Start-ups in Europe: Significant Potential Remains Untapped
ResearchZEW Study Shows Differences Between Start-ups in France, Germany and the United Kingdom
In France, Germany and the United Kingdom, substantial growth potential remains untapped. A ZEW policy brief examines where start-ups are founded, and which regions perform best in terms of using this potential. Drawing on data from more than nine million firm foundations in Europe, the analyses show that entrepreneurial dynamism in Europe is concentrated in metropolitan areas such as Paris, London and Munich, and in research-intensive regions such as Cambridge, Oxford, Lyon, Bonn and Heidelberg.
“Our findings show that Europe has considerable start-up potential but needs to foster an economic environment that enables ambitious start-ups to grow and become scale-ups,” says Professor Hanna Hottenrott, head of ZEW’s “Economics of Innovation and Industrial Dynamics” Research Unit. “While France significantly increased its expected scale-up potential during the period under review, Germany lost some momentum despite its strong starting position,” she adds.
Lena Füner, a researcher in the “Economics of Innovation and Industrial Dynamics” Unit, says: “European competitiveness is determined by many factors. Market entry, financing, access to talent and barriers to growth need to be considered together. Individual measures are not enough if young companies cannot sufficiently scale in fragmented markets.”
France Catches Up, UK and Germany Should Observe Best Practices
The development in France is especially striking: The number of potential scale-ups, measured in relation to GDP, roughly tripled between 2009 and 2023. The researchers see this as an indication of a comparatively favourable environment for growth-oriented firm foundations. This ranges from policy initiatives, such as Bpifrance, the French Tech Mission and Station F, to simplified procedures for setting up a business.
Although Germany started from a higher level, it saw scale-up dynamics decline during the period under review. In contrast, the scale-up potential in the United Kingdom initially increased until 2017, before subsiding again.
Importantly, in all three countries, a large share of the existing potential remains untapped.
Strong Regional Ecosystems Foster Growth
In all three countries, places with many start-ups tend to also have more high-growth companies. In France, firm foundations with high growth potential are concentrated mainly in the major metropolitan areas of Paris, Marseille and Lyon. In the United Kingdom, London dominates, while Cambridge and Oxford stand out for their particularly high entrepreneurial quality. This underlines the importance of university towns with strong research communities. By contrast, Germany has a more decentralised structure, with Munich as a particularly strong hub and regions such as Bonn, Heidelberg and Jena, where the quality of start-up activity is high.
About the Methodology
The ZEW policy brief is based on data from more than nine million firm foundations in France, Germany and the United Kingdom between 2009 and 2023, with data for the UK available until 2020. The study examined newly established limited companies at regional level. To determine the growth potential of start-ups, the researchers use information that was available shortly after market entry to forecast subsequent scale-up success. The analysis methodologically follows the US-focused “Start-up Cartography Project” and distinguishes between the number of start-ups, the expected quality of the start-ups, the expected absolute number of potential scale-ups, and the ratio between expected and actually realised scale-up success. This enables the identification of regions that produce a particularly high number of start-ups and where this potential is translated into high-growth companies.
