Year: 2020

The coronavirus pandemic continues to spread with no signs of abating. Over 100,000 cases have been confirmed in almost 100 countries across the globe as of this writing. Some 4,000 deaths have been reported, 80% of which occurred in mainland China. 

Preventive measures taken by the public sector and by global industry are already having widespread effects. In the past several days, Italy has officially imposed a whole-country lockdown and in the U.S., epicenter states such as California and New York have declared emergency status while instituting lockdowns on high-risk districts such as New Rochelle. Last week, the OECD cut global economic growth projections by half, and the JPMorgan Global Manufacturing Purchasing Manager’s Index (PMI) fell to its lowest level since 2009. Numerous companies including Apple and Nvidia have reported underwhelming earnings in recent quarters and have proceeded to cut their earnings guidance for the foreseeable future.

These economic impacts are in part related to disruption in demand for goods, due to quarantines and travel restrictions. However, more nefariously, economic pundits have expressed concern for supply-side disruptions: including staff productivity losses, supply-chain dysfunction, and facility closures.

According to a Dun & Bradstreet whitepaper released this week, 94% of Fortune 1000 companies have key elements of their supply chain housed directly within the epicenter of the outbreak in China. Supply-side shocks are much more difficult for central banks to contain by moves such as interest-rate cuts or financial stimulus. These typically serve to catalyze demand (through increased cash or borrowing power), but do not directly alleviate the kind of production paralysis capable of hamstringing global commerce. 

How these preventive measures implicate startups

Startups are especially vulnerable to such supply-side disruptions, each of which is worth considering independently.

Decreases in staff productivity

Operating through lean organizational structures in which personnel often occupy cross-functional roles, decreases in staff productivity can create significant issues for interdependent activities at startups. The diversion of attention — due alternatively to the need to attend to personal needs (such as family caregiving, healthcare issues, or household concerns) or societal requirements (such as monitoring the development of the virus and state or federal reactions to it) — can make a cumulative impact over the days, weeks, and months of the outbreak.

The increased frequency of absences to attend to personal issues (such as individual healthcare or childcare amidst school closings) likewise presents a major challenge to fulfillment of contracts and other business obligations for startups. A CNBC survey conducted two weeks ago found that some 40% of companies had “stranded employees” facing some form of hurdle to commuting to the workplace. These figures are likely higher today.

Moreover, increased frequency of absences can be accompanied by heightened utilization of benefits (such as healthcare, sick leave, or family leave) in a short period, which startups may or may not have sufficient liquidity to support. These considerations around benefits are especially tenuous for startups in the gig economy, who may need to compensate affected employees regardless of their ability to perform tasks.

Supply-chain dysfunction

Turmoil in supply chains can bear significant consequences for startups across a diverse range of sectors, including technology and healthcare. This is especially the case given that these supply chains tend to be concentrated through only a selected group of vendors.

Since China is the world’s largest producer of industrial goods (in particular, basic parts), often at the world’s lowest prices, the widespread quarantines in the region are already proving debilitating: the number of bulk freight shipments has fallen over 70% since January and some 40% of China’s trucking capacity remains offline. And while American companies have sought to diversify away from China in recent years (partially due to political rhetoric), as the viral outbreaks spread to other major manufacturing countries (such as Vietnam, Bangladesh, and Mexico), supply chains for instrumental parts will likely face shortages, delays, and quality compromises.

In terms of services, startups often depend on regulatory, legal, and industrial collaborators for deliverables that are a prerequisite to their doing business. Disruptions in this “soft” supply chain capable of delaying essential credentialing, contracting, or data acquisition can prove incapacitating for startups. Furthermore, the proliferation of outsourcing (on the order of 14 million jobs in 2015) in service supply chains for critical tasks such as customer service and administrative workflows implies another dimension of vulnerability for service provision.

For either goods or services supply chains, to the extent that startups have relatively undiversified revenue streams — from a single or small group of contracts — these various forms of supply chain bottlenecks can be crippling (of basic fulfillment) in the short-run and compromising (of scaling and reputation) in the long-run.

Facility closures

Lastly, startups ought to consider the impact that closing and/or restricting their facilities can have on their performance.

