Startups and #COVID-19 – A new reality

Digital communications tools, online platforms and mobile applications have played a central role in helping Europe’s citizens and businesses adapt to the new normal of COVID-19. Organisations large and small have risen to the occasion to combat misinformation, provide up-to-date information, make it possible to work and keep us connected with our loved ones. While we hope that the emergency passes quickly, it has underscored the extent to which our lives – and our economic activity – now happen online.

Startups in solidarity

All parts of the economy are crying out for help, and prioritising support will not be easy. But we have also seen a remarkable flourishing of innovation and community spirit, as people volunteer, and businesses retool, to tackle the threat of the coronavirus.

In our own community of startups in Europe, we have seen huge engagement. For example, an Italian 3D printing company, Isinnova, produced valves for life-saving respirators in 24-hours. The Polish government and software development company DO OK introduced a “Hack the Crisis” project, encouraging an international community of hackers to suggest digital solutions. Whether through public/private collaboration or simply through individual companies’ efforts, we have been proud of the spirit on display.

Unfortunately, underneath this exterior confidence and optimism, many startups are already struggling.

We recognise that there are competing demands but these small companies will drive our economic recovery. As important as providing direct support is, not building new obstacles to sustainable growth is crucial too.

Policies for growth

Reports that the Commission is considering adaptations to its AI and data strategy in light of the new reality of COVID-19 are encouraging and we welcome the hands-on approach of Commissioner Breton to devising practical solutions.

We hope that the Commission maintains this big-picture, practical and flexible approach to other key aspects of its policy agenda. In particular, as it relates to the upcoming Digital Services Act.

In a recent blog post, we made the case that the Digital Services Act is an opportunity to ensure a free and open platform economy that benefits both entrepreneurs and users. A harmonised regulatory regime across Europe will give startups much better opportunities to scale up and to compete globally.

We are concerned that proposed changes to ‘intermediary liability’ would involve existential levels of financial risk that would lead many startups to fold. Changes to this regime should encourage platforms to develop and enforce community guidelines to curb illegal activity on their respective platforms. However, making platforms legally liable for illegal activity regardless of their knowledge would create a situation where only the largest platforms could launch new products and drive growth.

The Digital Services Act must ensure it does not discourage growth. In the past, the Commission has accepted that proposed legal frameworks create barriers to growth for startups and so looked to exempt startups from new rules. This is not a solution.

Startup exemptions will create a ceiling for growth of European companies, incentivizing founders to grow their companies to this threshold and then find a solution, including selling to a large multinational or staying small.. At a time when economic growth will be essential, Europe’s political representatives have a responsibility to ensure that they make the path to this growth as painless as possible. If they believe that new rules could hamper the growth of European companies, it suggests those same rules might need some further consideration.

A Digital Services Act for growth

As we await the launch of the public consultation on the DSA, we urge policymakers to firstly factor in the seismic global changes we have seen as a result of COVID-19, and secondly to think carefully about the types of rules that would promote, rather than prevent, the development of a thriving European startup ecosystem.

That is why we are calling on the European Commission to carry out a startup impact assessment on the Digital Services Act, which will provide accurate estimates of the cost of compliance for different types of services and business models. Struggling European entrepreneurs deserve an opportunity to fully understand the potential costs related to a future DSA and to plan accordingly.

Right now – with regular policy and economics upended by COVID-19, and with tech solutions at the forefront of our collective European response – that is more true than ever. We are asking the Commission to engage with us and with our members now in the planning of the DSA. Good things happen when entrepreneurs speak to policymakers and there is no abundance of good things at the moment.

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