Key leaders of the European Start-up Ecosystem unite to propose concrete measures for unlocking innovation investment through institutional investors.
Leading voices from the European start-up ecosystem delivered a joint open letter to the European Commission, explicitly addressed to President von der Leyen, Vice-President Virkkunen, Vice-President Séjourné, Commissioner Albuquerque, and Commissioner Zaharieva. This letter was initiated by France Digitale, with the support of stakeholders such as InvestEurope, European Startup Network, Allied for Startups, and RISE Europe – alongside 20+ other organisations representing the start-up ecosystem, including the Swiss Entrepreneurs & Startup Association. The coalition comes with clear recommendations to push the innovation agenda forward, taking stock of the recent impulse for a Savings and Investment Union and ultimately mobilising more private capital to bridge the funding gap Europe is facing.
The recommendations are based on a report published by France Digitale, criticising that no concrete solutions were provided to unlock more investments at the EU level. The Paris-based association argues that Europe needs “a more proactive role from institutional investors to support start-ups and scale-ups, helping Europe to cultivate its own technology leaders and retain control over its innovations”. The recommendations build on initiatives from Member States, recognised as best practices, and could guide the new Commission in developing a political initiative that meets the needs of the ecosystem. Switzerland’s 2022 legal reforms, allowing pension funds to allocate up to 5% to venture capital and private equity, serve as an illustrative example. However, the Swiss experience shows that regulatory changes alone are insufficient, as institutional investors require larger investment vehicles to manage risk. This underscores the need for comprehensive EU-level initiatives that combine regulatory incentives with institutional participation.
Looking at the four recommendations, France Digitale brings forward concrete solutions: (i) A European label and fund-of-fund for institutional investors, (ii) a new type of assets dedicated to long-term and riskier investments, (iii) better possibilities for insurers to invest in innovation, and (iv) an improvement of financial literacy in Europe. Let us unpack them. First, the European VC Initiative (EVCI) to boost investments in the EU is based on success cases from France (Tibi Initiative) and Germany (Wachstumfond) and would help create larger European VC funds. The deployment would be done in the following way: (i) High-Level Summit to make a political announcement with large EU institutional investors (e.g., during a Council Presidency Event), (ii) set up a service in the Commission or the European Investment Fund (EIF) to screen and target all EU VCs operating in more than one country, perform free and fast due diligence of those selected, and set up a fund-of-fund structure in which institutional investor resources are pooled and then allocated to the VCs previously screened by the EIF (based on the experience of the European Tech Champions Initiative). The selected VCs and institutional investors would then come together in a club to foster collaboration.
Second, the EU should develop new types of assets, such as an EU Long-Term Savings Product, to mobilise the financial assets held by EU households. The current regulatory framework is overly complex and does not currently allow for this kind of investment. Enrico Letta’s report on the Single Market suggested relaunching the Pan-European Pension Product (PEPP), which came into force in 2022 but never caught on. In the report, the authors argue for a decentralised solution, as Christian Noyer (Governor of the Bank of France) put forward in his expert report for the French Government. In his approach, Noyer, for instance, suggests using the existing national saving products and aligning them with the new EU framework, allowing them to be transferred without tax impacts.
Third, the EU should update the capital requirements for institutional investors and provide them with incentives to invest in the innovation ecosystem. Currently, the solvency requirements for insurers and banks adopt a very prudent approach, as more reserves are needed to counteract the risk exposures leading to an economic disadvantage in Europe. Insurance companies have already voiced those concerns to the European Commission, and addressing such barriers would certainly benefit the financial landscape.
Fourth, by improving financial literacy in Europe, the Commission would increase the participation of citizens. According to a paper prepared by Bruegel at the request of the European Council in 2023, on average, only one out of two individuals in Europe is financially literate. By providing training and changing the European mindset, citizens’ approach to savings and investments could radically change and would potentially allow them to invest in alternative assets, thus pooling more funding for EU projects.
In conclusion, concrete solutions for engaging institutional investors are now on the table for the new Commission, which will need to rapidly address the innovation gap as this has been clearly acknowledged as a top priority in the overall competitiveness debate. Yet, those investors are only one part of the solution. With the discussions looming for the next Framework Programme for Research and Innovation (FP10) and the Multiannual Financial Framework as of 2028, further efforts and political willingness will be needed to unlock the European Innovation Ecosystem.