The European Tech Champions Initiative (ETCI) will not only help to fund the scale-up of European technology companies, it should also help to develop the European venture capital market.
By Gelsomina Vigliotti and Marjut Falkstedt
From the climate to geopolitics to new technologies we are living in a period of unprecedented and rapid change.
To adapt to these changing times and to thrive in the future, we need to invest heavily in innovation today to maintain our competitiveness, strengthen our technological sovereignty and succeed in the transition to a net-zero carbon economy.
Europe lacks the environment for large venture investment, in contrast to the US and Asia. That’s why the European Investment Bank Group is stepping in, to build an investment platform for this new world to boost venture capital in Europe.
Europe has great innovation potential with some of the most educated people in the world. We have a long, proud history of world-changing innovations, from the printing press to the internal combustion engine and the world’s first mRNA vaccine against COVID-19.
Today, many European companies rank among the world’s best, across a wide range of sectors.
Over the last decade, Europe has built a fast-growing start-up scene that launched global players, including more than 70 unicorns, and created more than two million jobs. Between 2010 and 2020, investment in European start-ups rose sixfold to about €40 billion.
The problem, however, occurs after the start-up stage. Europe does less well in nurturing young companies because we fail to support their growth into the industry leaders of tomorrow.
Far too often, promising European start-ups struggle to raise the capital they need to expand and mature. They are forced either to move abroad to the deep capital markets of the US or sell themselves to larger rivals with deeper pockets.
In 2020, nearly a quarter of all European venture capital deals had at least one US or Asian investor. European investors accounted for a small minority of the capital raised in most deals, particularly the biggest ones.
One of the reasons for this is simply that there are far fewer venture capital funds in Europe than in the US. There are even fewer large venture capital funds capable of supporting the investment needed to scale up the most successful companies.
The number of venture capital funds with €200 million to 500 million to invest is three times greater in the US than in Europe. The number of funds in the €500 million to €1 billion or more range is six to eight times greater in the US. Start-ups as a consequence are typically able to raise far more—up to five times as much—in the US than in Europe.
If Europe is going to be competitive, this must change now.
To address the continent’s venture capital lag, the European Investment Bank Group has just launched with a number of EU member states the European Tech Champions Initiative.
It’s a fund of funds that will help European late-stage venture capital funds emerge and grow so that they can channel much-needed scale-up capital to promising European innovators.
Managed by the European Investment Fund, the subsidiary of the EU bank that offers equity financing, the European Tech Champions Initiative has secured an initial €3.75 billion of commitments from Germany, France, Italy, Spain, Belgium and the European Investment Bank Group.
The size of the fund is expected to grow with new commitments over time. This is a first-of-its-kind growth stage fund-of-funds in Europe, which will benefit from the EIF’s longstanding relationships and expertise in nurturing VC ecosystems across Europe.
Following the inauguration of the ETCI – which took place on February 13 – we can already expect in our pipeline 10-15 investments in large venture-capital funds of approximately €1 billion.
In doing so, ETCI seeks to mobilise more than €10 billion of investments in innovative companies in their growth stage. This scale of investment would make a material impact in terms of reducing the gap with the US.
Beyond supporting our most promising tech companies by injecting such a significant volume of capital into the market, the European Tech Champions Initiative will also help develop an asset class which will be attractive to institutional investors and help maintain a continuous flow of funding to European scale-ups.
The initiative is the centrepiece of a wider, concerted effort to boost the financing ecosystem for Europe’s late-stage innovative companies launched by France and Germany in February 2022.
The stakes are high, and we need innovative ideas to spur innovation.
New technology companies and innovations are vital to the strength and competitiveness of our economies. They are also a central part of our plan to decarbonize our economies and tackle the climate crisis.
After all, the solutions for these challenges often do not yet exist; innovation is crucial to overcoming them.
Ultimately, our ability to innovate and retain pioneering companies is vital to maintaining our technological sovereignty, our position in the world, and our ability to set standards on the global stage.
Gelsomina Vigliotti is the vice-president of the European Investment Bank and chair of the board of directors of the European Investment Fund.
Marjut Falkstedt is the chief executive of the European Investment Fund.