EU launches €3.75 billion fund of funds to help tech startups scale up

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Five EU member states and the European Investment Bank (EIB) Group have launched a new fund to support the late-stage growth of promising European tech startups and increase the continent’s competitiveness in innovation.

The so-called European Tech Champions Initiative (ETCI) aims to address the issue with inadequate late-stage funding, especially for companies seeking more than €50 million in capital.

Boosting European investment

“Europe’s tech startups often do not have sufficient capital to compete on a global scale and are pushed to relocate overseas. Closing this scale-up gap could create a large number of highly skilled jobs and boost growth,” the ECTI’s founders said in a statement.

“The European Investment Bank estimates that approximately 75% of European high-tech companies are acquired by non-European investors — predominantly American and Chinese — in late-stage development,” Nick Swan, serial entrepreneur and founder of SEOTesting, told TNW. “For the fund to be successful long-term, it will need to curb the trend of EU tech startups pushing to relocate overseas. It will also be telling if UK businesses begin to consider relocating to the EU to be able to get access to this big pot of funding.”

The ETCI has secured so far a total budget of €3.75 billion. Spain, Germany, and France have committed €1 billion each, Italy €150 million, and Belgium €100 million. The EIB Group has provided an additional €500 million. The funding capacity is expected to increase further in the future.

“This initiative is a striking example of what we can achieve collectively to strengthen the EU’s economic and industrial sovereignty,” Bruno Le Maire, French Minister of the Economy, Finance, and Industrial and Digital Sovereignty, noted.

The ETCI won’t subsidise startups directly, but will instead work as a fund of funds. In other words, it will deepen Europe’s scaleup venture capital (VC) funds “by bridging gaps in financing availability.” This way, it will help European institutional investors diversify their portfolio, while ensuring a continuous flow of capital to the continent-based scaleups.

“Much of this has to do with European strategic autonomy, which is something that leaders on the continent have to think about. By boosting the financial capacity of existing venture capital funds (and therefore financing scale-ups indirectly), they can make sure that European companies don’t get acquired by non-European investors, generally from the US and China,” Michaela Jeffery-Morisson, CEO and founder of Ascend Global Media (the company behind Women in Tech World Series), told TNW.

“There’s real value in supporting home-grown talent,” Jeffery-Morisson added. “Doing so will give European tech companies the freedom to concentrate on what they do and not get distracted wondering where money will come from. And this will also allow a distinctly European tech ecosystem with its own unique culture to develop.”

The way forward

While the ETCI is an exciting and promising opportunity for innovative entrepreneurs across the continent, financial support alone might not be enough.

Reduced bureaucracy and easier access to funds are critical, Oana Jinga, co-founder and CMO at previously EIC-funded Dexory, told TNW. “Startups need to operate at speed — the main advantage of being in innovation is to be first! So lengthy and time-consuming processes will quickly be dismissed for other options as they hold these high-growth companies back,” she explained.

Speaking to TNW, Lena Hackelöer, CEO of Swedish-based Brite Payments, identified two more requirements for home-grown innovation: cultivating a “startup-friendly environment” and implementing regulation that “supports” and “sets clear boundaries” for tech companies.

With the approval of the first investment applications under the ETCI potentially starting as early as next week, it will become clearer how the process will work out in action.