Dear ladies and gentlemen,
It is my pleasure to be here today, where we will tackle one of the most pressing challenges Europe’s innovators and entrepreneurs are facing: the scale-up financing gap.
Allow me to start by congratulating my services for working together to prepare this workshop.
A workshop that comes at a defining moment with two main opportunities to define the future of Europe:
First, the recovery from the pandemic offers an excellent opportunity to invest in the future and do things differently.
And second, we are at the verge of the 4th wave of innovation around deep tech startups. This offers an unique opportunity for Europe to become the leader of this new wave of innovation.
These are times of big decisions that will set Europe’s direction of travel for many years, and we need to make sure that we build an ecosystem where innovation can thrive for the benefit of everyone.
As we speak, there are several bottlenecks for innovation that continue to hamper Europe’s performance in this new context.
For instance, we still observe a persistent innovation divide among Member States.
We also witness a diversification of the sources of innovation. We do not get innovation only based on transfer of research results to the market. Innovations are now coming from students in the university and the civil society at large.
And, very importantly, we do not have sufficient risk finance for companies to scale up fast.
In particular, the deep tech based endeavours against climate change and for Sustainable Development Goals are being hindered due to lack of investments.
Current VC Funds have structural deficiencies to invest in deep tech due to the lifetime and the scale of the investments. Deep tech is still outside the risk profile of many funds and they rather invest in digital startups.
At the same time corporates are not well equipped yet to be deep tech savvy and invest on deep tech innovations, despite the potential disruptive effect of deep tech on their business lines.
Therefore, we need a new investment model that is better fit to the unique characteristics of deep tech startups.
The task ahead of us is challenging: to overcome these persistent hold-ups in the investment model for deep tech startups in their scale up phase, and boost Europe’s innovation performance.
We can only achieve this if we create an innovation policy for Europe that is able to foster a truly European Innovation Ecosystem that is fit-for-purpose, inclusive, and cohesive to become the world powerhouse of the fourth wave of innovation.
To this end, we have consulted essential stakeholder groups that are not usually part of EU circles: European Unicorn founders, European Innovation Ecosystem Leaders, and Women in Venture Capital. I have been listening closely to their needs and took good note of their valuable recommendations.
It is in fact one of these group’s proposals that brings us here today: the unicorns group’s recommendation of establishing a EUR 100bn European Sovereign Tech Fund to bridge the so called “valley of death”. And to do it without increasing the lack of territorial innovation cohesion. We cannot solve the problem of lack of finance in the scaleup phase while widening the gap on innovation performance across Europe.
Why is it so important to financially support disruptive innovation and deep tech startups?
Startups contribute immensely to employment, innovation and growth.
However, the venture capital industry in Europe has not reached the same level of maturity as in the USA or China.
Venture capital invest in US companies almost six times more than Venture Capital firms in European companies. Particularly worrying is the funding situation for deep tech startups in their growth or later stage phases. Based on 2020 figures, the proportion of total venture capital in the form of later stage financing is 84% in the US and 71% in the EU.
There is a funding gap that is critical to close for high growth firms to emerge. The disproportionally low number of European unicorns is an indicator of this problem.
Moreover, in too many cases in the past, high potential European innovators have left Europe to pursue their ambitions on other continents. This movement is usually requested by the investor who is usually not European. This puts our competitiveness and our technological sovereignty at risk, and we must act to turn this around.
We already have a number of policies to facilitate the funding of the early stages of the life cycle of startups, and of SMEs.
Firstly, we are currently creating a European innovation policy to bring innovation in Europe to the next level thanks to the Pillar III of Horizon Europe. Thanks to the help of European Institute of Innovation and technology, the European Innovation Ecosystem programme, and the European Innovation Council, this new Innovation Agenda for Europe will focus on the creation of a pan European Innovation Ecosystem.
And my intention is to look for synergies with other EU Funds, including cohesion funds to ensure an integrated and cohesive European Innovation Ecosystem.
Secondly, within the Capital Markets Union and the Renewed Sustainable Finance Strategy.
Thirdly, from a competition policy point of view, adjustments could be made to the General Block Exemption Regulation.
Fourthly, under the 2020 SME Strategy, a proposed SME Initial Public Offering (IPO) Fund.
Having outlined the overall policy framework, I would like to put emphasis on two EU initiatives that are particularly focused on access to finance for very large investment deals.
The first of them is the European Innovation Council Fund.
This initiative of the Commission makes direct equity investments in individual high-potential firms – a first in EU history – of between EUR 500.000 and EUR 15 million.
The European Innovation Council Fund aims to fill the financing gap faced by many innovative companies in Europe in their early stages, when they want to bring their technologies to the market.
It will contribute to sustainability with a particular focus on health, resilience, green and digital transitions, and on an economy that works for all for sure.
The second initiative is European Scale-Up Action for Risk Capital (ESCALAR). It is managed by the European Investment Fund and is a new innovative flexible quasi-equity instrument to catalyse private investment flows to increase the financing of the European startups in their scale up phase.
Via this vehicle the European Commission invests alongside private investors in privately managed funds on specific terms and conditions that reduce the risk and enhance the returns to private investors.
The pilot phase of ESCALAR was launched in 2020 with a budget for guarantees of EUR 300 million through the European Fund for Strategic Investment and it is expected to mobilise a total investment worth about EUR 1.2 billion.
This pilot phase served to fine-tune the program before launching a fully-fledged ESCALAR initiative with private financing as part of INVEST-EU. The pilot phase also showed clearly that the interest in this type of financing is high.
To conclude, despite the above-mentioned initiatives, we have a solid base, there is still an important gap between what is provided and what is needed for the scale-up phase of high-risk deep tech startups.
To close this gap, the European Union needs to provide more than just financing. We have to provide an environment for disruptive companies to thrive. We have to provide them a real pan-European Innovation Ecosystem. This includes fundamental work on regulations, on taking advantage of the new sources of innovation from university students and the civil society at large, and on entrepreneurship culture.
We are currently taking stock of the variety of policy and financial instruments which could potentially be tailored to target enterprises in their scale-up phase.
And any solution that we come will certainly have to contribute to increase the innovation cohesion across Member States and regions, as well as to consider the extremely low representation of women in the innovation ecosystems.
To that end, it is crucial for us to hear from you, the practitioners in the field of innovation from industry and academia, in order to come up with inclusive solutions in a ‘co-creation’ spirit.
In this sense I am happy to be here, together with you, in this webinar to discuss options on how to overcome the Scale-Up Finance Gap.
Thank you for your attention and looking forward to your conclusions.