HEDI MARDISOO: Stopping the Brain Drain: Can the 28th Regime Save European Tech?
From e-Residency to Startup Residency and the Laboratory of EU.inc
The Draghi report, published over a year ago, finally translated Europe’s innovation reality into facts and numbers. The conclusion was sobering: Europe is years behind the United States in building large, global companies.
It was a wake-up call for everyone in the EU — policymakers and the startup industry alike.
Did we collectively fight hard enough for the EU to become a better place for startups, or follow the money?
In response, in May last year, the European Commission launched a Startup & Scaleup Strategy — the first attempt to tackle the issue horizontally, addressing challenges across corporate law, Member State fragmentation, EU-level processes, regulatory blockers, capital, and infrastructure.
Three major themes stand out.
The Single Market is still not working, and scaling is cumbersome
Building a company in Europe still requires juggling 27 different regulatory systems. This fragmentation slows growth and increases cost exactly when speed matters most.
The proposed solution is the 28th Regime, often referred to as EU.inc — a flagship initiative of the Strategy. Its goal is to allow startups and scaleups to operate as genuinely European companies. Faster digital incorporation, harmonised corporate rules, aligned employee option frameworks, and a central company registry could significantly reduce friction for founders and investors alike.
According to current timelines, the final Regulation proposal is expected by the end of March 2026, after which it will move to the European Parliament for voting.
Capital exists — but it doesn’t flow
Europe is not short of money. Yet only a small fraction of the roughly €800 billion held by European pension funds is invested in our own innovative companies. Growth-stage capital remains limited, forcing many promising startups to look outside Europe just as they begin to scale.
Europe risks remaining a digital colony
Europe has failed to build sufficient sovereign technological infrastructure and continues to let deep-tech and high-growth companies move abroad once they become large, largely due to funding and market complexities and constraints. Innovation happens here, but value capture increasingly happens elsewhere.
Europe’s core problem is not a lack of talent, money, or ideas. It is fragmentation. Member-state protectionism continues to slow progress, as national interests too often outweigh the common European good. Everyone agrees Europe should scale; far fewer are willing to give up their individual edge to make it happen.
This is where small, fast, digitally advanced countries matter more than ever.
Estonia, in particular, is unusually well-positioned for this moment. Long before Europe began debating EU.inc, Estonia had already built a working model for startups: digital government, rapid company formation, founder and company-friendly taxation, flexible employment structures, a startup visa, and a deeply connected startup community.
Now in its 11th year, e-Residency is effectively a working version of EU.inc. With nearly 40,000 companies created, it has demonstrated that a fully digital, easy-to-manage, cross-border company — including taxation and administration — is not a theory, but a reality.
This creates a new opportunity — and a responsibility — to move fast.
While the final text of the 28th Regime has not yet been published, current indications suggest it will focus on corporate law, leaving tax and employment law to the Member States, at least initially. Coincidentally, these are exactly the areas where Estonia is among the most competitive in Europe. Much of what European startups are asking for already exists here.
That opens the door to a natural next step: from e-Residency to Startup Residency.
Instead of stopping at digital company formation, Estonia could offer a real operational base for European startups — a place where companies can incorporate, hire, issue options, and scale under a founder-friendly system, while operating across the EU through the 28th Regime.
In effect, Estonia could become the living laboratory of EU.inc.
This would not only benefit startups. It would strengthen Estonia’s economy, deepen its role in shaping European policy, and position the country even more clearly as a central node in Europe’s future innovation system — a European version of Delaware.
To conclude, a broader campaign is emerging to engage startups, policymakers, and investors around a simple but fundamental question:
Should I stay — or should I go?
Stay. Lean in. Build.
Hedi Mardisoo is the CEO and co-founder of Cachet, a member of the Board of Estonian Founders Society.
In 2025, e-residents founded every fifth company in Estonia and paid the country 125 million euros in taxes. More details in Estonian: