Startups and public procurement - an untapped strategic tool for European innovation

Finding clients is a key objective for any company. And while the European Union has been efficiently awarding grants and co-investments with programs such as the European Innovation Council in the past, public procurement offers much more advantages in the form of buyers. Not only it reinforces the position of startups towards their investors, to whom they can show potential clients, but it also sends a signal that the European Union trusts its own technologies. European public services are prestigious clients for the rapidly growing companies, and trusting their services also means supporting employment, growth and consequently tax revenue in Europe. It is also, at the opposite of a grant, not just a single subsidy but a contract for which the State gets in exchange a real, innovative service or infrastructure that will modernise its public services. Lastly, studies have shown that procurement is more likely to generate innovations than research and development (R&D) subsidies. 

Hence, public procurement is the tool to enter a market,  getting a solid reputation and credibility, as well as building a strong industrial track record. A very needed objective for a European Union that is lacking continental champions.

Yet in Europe, the majority of startups remain unfamiliar to most public procurement. Our numbers show that only 17% of French startups’ revenue come from public buyers. A European Commission’s report from 2021 furthermore showed that only 29,1% of startups and young companies had tried to access public procurement, despite a high level of success (91,3%), which can be explained by the fact that only the startups having a real chance of winning a public procurement are attempting to do so, due to the heavy burden and resources implications the procedure implies for these companies. Still, there is a real willingness in participating in public procurement, as 71,4% of interviewed startups for this report expressed their interest. 

This paper will serve as our answer to the European Commission’s consultation on public procurement. Based on the existing literature and interviews with more than 40 of our members, we believe that a reform of the current European public procurement rules is highly needed. Dating from a pre-Covid, pre-Green Deal, pre-Trump administration and pre-Draghi report era in 2014, the current rules can not deliver on the objectives of developing European tech champions. The objective of this publication is to report the feedbacks of our members, which can be divided in three main axes: 

(i) Public procurement procedures still fail to adequately attract and benefit startups;
(ii) Criteria must be revised for a new geo-economic world
(iii) Better branding should be deployed for European tech. 

Overall, this paper reflects the need for more coherence in policymaking, and we therefore call on the European Commission to reform existing rules with a Regulation rather than a Directive. Moreover, we want to emphasise that for entrepreneurs to develop their solutions, stability is important. These rules should be ambitious so as to not be re-shaped every couple of years while allowing for flexible changes if needs be before a 10 year-time period would pass prior to the next revision of the public procurement rules.