Europe-wide initiatives are looking to provide tech start-ups with the financial support they desperately need.
Surveys show that access to venture capital is still one of the biggest barriers for innovative firms, especially fast-growing ones. We have identified three major problems. First, venture funds in the European Union are relatively small, with an average size only around €60 million, half as much as in the US. This limits their ability to make the larger investments needed by firms as they scale up. Second, European funds do relatively badly in raising capital from major institutional investors, which makes them overly dependent on public funding. Lastly, there are significant barriers for venture funds to operate on a trans-national basis – such as support from national governments, which often significantly restricts their geographic scope.
Improving access to venture capital With the help of the European Investment Fund, we are aiming to establish one or more independently managed pan-European funds-of-funds. They will operate in five or more countries, with a size of at least €500 million and a majority of private capital. The EU will provide investments up to €400 million, capped at 25%. The funds will have to raise the rest from other sources, including large institutional pension funds, insurance funds and sovereign wealth funds that find it difficult to access venture capital now.
Furthermore, we are proposing to reinforce existing financial instruments and to mobilise additional financing for small and medium-sized enterprises (SMEs) in the start-up and scale-up phases. We are also looking into additional incentives for venture capital, such as schemes allowing private investment funds to benefit from public guarantees when raising debt finance.
We’re approaching this from other angles, too, such as piloting a matchmaking platform to remedy the current lack of information on financing possibilities, amending regulations to facilitate cross-border financing for SMEs and monitoring tax incentives for investments in start-ups and scale-ups.
Low private investment in R&D and a business environment that provides insufficient support for innovation are holding Europe back
Improving innovation ecosystems
A number of weaknesses in the innovation ecosystem are holding Europe back. These include low private investment in research and development, and a business environment that provides insufficient support for innovation.
This is why the Commission is aiming to create a more coherent framework enabling start-ups to grow and do business across Europe. Besides addressing access to finance, the initiative seeks to help firms navigate regulatory requirements, including simpler tax filings, and foster ecosystems where start-ups can connect with potential partners like investors, businesses, universities and research centres. Finally, our companies require a fully completed and effectively functioning single market, including the Digital Single Market, which provides access to 500 million consumers.
The potential of European innovation
Europe has huge innovative potential in a wide range of areas, including the circular economy, low-carbon vehicles, space technologies, agro-food, healthcare and new digital and data technologies. These include artificial intelligence, big-data analytics, block-chain and quantum computing.
To strengthen support for these innovations, we propose the creation of a European Innovation Council to help our top innovators realise their potential and complement the impact of the European Framework Programme for research and innovation, Horizon 2020. Fifteen leading European entrepreneurs are advising us on the creation of this council.
A column by:
A Portuguese engineer and politician, Carlos Moedas is the European Union’s Commissioner for science, research and innovation. @Moedas
► Read more about this topic in our main feature: Brain drain: How Europe is fighting back