Making Europe worth building, scaling, and staying in for SMEs

European SMEs should not only survive at home, but grow, innovate and compete globally. This was the central theme discussed during the Investment for a Competitive and Sustainable EU Intergroup event “Unlocking investment and Leveraging EU funding for SMEs”, hosted by MEP Isabel Benjumea, and co-organised by Invest Europe, Accountancy Europe, Bpifrance and AECM.

The roundtable brought together the full SME financing ecosystem, from private capital investors and accountants to promotional banks, guarantee providers and policymakers. Contributions came from Diana Meyel (Cipio Partners), Christian Dubarry (Bpifrance) – members of Invest Europe – Paul Gisby (Accountancy Europe), Miguel Barbosa (Banco Português de Fomento) and Elena Martines (Cabinet of Commissioner Ekaterina Zaharieva, European Commission), all moderated by Rebecca Christie (Bruegel), illustrating the diversity of perspectives needed to address Europe's SME financing challenges.

Europe's SME definition has outgrown itself

The SME definition has not changed in over 20 years, and many SMEs no longer fit neatly into traditional SME categories. But most importantly, the current definition now sits between the new definitions of innovative startups and scaleups, as well as that of small mid-caps (SMCs), which distinguish between control and financial investment, while the SME definition does not. All while multiple definitions coexist across different pieces of legislation. This creates unnecessary complexity.

The SME framework has to be simplified and aligned, while ensuring that companies do not face unintended penalties for raising external capital, especially given the wide range of incentives and support measures that SME status is linked to.

The right capital, at the right stage, with the right support

Different SMEs have different financing needs, depending on their stage of development and business model. A one-size-fits-all approach is ineffective. Financing is a continuum.

That’s why public finance should not replace private investment for SMEs, but rather act as a multiplier of it. Europe already has successful examples of instruments that have achieved this.

At the same time, Europe continues to face challenges in attracting more institutional capital into venture and growth investing, while AIFMD thresholds create behavioural distortions, often keeping funds artificially small, as investors do not want to bear the additional regulatory burden associated with crossing them.

Many SMEs also continue to face difficulties identifying relevant public support programmes, understanding eligibility requirements and navigating application procedures. Complexity consumes time, and innovators spend resources navigating systems rather than growing businesses for far too long.

We need to build a financing ecosystem capable of supporting SMEs throughout their growth journey, through simpler and more transparent funding frameworks, better (financial) awareness, and digital solutions that help SMEs identify and access the most appropriate financing instruments.

Europe creates SME champions. Others help them scale.

Many of Europe's most successful SMEs continue to relocate abroad, establish Delaware structures or pursue listings on Nasdaq rather than European exchanges.

EU-Inc. has the potential to be a game changer by reducing fragmentation and helping companies expand across borders more easily, and its success should be more than just an ambition.

In addition to reducing fragmentation, incentives matter just as much. If we want to keep European champions, employees must be able to share in their success through predictable and attractive employee ownership schemes, without unnecessary tax and regulatory friction.

Europe's culture also remains too risk-averse. Fear of business failure, slow insolvency procedures, and regulatory approaches that prioritise avoiding mistakes over enabling growth continue to hold companies back. Simpler and faster insolvency procedures would allow entrepreneurs to fail fast, restart and build new businesses without disproportionate penalties. Europe needs a mindset shift.

Unlocking Europe’s SME potential

Europe has considerable strengths, but translating the current ambition into practical reforms is now an urgent matter, a momentum we cannot afford to lose.

Unlocking SME growth will require a combination of simpler rules, stronger cross-border and investment ecosystems, better coordination, and a cultural shift that embraces entrepreneurship and risk-taking.

Invest Europe is looking forward to continuing to advocate for an SME ecosystem that helps more SMEs successfully become (global) champions – throughout the initiatives in the Startup and Scaleup Strategy and beyond.