Recent guidelines from the Centers for Disease Control (CDC) and Occupational Safety and Health Administration (OSHA) include recommendations for employers to develop “infectious disease outbreak response plans” that may require office/factory closures. Already, employers across the US are preparing for “social distancing measures” that are, overnight, converting physical workforces into virtual ones.

With the acceleration of community spread leading to diffusion of the virus out beyond US urban centers effected thus far (namely, New York City and San Francisco), more and more startups residing in neighboring suburbs may face closing their workplace.

Steps stakeholders in startups can take to provide stability 

Taken together at face value, these supply-side considerations can seem overwhelming for startups already facing innumerable daily “fires” that need extinguishing. However, there are a variety of steps that CEOs, funders, and partners/clients of startups can take to inoculate themselves against the exogenous threat posed by coronavirus.

Startup CEOs ought to consider operational, organizational, and financial workarounds.

Operationally, they can take steps to prepare for a virtual workplace by establishing clear methods of digital communication and metrics to ensure productivity. They can also prepare for an “interrupted” workplace (in which employees require more time than usual for personal affairs and may be otherwise preoccupied) by embracing asynchronous workflows, laying out clear priorities for deliverables, and providing flexibility beyond standard office hours.

Organizationally, CEOs can cross-train employees and develop clear workflow protocols to insulate against staffing deficits that may arise. To fortify their organizational strategies, CEOs can identify weak points and/or major dependencies in their supply chains. In turn, they can seek to hedge against these where possible: either through delegation to additional firms or through integration internally.

Financially, to the extent possible, CEOs can shift their business models to prioritize revenue over growth in the short-run, ensuring liquidity against unexpected supply or demand shocks. This can be achieved through cost reduction or signing small-scale contracts (rather than “pursuing Moby Dick”). Alternatively, CEOs can consider raising anticipatory funding, even if in the ideal world they might defer a raise in pursuit of higher valuations.

Funders of startups are likewise well positioned to buffer against the fever state of startups. Providing leadership for early, anticipatory fundraising can support the stockpiling of dry powder to survive a prolonged siege by coronavirus (due, for example, to structural changes to the supply chain in the wake of the pandemic). It can also promote the creation of a war chest to allow startups to adapt under these abnormal circumstances.

Additionally, funders can leverage their expertise and networks to share learnings on dealing with similar challenges — therefore cultivating an ecosystem of resilience for potentially inexperienced leaders during the tumult associated with coronavirus.

Finally, partners and clients of startups have an important supporting role to play. It is very much in their own interest to ensure the vitality of startups upon which they depend: to avoid the costs of restructuring their own business models should a startup partner/vendor go defunct, and to empower their own innovation pipelines. As such, partner and client companies are well positioned renegotiate contractual terms to facilitate short-term flexibility while also ensuring long-term performance. Alternatively, they can redesign incentives and milestones in a way that can provide operational and financial security to startups for the time being without sacrificing the overall value expected in the more distant horizon.

Surviving coronavirus can bolster the immune systems of startups in the future

The coronavirus pandemic is likely to strain the capabilities of startups for the foreseeable future. Supply-side disruptions will present distinctive challenges to startups unlike those that typically crop up in a globalized economy. 

Nonetheless, through keen vigilance, rapid adaptation, and comprehensive contingency planning, startups can survive the impending stress test. And in so doing, like white blood cells after a severe infection, surviving startups can develop resistance against the subsequent challenges they will inevitably face in their lifetimes.

Tesla CEO Elon Musk said the company is “scouting” locations to build a new U.S. factory that will produce its all-electric Cybertruck and Model Y crossover.

The “gigafactory,” the unit of measurement representing billions and a term Musk has used for its massive factories in Nevada, New York, China and soon Germany, will be located somewhere in “central” region of the country, according to his tweet.

“Scouting locations for Cybertruck Gigafactory. Will be central USA,” Musk tweeted Tuesday. He added that the factory would be used to produce Model Y crossovers for the East Coast market. The first Model Y vehicles are being produced at its plant in Fremont, Calif.

Tesla assembles its Model S, Model X and Model 3 vehicles in Fremont, Calif. at a factory that was once home to GM and Toyota’s New United Motor Manufacturing Inc (NUMMI) operation. Tesla acquired the factory in 2010. The first Model S was produced at the factory in June 2012.

