Open Letter to Members of the European Parliament:
The Digital Markets Act
Impact on South European
Venture Capital and Startups ecosystems
Madrid, 25th October 2021
Dear Members of the European Parliament,
We, the undersigned civil society and trade organisations, are writing to you regarding the Digital Markets Act (DMA) to express our support, by sharing our concerns and recommendations, in order to have the best possible regulation for the digital ecosystem common good.
European startups and scaleups are at the heart of the Digital Single Market. Accordingly, their views are crucial within the European and national legislative processes impacting them.
The Digital Markets Act (DMA) is an instrument both relevant and necessary. Some of its assumptions, however, do not reflect the interconnected nature of the tech ecosystem. Most notably, its direct and unintended effects will hit strongly on venture capital investments in Europe, potentially triggering a flux of investments to other regions, or incentivizing corporate fragmentation to avoid falling within the scope of the “gatekeeper” designation.
It should be possible to promote a free market alongside regulatory tools to ensure fair, equitable access to B2B opportunities – while giving consumers a choice. This would be a way to better design any transition towards ensuring Europe’s digital competitiveness.
In line with the increased impacts on the South European startup ecosystems, which are traditionally more exposed to market volatility, We, the co-signers, come together in an enhanced effort to jointly share our stance with the wider tech community and policy-makers in
Europe, through highlighting our concerns and convey a set of recommendations which will strengthen the future-proofness of the DMA:
# The DMA’s assumption that growing too much will come at the cost of being regulated ex-ante is not enough for Europe’s ambitious digital and green transformation goals over the next decade;
# The proposal skips some necessary guiding principles for the single market’s future competitiveness. The DMA could better anticipate ways to support and prepare European startups’ journey towards becoming a dominant player within Europe’s digital single market;
# European companies may be incentivized by the DMA to fragment themselves, to avoid reaching the “gatekeeper stage”, thereby hampering their ability to compete globally;
# By mainly focusing on existing large players rather than on unleashing innovation from within, the DMA proposal lacks the connection with other EU initiatives to reinforce Europe’s entrepreneurial ambition;
# The DMA debate could explore the topic from a more positive perspective, establishing a competitive and inclusive vision, capable of foreseeing scenarios based on collaboration between different business stakeholders, of different sizes;
# Net VC numbers could plunge in Europe for a period still to be estimated, as the impact of the DMA on the ecosystem and the uncertainty it can generate keeps under assessment. The impact could be greater and deeper in more risk-averse investment models such as corporate ventures and regular M&A;
# Mergers, acquisitions and the so-called killer acquisitions should not be framed under a “one size fits all” logic. Each merger and acquisition is the result of differing sets of circumstances, which means that not every acquisition is a to-be-controlled killer one;
# Centralizing the DMA gatekeepers’ deliberations within the European Commission is pragmatic, as long as the Commission sets minimum instruments for the Member States to provide timely context and information;
# On data processing and usage, greater focus on what happens at the very beginning of commercial relations between the current gatekeepers and their business users (and then their final consumers/users), would be a simpler way to nudge compliance and neutralize future conflicts of interest;
# The European Commission could double-down in a systemic economic consultation to further preview and anticipate DMA’s consequences on the investment market, and the impact it will have on up-and-coming European players in the digital marketplace.
While interinstitutional negotiations are approaching, systemic impacts on European startups and scale-ups paths to growth in Europe remain to be fully accounted for. In this sense, the following set of questions are yet to be answered:
- Will innovative SMEs and startups concerns and interests be better reflected before interinstitutional negotiations take place – negative impact on investments, on M&A, involvement in strong regulatory dialogues to ensure the DMA remains targeted?
- As acquisitions are an integral part of startup ecosystems, and that none should be considered as a “killer” from the outset, does the DMA offer safeguards to ensure the vital M&A / Exits startup lifecycle is not adversely impacted?
- Startups are customers, complements and competitors of so-called “gatekeepers”. Yet the DMA suggests targeting these “gatekeepers” without knock-on effects for the rest of the platform economy and consumers. How to ensure that the DMA will not have negative unintended consequences for 10,000 startups in Europe and consumers?
- The DMA tackles different matters through a one-size-fits-all approach. Wouldn’t a case-by-case approach be more effective when there are issues of competition at stake?
- Despite impacting the European startup ecosystem as a whole, the DMA will certainly hit hardest on the Southern European startup ecosystems. Given startups’ strategic role in the EU, and most especially in these Member States, are these differentiated impacts sufficiently accounted for in the DMA or in any other piece of legislation?
Signed by:
Beta-i: Alisson Avila – Co-Founder, Public Affairs & Knowledge Principal
SpanishStartups Association: Carlos Mateo – President
Spanish Association for the Digital Economy: César Tello – General Manager WOOM Health: Laurence Fontinoy – CEO and Cofounder
Roma Startup: Gianmarco Carnovale – Chairman