compromise. What's been your experience working very closely with a lot of these kind of politicians or bureaucrats?

13:53So here's the thing. I think the majority of who we work with on a very high level is obviously highly educated, very intelligent and really willing to move the needle for Europe. This is their ambition. This is what they've been mandated to do. So I think it's a lot of very highly professional people that we're working with. Yet there is a knowledge gap. And I've said I worked in Portugal for five years running the innovation economies, strategy side, think tank, whatever you want, do tank, whatever you want to call it, Startup Portugal. And I was quite strongly criticized for saying, hey, this is no surprise.

14:30All of our politicians are way too old. Because, you know, that's where you get to. Digital natives in politics is still rather rare. And you need to kind of understand how that works intrinsically in order to come up with the right conclusions for policies. And think about how young this economy is, right? albeit being extremely widespread and powerful, it still is a rather young economy compared to other legislative frameworks we try to create for other stuff, yeah.

15:00Simon Schaefer:Yeah. The list of people who've signed this is crazy. I mean, like, everybody in European tech, I would say founders, investors, operators, like, it's like a who's who of European tech. Have you faced any pushback or criticism from within the tech community itself? It feels very aligned and that everybody wants this. Has there been any disagreement on what the solution is? Yeah, not what the solution is. If I had any, heard any feedback, it's like, hey, it's possible today. There's many successful companies. Why do we need this? That's really the only pushback I've heard from within the community.

15:35And it's a bit silly because that's not the question, right? The question is how many companies would have, how many more companies would have been successful if we didn't have these barriers. But no, alignment is maximal. We're really excited about that too. You said it right. That's a crazy list of people that signed up for this, many from within our network. And, you know, that's also probably why this EU-ing thing is moving so in comparison to other policies and regulations rather quickly, because endorsement is really high. And I have to say the same is true from the political side. So we're talking about Nats and Macron meeting and having a side letter that says 28th regime is one of our priorities.

16:13We have Ursula von der Leyen, who's of course made the famous Davos speech, which was funny because she first time called it EU Inc. And we were in our weekly meeting when that happened. So this was a really fun moment. Must have been amazing.

16:25Simon Schaefer:Yeah. Yeah, it's surprising, you know. And for a second, we were like, hmm, is that a trick actually to get us bought in more? But no, it's a compliment to degree. But most importantly, it makes a lot of sense, right? So not just the brand, the name makes sense, debatable, too much Americanism. We've heard a lot of criticism about that. But the concept makes so much sense. Think about our framework and even Delaware. This is from before the Internet. So all of our corporate law was designed before the Internet. How is that supposed to regulate the innovation economy that we expect the whole world to change from?

17:04So it's a low-hanging fruit. Consensus for Europe right now, momentum for Europe is very high. so like with many startups it's the timing yeah yeah and now w does feel like the right time i

17:16Simon Schaefer:think your point is interesting that delaware is the competitor and most so many startups feel that they have to incorporate that even startups that we celebrate as being great european companies and it's not even that it's you know and to your point about the exit market right it's like a lot of them are incorporating there because they have a long-term vision of ipoing right and that's like this barbell problem that we have is that we actually have a lot of great stuff going on in the middle but it's the incorporation and the exits are really where we need to focus but look sam thank you so much for taking the time one last question what should people do with this you started this campaign 100 days to get this over the line anybody watching listening reading what should they be doing what can they do to help this talk to everyone that you know in government politics even economy get them convinced that this is the infrastructure for the future for the innovation economy of Europe.

18:06Simon Schaefer:Amazing. Well, look, let's do it. 100 days. Let's get this over the line. Thank you so much for joining me. And thank you for all the work that you do, right? This is an amazing thing. And I think if we get it right, it could be transformational. Yeah. Thanks for having me. This is great.