Tesla turned its efforts to battery production and in June 2014 broke ground on its first “gigafactory” on land near Reno, Nevada. The massive structure, which has surpassed. 1.9 million square feet, is where Tesla produces battery packs and electric motors for its Model 3 vehicles. The company has a joint venture with Panasonic, which is making the lithium-ion cells.

Tesla also has a “gigafactory 2” in Buffalo, New York where it’s producing solar cells and modules.

In 2018, Tesla struck a deal with the Chinese government to build a factory in Shanghai, a milestone for Musk, who has long viewed China as a crucial market. The China factory started producing the Model 3 late last year. The first deliveries began in early January.

Tesla is now clearing land for another factory near Berlin. Once complete, this German factory will produce the Model 3 and Model Y for the European market.

Hitachi Vantara, the wholly-owned subsidiary of Hitachi that focuses on building hardware and software to help companies manage their data, today announced that it has acquired the assets of Containership, one of the earlier players in the container ecosystem, which shut down its operations last October.

Containership, which launched as part of our 2015 Disrupt New York Startup Battlefield, started out as a service that helped businesses move their containerized workloads between clouds, but as so many similar startups, it then moved on to focus solely on Kubernetes and helping enterprises manage their Kubernetes infrastructure. Before it called it quits, the company’s specialty was managing multi-cloud Kubernetes deployments. The company wasn’t able to monetize its Kubernetes efforts quickly enough, though, the company said at the time in a blog post that it has now removed from its website.

“Containership enables customers to easily deploy and manage Kubernetes clusters and containerized applications in public cloud, private cloud, and on-premise environments,” writes  Bobby Soni, the COO for digital infrastructure at Hitachi Vantara. “The software addresses critical cloud native application issues facing customers working with Kubernetes such as persistent storage support, centralized authentication, access control, audit logging, continuous deployment, workload portability, cost analysis, autoscaling, upgrades, and more.”

The companies did not disclose the price of the acquisition. Pittsburgh-based Containership only raised about $2.6 million since it was founded in 2014, though, and things had become pretty quiet around the company in the last year or two before its early demise. Chances are then that the price wasn’t all that high. Investors include Birchmere Ventures, Draper Triangle and Innovation Works.

Hitachi Vantara says it will continue to work with the Kubernetes community. Containership was a member of the Cloud Native Computing Foundation. Hitachi never was, but after this acquisition, that may change.

Fitness, wallpaper, and lost item-finding startups could have a big new competitor baked into everyone’s iPhones. Leaks of the code from iOS 14 that Apple is expected to reveal in June signal several new features and devices are on the way. Startups could be at risk due to Apple’s ability to integrate these additions at the iOS level, instantly gain an enormous install base, and offer them for free or cheap as long as they boost sales of its main money maker, the iPhone.

It’s unclear if all of these fresh finds which actually get official unveiling in June versus further down the line. But here’s a break down of what the iOS 14 code obtained by 9To5Mac’s Chance Miller shows and what startups could be impacted by Apple barging into their businesses:

Fitness – Codename: Seymour

Apple appears to be preparing a workout guide app for iOS, WatchOS, and Apple TV that would let users download instructional video clips for doing different exercises. The app could potentially be called Fit or Fitness, according to MacRumors‘ Juli Clover, and offer help with stretching, core training, strength training, running, cycling, rowing, outdoor walking, dance, and yoga. The Apple Watch appears to help track your progress through the workout routines.

Icons for Apple’s fitness feature from the iOS 14 code

The iOS Health app is already a popular way to track steps and other fitness goals. By using Health to personalize or promote a new Fitness feature, Apple has an easy path to a huge user base. Many people are afraid of weight and strength training because there’s a lot to learn about having proper form to avoid injury or embarassment. Visual guides with videos shot from multiple angles could make sure you’re doing those pushups or bicep curls correctly.

Apple’s entrance into fitness could endanger startups like Future, which offer customized work out routines with video clips demonstrating how to do each exercise. $11.5 million-funded Future actually sends you an Apple Watch with its $150 per month service to track your progress while using visuals, sounds, and vibrations to tell you when to switch exercises without having to look at your phone. By removing Future’s human personal trainers that text to nag you if you don’t work out, Apple could offer a simplified version of this startup’s app for free.

