A new €3.75 billion Fund of Funds supports EU tech champions in their late-stage growth phase and thus reinforces Europe’s strategic autonomy and competitiveness.
On 13 February, the European Tech Champions Initiative (ETCI) was officially launched. The initiative provides financing to European venture capital funds to support European tech champions, focused on companies with a product or service already on the market and scaled up. In the long term, ETCI’s goal is to help plug financing gaps, preventing too many of Europe’s most promising technology start-ups being bought up by better financed overseas Venture Capital funds, and so to reinforce Europe’s strategic autonomy and competitiveness. So far, the ETCI has a total budget of €3.75 billion pooled from the European Investment Bank (EIB) Group, alongside five EU member states (Spain, Germany, France, Italy, and Belgium). Further commitments from other EU Member States are expected in future. The fund will invest public money, hoping an initial €1 billion of funding will leverage an additional €10 billion investment in European scale-ups.
The problem that the fund seeks to address is familiar: Europe’s tech start-ups are often acquired by overseas tech companies and venture capital funds with much deeper pockets than their smaller European counterparts. These buyers then often encourage those start-ups to relocate overseas. Concern over the issue has already spurred the Pan-European Scale Up Initiative under the French Presidency of the Council of the EU one year ago. The ETCI is a cornerstone of this initiative, and its investments will deepen Europe’s scale-up venture capital markets by supporting European funds investing in companies seeking to raise investment rounds of over €50 million. Furthermore, it aims to create an asset class for European institutional investors to diversify their portfolios, thus maintaining a continuous flow of funding to European scale-ups. This would lead to a positive self-sustained dynamic in the European high-tech landscape nurturing European innovation and entrepreneurship.
The European Investment Fund (EIF), a fund with the mission to support Europe’s SMEs contributing to the pursuit of key EU policy objectives, manages the ETCI and appointed its former CEO Alain Godard to become managing director. The EIF is part of the European Investment Bank (EIB), the world’s largest multilateral lender owned by the 27 EU member states. The EIB contributed to the fund with €500 million, while the largest part of its total budget comes from Spain (€1 billion), Germany (€1 billion), France (€1 billion), Italy (€150 million) and Belgium (€100 million) and is still far away from the set goal of €10 billion.
At the end of last year, the EIB also took over part of the management of the European Innovation Council Fund (EIC Fund), the investment component of the EIC Accelerator (see SwissCore article). Since this management change, the EIC Fund has made 77 investment decisions for deep-tech companies worth over €521 million. 42 (€331 million) of these investment decisions took place in February 2023, while a total budget of €1.13 billion of funding in grants and equity investments is foreseen for 2023. While the EIC Accelerator supports promising high-risk tech start-ups directly through a combination of grants and equity investments ranging from €500’000 to €15 million per company (more in justified cases), the ETCI supports companies at a later stage, with bigger investments.
At an earlier stage, companies are supported by various other instruments funded through Horizon Europe. Among recent developments, EIT InnoEnergy expanded its equity portfolio with 18 new companies during 2022. InnoEnergy is an initiative that focuses on accelerating sustainable energy innovations and provides support through its activities at the edge of the knowledge triangle. In addition, in February 2023, the EIC invested €79.3 million in 34 new EIC Transition projects, seeking to develop market applications from the results of earlier stage research projects in other parts of the Horizon Europe programme.
Another key priority in supporting the European start-up community is to better connect ecosystems across Europe. This is being addressed by a new consortium of business accelerator programmes (BEYOND) that was launched in 2022, aiming to Boost pan-European Exchange between acceleration ecosYstems for improving quality and Outreach of busiNess acceleration services in Developing innovation ecosystems. The BEYOND platform channels investment flows from stronger ecosystems toward emerging ones using its Virtual Accelerator Marketplace (VAM). With the presence of different VCs, the platform aims to better connect start-ups, investors and accelerators from across the continent and to make the funding application process 10x more efficient for start-ups. Also, the EC’s Innovation Radar, which recently hit the milestone of 10’000 innovations developed with EU funding (see SwissCore article), has similar goals.
Many different funding opportunities are available to support European companies on their way to becoming Tech Champions. However, it is still to be seen how well the various initiatives complement each other and if potential synergies can be used successfully. Anyway, as Christian Lindner, Germany’s Federal Minister of Finance, said, “with the European Tech Champions Initiative, we are now filling a gap in the financing landscape”, which contributes, according to Bruno Le Maire, French Minister of the Economy, Finance and Industrial and Digital Sovereignty, “to innovation, growth and job creation, and therefore to the EU’s economic, social and environmental future.”.