The UK, Sweden, Finland, and Denmark provide a winning formula that Belgium should adopt.
Governments looking to stimulate entrepreneurship and scale-ups typically opt for either strict regulation or extreme deregulation. However, neither of these extremes proves optimal. Instead, the right mix of regulatory measures is key. Notably, the importance of debt financing is often underestimated. While the United Kingdom leads Europe in supporting scale-ups, Sweden, Finland, Denmark, and Portugal also serve as role models. Belgium, however, lags behind.
These findings stem from a new academic study conducted by postdoctoral researcher Thomas Standaert (Ghent University), Professor Veroniek Collewaert (Vlerick Business School, KU Leuven), and Professor Tom Vanacker (Ghent University, University of Exeter).
The study analyzed the percentage of scale-ups across 33 European countries and examined how a combination of four legal frameworks – concerning labor, creditors, shareholders, and property rights – impacts entrepreneurship. The research focused exclusively on young scale-ups, no older than ten years.
Belgium does not rank highly in terms of fast-growing companies that generate employment. With only 9.5 percent of its businesses qualifying as scale-ups, the country ranks 23rd out of 33. Moreover, Eurostat statistics show that the gap between Belgium and higher-performing nations has remained largely unchanged over time.
Six key factors for scaling businesses
For companies aiming to grow and secure the necessary resources, four legal frameworks play a direct role in accessing funding, talent, and other critical assets:
• The degree to which the government protects creditors and facilitates access to debt financing.
• The level of protection afforded to minority shareholders, influencing access to risk capital, including venture capital and angel investments.
• The extent of labor market regulation, ranging from stringent employment laws to a more flexible framework.
• The strength of property rights protection, ensuring companies can retain the value they create.
Additionally, two broader economic factors significantly shape the entrepreneurial environment: a country's level of economic development and its degree of openness to international trade.
"Fast-growing companies are crucial for a nation's economy”, explains Dr. Thomas Standaert. “Many governments attempt to boost entrepreneurship and scale-ups by either over-regulating or completely deregulating their markets. Our research demonstrates that neither extreme is effective. No single regulatory measure is sufficient or strictly necessary to drive rapid growth. Instead, success lies in the right combination of policies."
The overlooked role of debt financing
The study highlights a key commonality among countries with high scale-up rates: a strong legal framework that facilitates access to at least one form of external financing. Surprisingly, debt financing can be just as valuable as venture capital.
"In recent years, numerous European initiatives have sought to improve funding access for high-growth firms, with a primary focus on venture capital”, says Professor Tom Vanacker. “While this is beneficial, we see that many scale-ups also rely on debt financing. Therefore, policies that protect creditors are equally important. The prevailing notion that venture capital is the sole key to growth must be reconsidered."
Success models: The UK and Scandinavia as examples for Belgium
The UK, Sweden, Finland, and Denmark provide a winning formula by strongly protecting both creditors and minority shareholders while also ensuring robust property rights. This approach facilitates access to financing, which is critical for rapid expansion, while ensuring that both entrepreneurs and investors benefit from growth.
Interestingly, labor market regulation played no decisive role, as countries with both strict and flexible labor laws achieved high scale-up rates.
Portugal and Spain also surpass the European average in terms of fast-growing businesses. Their success is linked to a combination of strict labor laws, easy access to venture capital, and strong property rights. Employee protections encourage workers to support ambitious, high-risk growth strategies.
"Belgian policymakers should closely monitor the scale-up ecosystems in the UK, Ireland, and Scandinavia”, according to Professor Veroniek Collewaert. “Belgium has already made strides in protecting minority shareholders and property rights, and in 2019, we improved protections for creditors. However, these leading countries continue to outperform us, particularly in labor market flexibility. If the gap widens, Belgium may need to reconsider its rigid labor laws. Potential areas for reform include minimum wages and termination notice periods. Increasing employment rates would also help strengthen our labor market. Moreover, while Belgium performs reasonably well in shareholder protections, the UK and Ireland demonstrate that there is still room for improvement."