Apple Fitness could be even more trouble for less premium apps like Sweat and Sworkit that provide basic visual guidance for workouts, or Aaptiv that’s restricted to just audio cues. Hardware startups like Peloton, which offers off-bike Beyond The Ride workouts with live or on-demand class, and Tempo’s giant 3D-sensing in-home screen for weight lifting could also find casual customers picked off by a free or cheap alternative from Apple.

There’s no code indicating a payment mechanism so Apple Fitness could be free. But it’s also easy to imagine Apple layering on premium feature like remote personal training assistance from human experts or a wider array of exercises for a fee, tying into its increasing focus on services revenue.

Wallpapers – Access For Third-Parties

The iPhone’s current wallpaper selector

In iOS 14, it appears that Apple will offer new categorizations for wallpapers beyond the existing Dynamic (slowly shifting), Still, and Live (move when touched) options. Apple’s always only offered a few native wallpapers plus the option to pull one from your camera roll. But the iOS 14 code suggests Apple may open this up to third-party providers.

A wallpaper ‘store’ could be a both a blessing and a curse for entrepreneurs in the space. It could endanger sites and apps like Vellum, Unsplash, Clarity, WLPPR, and Walli that aggregate wallpapers for browsing, purchase, or download. Instead, Apple could make itself the ultimate aggregator by being built directly into the wallpaper settings. But for creators of beautiful wallpaper images, iOS 14 could potentially offer a new distribution method where their collections could be available straight from where users install their phone backgrounds.

The big question will be whether Apple merely works with a few providers to add in wallpaper packs for free, does financially-backed deals to bring in providers, or creates a full-blown marketplace for wallpapers where creators can sell their imagery like developers do apps. By turning this formerly free feature into a marketplace, Apple could also start earning a cut of sales to add to its services revenue.

AirTags – Find Your Stuff

Apple appears to be getting closer to launching its long-awaited AirTags, based on iOS 14 code snippets. These small tracking tags could be attached to your wallet, keys, gadgets, or other important or easily lost items, and then located using the iOS Find My app. AirTags may be powered by removable coin-shaped batteries, according to MacRumors.

Native integration with iOS could make AirTags super easy to set up. They could also benefit from the ubiquity of Apple devices, as the company could let the crowd help find your stuff by allowing AirTags to piggyback on the connectivity of any of its phones, tablets, or laptops to send you the missing item’s coordinates.

Most obviously, AirTags could become a powerful competitor to the vertical’s long-standing frontrunner Tile. The $104 million-funded startup sells $20 to $35 tracking tags that locate devices from 150 to 400 feet away. It also sells a $30 per year subscription for free battery replacements and 30 day location history. Other players in the space include Chipolo, Orbit, and MYNT.

But as we saw with the launch of AirPods, Apple’s design expertise and native iOS integrations can allow its products to leapfrog what’s in the market. If AirTags get proprietary access to the iPhone’s Bluetooth and other connectivity hardware, and if they’re quicker to set up, Apple fans might jump from startups to these new devices. Apple could also develop a similar premium subscription for battery or full AirTag replacements, as well as bonus tracking features.

Augmented Reality Scanning – Codename: Gobi

iOS 14 includes code for a new augmented reality feature that lets users scan places or potentially items in the real world to pull up helpful information. The code indicates Apple is testing the feature, codenamed Gobi, at Apple Stores and Starbucks to let users see product, pricing, and comparison info, according to 9To5Mac’s Benjamin Mayo. Gobi can recognize QR-style codes for specific locations like a certain shop, triggering a companion augmented reality experience.

It appears that an SDK would allow partners to build their own AR offerings and generate the QR codes that initiate them. Eventually, these capabilities could be extended from Apple’s mobile devices to the AR headset it’s working on so you’d instantly get a heads-up display of information when you entered the right place.

Apple moving to power lighter-weight AR experiences rather than just offering the AR Kit infrastructure for developers to build full-fledged apps could create competition for a range of startups and other tech giants. The whole point of augmented reality is that it’s convenient to explore hidden experiences in the real world, which is defeated if users have to know to download and then wait to install a different app for every place or product. Creating a central AR app for simpler experiences that load instantly could speed up adoption.

Snapchat’s Scan AR platform

Startups like Blippar have been working on AR scanning for years in hopes of making consumer packaged goods or retail locations come alive. But again, the need to download a separate app and remember to use it has kept these experiences out of the mainstream. Snapchat’s Scan platform can similarly trigger AR effects based on specific items from a more popular app. And teasers of Facebook and Google’s eventual augmented reality hardware and software hinge on adding utility to every day life.

