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February 2, 2025 was circled on every European tech founder’s calendar. Today, the first enforcement provisions of the EU’s sweeping AI Act officially go into force — and the mood across the continent’s startup ecosystem is less celebration, more scramble.
The initial phase targets what the regulation classifies as “unacceptable risk” AI systems — including social scoring, real-time biometric surveillance in public spaces, and manipulative AI designed to exploit vulnerabilities. Penalties for violations can reach €35 million or 7% of global annual turnover, whichever is higher. For a seed-stage startup, that’s not a fine. That’s an extinction event.
What actually changes today
The AI Act uses a tiered risk framework. Today’s enforcement covers only the top tier — prohibited practices. The heavier obligations around “high-risk” AI systems (think hiring tools, credit scoring, medical diagnostics) won’t kick in until August 2026. General-purpose AI model rules land in August 2025.
But the psychological weight of today’s date extends far beyond the banned categories. According to a survey from the European Digital SME Alliance, more than 60% of small and medium-sized tech companies say they are not adequately prepared for compliance with any phase of the AI Act. Nearly half reported that they hadn’t yet conducted a risk classification of their own AI systems — a foundational first step.
The numbers suggest a gap that isn’t just technical. It’s cognitive. Many founders built their companies in an environment where European AI regulation was theoretical. Today, it’s operational.
Why most startups say they aren’t ready
The readiness problem has three roots, and none of them are simple.
1. Regulatory ambiguity
Despite years of legislative debate, critical details remain unclear. The EU’s AI Office is still developing guidelines, codes of practice, and technical standards that will define what compliance actually looks like in practice. Startups building AI-powered products are, in many cases, trying to hit a target that’s still being drawn.
“We know what’s prohibited in theory,” one Amsterdam-based AI founder told me. “But the grey areas are enormous. Is our recommendation engine ‘manipulative’? Depends who you ask.”
2. Resource constraints
Large enterprises like SAP and Siemens have already stood up dedicated AI compliance teams. Early-stage startups don’t have that luxury. Legal counsel specialising in AI regulation is expensive and scarce. For a team of twelve burning through runway, hiring a compliance officer feels like a contradiction — you need revenue to survive, but you need compliance to operate.
3. A misaligned timeline
Startup development cycles and regulatory timelines operate on fundamentally different clocks. Products pivot quarterly. Regulations take years to draft and then arrive all at once. Several founders I spoke with described a kind of regulatory whiplash — building fast to meet market demand while simultaneously trying to decipher 144 pages of legislation that references dozens of yet-to-be-published standards.
The broader competitive anxiety
This enforcement moment arrives amid growing unease about Europe’s position in the global AI race. While EU regulators have been finalising compliance frameworks, Chinese AI companies have been shipping products at a staggering pace — the recent launch of DeepSeek’s R1 model rattled markets and prompted fresh debate about whether Europe is regulating itself into irrelevance.
That anxiety is real, but it can also be overstated. Regulation and innovation aren’t necessarily zero-sum. GDPR was predicted to cripple European tech; instead, it created a global standard and a cottage industry of privacy-tech companies. The AI Act could follow a similar trajectory — painful in the short term, strategically advantageous over time.
Still, the timing matters. With stock markets jittery amid trade tensions and geopolitical uncertainty, European AI startups face a fundraising environment where investors are already cautious. Adding regulatory uncertainty on top doesn’t help the pitch deck.
What founders can actually do right now
The situation isn’t hopeless. In fact, founders who act decisively in the next six months — before the general-purpose AI rules land in August — could turn compliance into a genuine competitive advantage. Here’s where to start.
Classify your risk tier
Before anything else, determine where your product sits in the AI Act’s risk framework. If you’re nowhere near the prohibited categories, today’s enforcement date is mostly symbolic for you — but August 2025 and August 2026 are not. The AI Act Explorer maintained by the Future of Life Institute is a practical starting point.
Document everything
The AI Act places heavy emphasis on transparency, documentation, and human oversight. Start building audit trails now — training data provenance, model decision logs, risk assessments. This isn’t just about compliance. Investors increasingly want to see governance maturity.
Join a code of practice
The EU’s AI Office is actively developing codes of practice with industry input. Participating in these consultations — or at minimum tracking their output — gives startups early visibility into what “good” looks like before the rules are finalised.
Talk to your investors
Smart VCs are already factoring regulatory readiness into due diligence. Frame compliance work not as overhead, but as de-risking. In a tightening market, that narrative matters.
The road ahead
Today’s enforcement is the beginning, not the climax. The most consequential provisions — governing high-risk systems, foundation models, and general-purpose AI — are still months away. The startups that treat this moment as a wake-up call rather than a crisis will be the ones best positioned when the full regulatory weight lands.
Europe chose to regulate AI early and comprehensively. Whether that proves to be visionary or self-defeating depends less on the law itself and more on whether the ecosystem — founders, investors, and regulators — can build the infrastructure of trust that makes the whole framework functional.
The clock started today. For most of Europe’s AI startups, the real work starts tomorrow morning.
Feature image by Markus Winkler on Pexels
