The European definitions of innovative enterprises, startups and scaleups: a major achievement for PE/VC backed companies and their investors

Europe is competing in a fast-moving global economy, where innovation is accelerating and the need for private capital to support it is only increasing. If we want our most innovative companies to start, grow and scale in Europe, we need rules that do not hold them back.

In this context, the European Commission’s new EU-wide definitions of innovative enterprises, startups and scaleups are a very welcome step forward. They send a strong signal that Europe is committed to enabling this growth and innovation within its borders, rather than pushing companies to look elsewhere for funding or to rely on capital that may not be the right fit for their trajectory.

These definitions open the door to a broader and more modern investment landscape. They reduce unnecessary regulatory frictions and bring more clarity and predictability – all of which are essential to financing Europe’s next generation of success stories.

Independence will never be a barrier for European startups, scaleups and innovative companies

For too long, fast‑growing companies that raised private capital risked being treated as if they were part of large corporate groups, simply because they succeeded in attracting investment. Under today’s SME framework, this misclassification can still strip companies of important benefits even when they remain fully independent in practice.

However, the new Recommendation makes a decisive break with that logic – a continuation of the momentum led by the Recommendation on Small Mid-Caps (SMCs) – and it does so for a very important segment of the market. It clearly recognises that innovative enterprises, startups and scaleups backed by private equity and venture capital (PE/VC) remain autonomous.

This is a major development for the innovation and growth ecosystem, one Invest Europe has consistently and actively advocated for.

In practice, this means:

• guaranteeing access to support, lighter regimes and funding opportunities, and ensuring fair competition between companies financed through different channels,

• removing a longstanding barrier that discouraged companies from taking private capital and discouraged funds from backing them, and

• taking a concrete step to address Europe’s scaleup gap, which continues to hold back European companies and European capital.

A framework that can evolve based on needs, across the broader company landscape

Of course, no definition can ever perfectly capture what innovation or growth really look like. It is inherently difficult to draw lines around something as dynamic and sector‑specific as this – and we recognise that.

But perfection is not the point. What matters is that this Recommendation solves one of the biggest structural issue that held companies back. By removing that barrier, we are already taking a major step forward for Europe’s innovative and high‑growth businesses.

Just as importantly, this change shows that Europe’s entrepreneurs – and the investors who help them create value – are heard. 

This is an important milestone, one which should now be carried through into the upcoming revision of the SME definition. SMEs should also be assessed based on what they are, not on who invests in them.

Invest Europe will continue to closely support the European Commission to ensure that future frameworks reflect these principles consistently, while continuing to refine, over time, what it means to be an innovative and growing business.