If Apple can build this technology into everyone’s iPhone cameras, it could surmount one of AR’s biggest distribution challenges. That might help it build out a developer ecosystem and train customers to seek out AR so they’re all ready when its AR glasses finally arrive.

Drones making deliveries is of course the hot new hyperlocal tech play, but where are these futuristic aircraft supposed to land? On the lawn? Matternet has built a landing station for its cargo drones that looks less like a piece of infrastructure and more like a death ray from a ’60s sci-fi movie.

Far from the free-form delivery network envisioned by Prime Air or the like, Matternet’s drone deployments have been fixed point-to-point affairs focused on quickly connecting a handful of locations that frequently trade time-sensitive deliveries: hospitals.

The company has performed pilot tests in Switzerland and North Carolina, and just started a new one in San Diego, in which medical facilities are able to send blood samples, medications, and (soon, one hopes) vaccines and other supplies back and forth without worrying about traffic or other complications on the ground.

But there’s the problem of where exactly the drones land, and what happens afterwards. Does someone have to swap out the battery? Who says when it’s safe to approach the drone, and how to detach its payload? Whatever the process is, it could probably be easier and more automated, and that’s what the station aims to accomplish.

With its techno-organic curves and flower-like hatch on top, the 10-foot-tall station seems to channel the likes of Star Trek: The Original Series and Lost in Space, and no doubt it’s intended to be eye-catching as well as functional.

When the drone arrives, the top opens up and the drone lands right in the center, where it is enclosed and grasped by the station’s machinery, unburdened of its payload, and given a fresh battery. The payload is contained in the tower until it is called for by an authorized person, who scans a dongle to receive their package.

If there’s just the one drone, it can live in the top part, the bulb or whatever you’d call it, until it’s needed again. If there are multiple deliveries or drones, however, the one inside will leave and enter a holding pattern about 60 feet above, in an “imaginary donut.”

The station will get its first installation in the second quarter of this year, at one of Matternet’s existing customer hospitals. Presumably it will roll out more widely once this shakeout period ends.

You can see the full operation in the dramatization below:

Last week, Google sent out a memo to staff recommending that Washington State-based employees work remotely, in order to mitigate the potential spread of COVID-19. Today, the suggestion has been dramatically expanded, in line with the spread of the virus. A new note from the company recommends similar action for employees across North America.

A spokesperson for the company confirmed earlier reports with TechCrunch that employees across the continent are being recommended to work from home, if their positions allow for it. The company confirmed that other regions have been given similar guidance, as well. Europe, for example, is mostly recommended to work from home at present. Different regions are subject to different guidance, based on a variety of local requirements.

Last week’s precautions followed initial reports of the coronavirus strain’s spread in the Pacific Northwest, including King County, in which Google’s largest offices in the state — Seattle and Kirkland — are based. Instances of COVID-19 have spread quickly across the country. At last count, the Centers for Disease Control and Prevention has cases listed at 647 nationally, with 25 deaths. New York State has jumped to the top spot, with more than 170 cases reported.

Google is one of a rapidly growing list of tech companies taking similar action to avoid the spread of the virus. Microsoft, Box, Lyft and others have addressed concerns with employees, either recommending or requiring staff to work from home, and, in some cases, maintaining wages in spite of reduced hours. Google’s annual spring time developer conference I/O was among the major tech shows that are taking the year off over health precautions.

The software giant has also announced the establishment of a COVID-19 fund for temporary staff and vendors across the world.

“As we’re in a transition period in the U.S.—and to cover any gaps elsewhere in the world—Google is establishing a COVID-19 fund that will enable all our temporary staff and vendors, globally, to take paid sick leave if they have potential symptoms of COVID-19, or can’t come into work because they’re quarantined,” Google’s Director, Workplace Services Adrienne Crowther writes. “Working with our partners, this fund will mean that members of our extended workforce will be compensated for their normal working hours if they can’t come into work for these reasons. We are carefully monitoring the situation and will continue to assess any adjustments needed over the coming months.”

Sometimes, it takes only the promise of a massive government bailout to put that rose-colored filter on the effluent sandwich of today’s economic realities.

