Innovative Enterprises, Start-ups and Scale-ups: The New European Definitions
Innovation is a key driver of competitiveness and growth in the European Union. This is reaffirmed by the European Commission, which, through Recommendation (EU) 2026/729 of 18 March 2026, recommends the adoption of common definitions of “innovative enterprises”, “innovative start-ups” and “innovative scale-ups”.
This is a non-binding invitation to its addressees, namely the Member States, the European Investment Bank (EIB) and the European Investment Fund (EIF), to use the definitions contained in the annex to the Recommendation, and, in particular, for the former (the Member States) to align their national legislation with those definitions, in order to enable enterprises to grow rapidly within the European Union, thereby contributing to Europe’s strategic autonomy.
Legal uncertainty is in fact one of the reasons that led start-ups and scale-ups founded in the European Union to relocate key parts of their business abroad, often to the United States (from 2008 to 2021, nearly 30% of European unicorns – start-ups valued at over one billion dollars – moved their headquarters to the United States).
However, one data point is encouraging. Research conducted by BEI Group Advisory in close collaboration with the Directorate-General for Research and Innovation of the European Commission found that many founders of relocated start-ups and scale-ups would have preferred to stay, grow and scale up within the European Union under more flexible and less fragmented regulation.
Innovative Enterprise
An enterprise qualifies as “innovative” if it meets at least one of the following criteria:
- R&D criterion: over the past three financial years, it has incurred research and development (R&D) costs amounting to at least 10% of its total operating costs or at least 5% of its total net sales;
- product development criterion: it has developed, is developing, or will develop new or substantially improved products, services, or processes compared with the state of the art in its industry, which carry a risk of technological or industrial failure.
The “innovative” character may therefore be independent of R&D investment: even enterprises that develop innovative solutions without dedicated “laboratories” may fall within the definition.
Innovative Start-up
To be classified as an innovative start-up (a subset of the innovative enterprise), an enterprise must meet the following requirements cumulatively:
- be an innovative enterprise in accordance with the criteria set out above;
- be an autonomous enterprise (not controlled by third parties beyond specified thresholds);
- employ fewer than 100 persons and have an annual turnover or annual balance sheet total, or both, that does not exceed EUR 10 million;
- have been operating for less than 10 years following its registration.
The ten-year limit is a significant novelty, designed to include deep tech start-ups (active in advanced digital technologies, biotechnologies and clean technologies) that may require longer R&D cycles, capital-intensive development phases, regulatory validation processes and delays in revenue generation.
Innovative Scale-up
The next stage in entrepreneurial evolution is the innovative scale-up, which requires:
- qualification as an innovative enterprise;
- autonomous enterprise status;
- annual turnover or balance sheet total, or both, exceeding EUR 10 million;
- average annualised growth exceeding 20% (in employees or revenues) over the two preceding years;
- fewer than 750 employees or not publicly listed.
This definition reflects the OECD’s “scalers” logic, distinguishing rapidly expanding enterprises from more established ones.
Impact of the Recommendation
Although they lack direct binding force (so-called soft law), recommendations cannot be regarded as having no legal effects. National courts are, in fact, required to take them into account when resolving disputes, particularly where
- they clarify the interpretation of European Union provisions implemented by national law or
- they aim to specify binding European Union law.
From a practical standpoint, when there is a misalignment between national legislation and the content of recommendations, a stronger justification for the misalignment is required.
In short, even through a simple recommendation, the message from Brussels is clear: Europe wants to retain its talent and its enterprises. It is therefore very likely that, to avoid losing attractiveness, all Member States will adopt the definitions “suggested” by the European Commission.
