

WSJ Europe: EU to trash non-European private equity firms? - hga
http://www.google.com/search?q=%22and+hedge-fund+managers.+This+is+not+the+way+to+revive%22+site%3Awsj.com

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hga
Anyone know how much EU startups depend on this source of capital?

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anigbrowl
I can only offer an anecdotal perspective, but would say 'not too much'. My
experience in a few Euro countries with both hrdware and software startups
(both as participant/employee, and as friend-of-founder) is that most startups
follow one of 3 routes (or some combination thereof):

    
    
      1. Friends & family capital, recycle revenue into firm
      2. Affiliate with a university to pursue research grant
      3. Industrial development grant from govt. agency
    

This is assuming something speculative that mightn't easily get normal bank
funding, of course. And it's rather out of date.

I don't think this will have such a big effect on VCs. It's not so much anti-
US (although protectionism is a worry) as the EU spanking the UK for the
previous government's lack of financial oversight. Basically London is the
European hub for finance partly thanks to history but also because the UK has
access to all EU markets but the regulator (Financial Services Authority)
famously employed a 'light touch' approach. Unlike the SEC, the FSA doesn't
have a thick rulebook with strict compliance, but has generally operated on a
case-by-case basis, leading to a perception that it is overly biddable.

So the EU's position is basically that they are no longer willing to trust
this 'gentleman's agreement' approach to regulation as the sole compliance
regime to get access to the whole EU. There's also a bit of a sideswipe at the
UK's persistent habit of wanting all the market access benefits but wanting
opt-outs of any EU regulations they dislike - having one's cake and eating it,
so speak. The incoming Conservative government is historically anti-EU (they
still feel the EU humiliated Thatcher by inducing her to sign a treaty she
didn't read properly), so to some extent the other EU countries are making the
point that they don't want 5 years of being scapegoated for the inevitable
deep cuts to the UK budget, or having treaty negotiations put on ice because
of the British aversion to holding referenda.

I can understand Geithner's worry about it being a form of regulatory
protectionism^ but think to a certain extent he is also playing a diplomatic
game. It would be a distinct feather in his cap if he could export something
similar to the SEC ruleset to Europe, which would lower the compliance burden
for US firms substantially, in kind of the same way that the Norwalk Agreement
seeks to harmonize US and international accounting standards to bring about a
consistent global compliance regime. While the SEC has had its ups and downs
in terms of regulatory consistency and responsiveness, it's generally
respected for the transparency of its compliance requirements.

See also: [http://www.economist.com/business-
finance/displaystory.cfm?s...](http://www.economist.com/business-
finance/displaystory.cfm?story_id=15759924)

^ Of course, protectionism already happens to a large extent, and not just
with regulation. For example, many non-EU firms are headquartered in the UK to
be in the middle of London's giant financial market, but domiciled in Ireland
to take advantage of ~10% corporate tax rate.

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hga
That's the impression I've gotten from wathing a few EU software startups from
quite a distance (across the pond).

Thanks a lot for the info and the more detailed essay on what this is likely
all about; it fits in with what I know of the lay of the land (e.g. the U.K.'s
recent financial history) while bringing me up to date on what's happening in
general in this area, which isn't getting the attention that e.g. the
sovereign debt problem is commanding right now.

Pretty much all of us have our own local and regional messes to pay attention
to, so concise portraits like this about things elsewhere are most
appreciated.