After yesterday’s terrifying sell-off, American equities recovered today, with the major domestic indices rising to close the day. While the day’s gains do not erase yesterday’s losses, they are a welcome return to form for equity markets long-accustomed to rising.

The final results in less turbulent times would be more shocking, but today the Dow Jones Industrial Average rose 1,167.1 points, or 4.89%, the S&P 500 rose 135.7 points, or 4.94%, while the Nasdaq Composite picked up 393.6 points, or 4.95%.

SaaS and cloud stocks, however, lagged their broader sector, only managing a 3.1% gain, according to the Bessemer-Nasdaq cloud index. This means that after SaaS and cloud stocks lost more yesterday (in percentage terms), they also recovered less than their peers. After a long period of leading, modern software companies are being repriced in the public markets, possibly leaving the company category with less of a premium over other tech companies.

The rally was broad, with bitcoin ending a period of decline, and oil sharply ascending.

Still, the public markets are down from their heights. The Dow is off 15%, and touched a new 52-week low today before recovering. The S&P is also off a smidgen over 15%, while the Nasdaq is down a hair more at 15.2%, compared to its recently set 52-week highs.

A few more days like today are needed, then, to fully repair the damage. And there’s still the overhang of bad news, including: a quarantine zone set up in New Rochelle, N.Y.; the terrible shape of oil and gas companies’ debt loads; and the lack of any clarity around an actual bailout from the government.

Hopefully tomorrow morning stocks are quiet, and then the TechCrunch Public Markets Crew (Shiebs and Alex) can stop writing these posts. Until then, however, expect more.

As a final note, Apple and Microsoft are still trillion-dollar companies. So even in the throes of this correction, tech is hardly in the dumps. And the Nasdaq is up 12.6% over the last year.

I see far more research articles than I could possibly write up. This column collects the most interesting of those papers and advances, along with notes on why they may prove important in the world of tech and startups.

This week: crowdsourcing in space, vision on a chip, robots underground and under the skin and other developments.

The eye is the brain

Computer vision is a challenging problem, but the perennial insult added to this difficulty is the fact that humans process visual information as well as we do. Part of that is because in computers, the “eye” — a photosensitive sensor — merely collects information and relays it to a “brain” or processing unit. In the human visual system, the eye itself does rudimentary processing before images are even sent to the brain, and when they do arrive, the task of breaking them down is split apart and parallelized in an amazingly effective manner.

The chip, divided into several sub-areas, which specialize in detecting different shapes

Researchers at the Vienna University of Technology (TU Wien) integrate neural network logic directly into the sensor, grouping pixels and subpixels into tiny pattern recognition engines by individually tuning their sensitivity and carefully analyzing their output. In one demonstration described in Nature, the sensor was set up so that images of simplified letters falling on it would be recognized in nanoseconds because of their distinctive voltage response. That’s way, way faster than sending it off to a distant chip for analysis.

Organizers of the 2020 New York International Auto Show have postponed the event until August due to concerns about the COVID-19 outbreak.

The New York Auto Show, which is organized by the Greater New York Automobile Dealers Association, was scheduled to begin April 10 at the Jacob K. Javits Convention Center in New York City.

The event will now be held August 28 to September 6, according to a statement from Chris Sams, the show’s spokesman. Press days are August 26 and 27.

“We are taking this extraordinary step to help protect our attendees, exhibitors and all participants from the coronavirus,” Mark Schienberg, president of the Greater New York Automobile Dealers Association, said in an emailed statement. “For 120 years, ‘the show must go on’ has been heavily embedded in our DNA, and while the decision to move the show dates didn’t come easy, our top priority remains with the health and well-being of all those involved in this historic event. We have already been in communication with many of our exhibitors and partners and are confident that the new dates for the 2020 Show will make for another successful event,” Schienberg added.

The New York Auto Show joins a growing list of events that have been cancelled or delayed due to concerns about COVID-19, a disease caused by a new virus that is a member of the coronavirus family. COVID-19, which is a close cousin to the SARS and MERS viruses that have caused outbreaks in the past, has caused governments and companies to cancel tech, business and automotive events around the world.

Just yesterday, Cadillac announced plans to cancel the unveiling of its new electric vehicle at a special event next month in Los Angeles. The Geneva International Motor Show was cancelled, as well as MWC in Barcelona and the SXSW festival in Austin, Texas.

Startups have welcomed proposals from the European Commission aimed at cutting red tape and shrinking cross-border barriers for small businesses as part of a new EU industrial strategy plan with a twin focus on digital and green transitions unveiled today.

Among the package of measures being proposed by the European Union’s executive body are for Member States to sing up to a “Startup Nations Standard” — which would aim to promote best practices to support startups and scale-ups, such as one-stop shops, favourable employee stock-options arrangements and visa processing to reduce cross-border friction for entrepreneurs starting and growing businesses in the bloc.

In recent years European startups have organized to campaign for reforms to rules around stock options –with 30 CEOs from homegrown startups including TransferWise, GetYourGuide, Revolut, Delivery Hero, TypeForm and Super cell (to name a few) signing an open letter to policymakers two years ago calling for legislators to fix what they dubbed “the patchy, inconsistent and often punitive rules that govern employee ownership”.

The effort appears to have made a dent in the EU policymaking universe. Both regulatory and practical barriers are now in the Commission’s sights, with it proposing a joint task force to work on sanding down business bumps.

It also today reiterated a perennial warning against Member States ‘goldplating’ pan-EU rules by adding their own conditions on top. 

“The Single Market is our proudest achievement — yet 70% of businesses report that they do not find it is sufficiently integrated,” said EVP Margrethe Vestager, laying out an industrial strategy package with a big focus on smaller companies, including those with big ambitions to scale. “Across Europe barriers are still preventing startups from growing into European businesses and our report is identifying those barriers and we also then address them in the Single Market enforcement action plan.”

In a letter responding to the Commission’s plan for an EU Startup Nations Standard, 14 European startup founders (listed below) and a number of European startup associations welcomed the proposal — urging EU Member States to get behind it.

“By making it easier to start a business, expand across borders and attract top talent, this new Standard will help to level the playing field with powerful global tech hubs in the US and China,” the tech CEOs and startup advocacy organizations wrote. “We applaud the EU’s ambition of seeking a pan-European solution to address the needs of startups. We are also encouraged that the Commission has specifically called out the treatment of stock options as one of the key issues.

“As highlighted by more than 500 leading European entrepreneurs who joined the Not Optional campaign, the inability of startups to use stock options effectively to attract and retain talent is a major bottleneck to the growth of startups in Europe.”

“The Commission’s proposals will be a major step towards unleashing the full entrepreneurial firepower of Europe – but only if they are adopted and implemented by all Member States,” they added. “That’s why we are today calling on all Member States to sign up to the EU Startup Nations Standard, including a commitment to increase the attractiveness of employee ownership schemes.”

Here’s the list of startup CEOs signing the letter:

• Christian Reber, CEO & Founder, Pitch
• Felix Van de Maele, CEO & Founder, Collibra
• Jean-Charles Samuelian, CEO & Founder, Alan
• Johannes Reck, CEO & Co-Founder of GetYourGuide
• Johannes Schildt, CEO & Founder, KRY / LIVI
• John Collison, Co-Founder and President, Stripe
• Juan de Antonio, CEO & Co-Founder of Cabify
• Markus Villig, CEO & Founder, Bolt
• Miki Kuusi, CEO & Co-Founder, Wolt
• Nicolas Brusson, CEO & Co-Founder, BlaBlaCar
• Peter Mühlmann, CEO & Founder, Trustpilot
• Sebastian Siemiatkowski, CEO & Founder, Klarna
• Taavet Hinrikus, Founder & Chairman, TransferWise
• Tamaz Georgadze, CEO & Founder, Raisin

Also welcoming the stock option proposals, Martin Mignot, a partner at Index Ventures — another backer of the Not Optional campaign — said: “The biggest challenge facing startups today is recruiting and retaining top talent. That’s why we are pleased that the EU Startup Nations Standard addresses stock options, making it easier for startups to allow employees to share in their success.”

“We are pleased to see the European Commission recognise the contribution that startups make to Europe and its citizens, and pursue a pan-European policy initiative to support this growing sector,” he added in a statement. “For too long, the focus in Europe has been on taming US tech giants. Today’s announcement confirms Europe’s ambition to create its own champions.”

EU startup advocacy member association, Allied for Startups, is another signatory to the letter. And in an additional response it broadly welcomed the Commission’s SME strategy — while pressing for a strong focus on startups as independent actors in the implementation of the strategy, rather than as a sub category of SMEs.

