Startup founders lament 'regulatory friction' despite EU simplification efforts

Europe’s complex network of overlapping regulations is hitting startup founders hard and holding back business, according to a new poll.

In a survey by the Computer & Communications Industry Association (CCIA) 79% of tech founders claim they've been hit by regulatory friction over the last year.

More than half (58%) said they'd delayed entering another EU market, 45% have paused or canceled features, and 44% have experienced delayed or lost deals.

As negotiations on the Digital Omnibus continue, the CCIA warned that many meaningful simplification measures could fall by the wayside, which has the potential to further compound challenges faced by startups.

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Some member states are resisting a proposal allowing businesses to report a cybersecurity incident once, rather than separately under seven overlapping frameworks.

Meanwhile, a fix that would establish legitimate interest as a legal basis for responsible AI training has been stripped out.

While postponing certain deadlines has provided some breathing room, many simplifications have been rejected, leaving developers with limited implementation time while essential codes, guidance, and standards are still missing.

“We warned from the start that the Commission’s proposals to simplify the patchwork of EU tech and digital rules were only the bare minimum. Instead of going further, Parliament and Council are now weakening, rejecting, or delaying even the most basic fixes," said Daniel Friedlaender, senior vice president and head of CCIA Europe.

“Europe’s innovators have shown remarkable patience in navigating today’s regulatory maze, but that patience is running out. EU institutions and member states need to wake up: 2026 must bring real improvements for tech companies. Europe knows the problems. If we refuse to fix them, we can’t be surprised if our founders look outside the EU for success.”

Growing regulatory friction

According to CCIA, nearly a quarter of survey respondents said they'd spent more than 30% of their budgets on compliance costs, while 24% are considering or have already relocated their headquarters due to regulation.

In January, the European Investment Bank, with the European Commission, found that roughly one-in-ten EU scale-ups have relocated abroad, with around 85% of those moving to the United States.

The Commission’s Joint Research Centre put the headquarters-relocation rate for venture-backed startups at between 3.3% and 4.3%, ten times the rate for comparable non-VC-backed firms.

More than half of founders said they'd steered clear of an EU country because of regulatory concerns, and only 21% said they'd seen no material impact from EU or national rules.

"Europe is already losing tech founders, products, and growth," said Masha Moisseyeva, managing director of DutchBasecamp and lead author of the study.

"When 45% of those surveyed have paused or cancelled features, 58% have delayed entering another EU market, and 44% have lost or delayed deals in a single year, the urgent need for regulatory simplification is no longer a theoretical debate about EU competitiveness. The damage is happening now.”

Regulatory confusion is rife

Much of the cost, the researchers found, comes not from compliance itself but from not knowing what compliance will require.

Indeed, founders often cite uncertainty surrounding future EU AI Act obligations before any requirement has formally bound them.

“Founders are not asking the EU to lower its standards. They are asking for clear, workable rules they can rely on across the Single Market," said Moisseyeva.

"Instead, uncertainty and overlapping obligations are dictating what they build, who they serve, and how fast they grow.”

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