“The talent-focus of the proposed Startup Nation Standard has significant potential for startup ecosystems, since access to talent is still a bottleneck for startups in Europe.” said Benedikt Blomeyer, the lobby group’s director of EU policy, in a statement.

“Through the SME strategy, we are pleased to see concrete measures such as better startup visas and improved employee stock options on the table. Allied for Startups has repeatedly called for both measures over the past years.”

“Unlike SMEs, startups can only succeed at scale,” he added. “They are global from day one and aim to grow big and fast. Specific measures that work for SMES, for instance a regulatory exemption, might not work for startups. On the contrary, it could incentivise a startup to stay small. To account for these differences, the European Commission should consider a startup strategy that focuses on scalability, complementing the SME strategy.”

Allied for Startups also welcomed the Commission’s general goal of reducing the administrative and regulatory burden for startups within the Single Market — saying the consideration of regulatory sandboxes as part of the support toolkit is “potentially valuable for startups, who build innovative products and services”.

The Commission is also looking to support SMEs to go public in Europe — announcing an SME Initial Public Offerings (IPOs) Fund under the InvestEU SME window which will aim to make IPOs more accessible to local small businesses.

Another push aims to reduce late payments for SMEs, with the Commission noting today that one in four regional small businesses go bankrupt as a result of not being paid on time.

It also said it wants to stimulate investment in women-led companies and funds to “empower female entrepreneurship”. (Notably all the signatories on the aforementioned letter are male.)

Industrial to digital transformation

More broadly, the Commission’s new industrial strategy intends to underpin core EU policy priorities for the next five years — which include a focus on driving the digitization of legacy industries and simultaneous retooling to transition to a carbon neutral economy under the pan-EU Green Deal.

“Europe has the strongest industry in the world. Our companies — big and small — provide us with jobs, prosperity and strategic autonomy. Managing the green and digital transitions and avoiding external dependencies in a new geopolitical context requires radical change — and it needs to start now,” said Thierry Breton, commissioner for internal market, in a statement today.

During a press briefing Vestager emphasized the Commission’s view that new and more inclusive working methods are needed to deliver on the planned transformation.

“The twin digital and green transitions are posing both opportunities and challenges for the industry in general and for small and medium sized businesses in particular. Business models are changing. All across Europe companies are confronted with consumers’ decreasing trust and increasing demand for transparency,” she said. “The world around us is also changing… Today global competition, trade disputes, the return of protectionism — I think that creates a shared feeling of uncertainty.

“This is challenging Europe’s industry as it sets out to meet the twin transitions. Fortunately, the European industry is coming to this reality from a strong position. Our new strategy is building on Europe’s strength and on our values.”

On the proposals to shift to “inclusive” working methods, Vestager said the aim is “to work much closer with small and large companies, Member States, researchers, academia, social partners and other EU institutions”.

To that end, the Commission is proposing a new industrial forum to enable closer working with such stakeholders that it aims to have set up by September.

It also wants to work on identifying a number of industrial ecosystems — which Vestager said “may require a bespoke approach”, in terms of policy support.

At the press briefing Breton suggested there could be between 15 and 20 such industrial ecosystems.

“We don’t want to leave anybody out,” he said. “This is an industrial strategy but we all know that underpinning this there are large corporations but many, many, many small ones too and we have to bring these on board. If we don’t have the big and the small we won’t have a dynamic, innovative, living sector.”

“A lot of companies do this among themselves already, locally in fact, but we do hope it is going to be done in an even more horizontal manner across the EU and within the internal market,” he added.

Skills is another focus for the SME strategy — with the Commission saying it will expand Digital Innovation Hubs to every region in Europe to help small businesses plug in cutting edge tech, with expanded options for volunteering and training on digital technologies.

Helping SMEs find the skills they need to shift to sustainable ways of working is another stated aim.

The Commission has published a Q&A on the industrial strategy here.

Last month the executive body also set out proposals aimed at encouraging industrial data sharing and reuse, along with proposals for regulating high risk uses of artificial intelligence.

A further major piece of EU digital policy due later this year is the forthcoming Digital Services Act — which is slated to address platform liabilities and responsibilities, including towards smaller businesses that rely on them as a marketplace.