Late-stage funding for tech startups has been a persistent challenge in the European Union, leading to a brain drain of highly skilled entrepreneurs and a loss of innovation on the continent. However, the launch of the European Tech Champions Initiative (ETCI) in February 2023, a Fund of Funds that has secured €3.75 billion from five EU member states and the European Investment Bank (EIB) Group, is set to address this issue and support the late-stage growth of promising European tech startups.
The ETCI aims to bridge the gap in late-stage funding, especially for companies seeking more than €50 million in capital. Its founders believe that closing this scale-up gap could create a large number of highly skilled jobs and boost growth in Europe. The fund will work as a fund of funds, deepening 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.
In this opinion piece, we will delve deeper into the importance of the ETCI for startups in the EU and how it can change the game for innovation and entrepreneurship in the region.
Addressing the challenge of late-stage funding
The challenge of late-stage funding has been a significant hurdle for tech startups in the EU. According to the European Investment Bank, approximately 75% of European high-tech companies are acquired by non-European investors, predominantly American and Chinese, in late-stage development. The lack of available late-stage funding has made it difficult for promising startups to scale up and compete on a global scale, leading to a loss of innovation and a brain drain of highly skilled entrepreneurs.
The ETCI aims to address this challenge by providing much-needed late-stage growth capital to promising European innovators. By pooling public resources from participating Member States and the EIB Group, the fund will make significant investments into large-scale venture capital funds that will, in turn, provide growth financing to European tech champions. This positive self-sustained dynamic in the European high-tech landscape will nurture home-grown innovation and entrepreneurship and reinforce Europe’s strategic autonomy and competitiveness.
Boosting investment and creating a startup-friendly environment
The ETCI has secured commitments of €3.75 billion from Spain, Germany, France, Italy, and Belgium. The funding capacity is expected to increase further in the future, with the approval of the first investment applications under the ETCI potentially starting as early as next week. This significant investment in the EU’s tech startup ecosystem will create an asset class for European institutional investors to diversify their portfolios, thus maintaining a continuous flow of funding to European scale-ups.
Reduced bureaucracy and easier access to funds are critical for startups to operate at speed. According to Oana Jinga, co-founder and CMO at previously EIC-funded Dexory, lengthy and time-consuming processes hold these high-growth companies back. Cultivating a “startup-friendly environment” and implementing regulation that “supports” and “sets clear boundaries” for tech companies are also essential requirements for home-grown innovation, says Lena Hackelöer, CEO of Swedish-based Brite Payments.
Supporting home-grown talent
The ETCI won’t subsidise startups directly but will instead work as a fund of funds. By boosting the financial capacity of existing venture capital funds and financing scale-ups indirectly, the ETCI can make sure that European companies don’t get acquired by non-European investors, generally from the US and China. There’s real value in supporting home-grown talent, says Michaela Jeffery-Morisson, CEO and founder of Ascend Global Media. 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.
Strengthening EU’s economic and industrial sovereignty
The launch of the ETCI is a striking example of what we can achieve collectively to strengthen EU’s economic and industrial sovereignty, says Bruno Le Maire, French Minister of the Economy, Finance, and Industrial and Digital Sovereignty. In doing so, European technology companies will contribute further to innovation, growth and job creation, and therefore to the EU’s economic, social and environmental future.
With the ETCI, Europe is taking a significant step towards boosting its global competitiveness and securing its place as a leading innovation hub. The fund will not only support promising European startups but also attract and retain talented entrepreneurs and investors, who might otherwise have chosen to relocate overseas.
Conclusion
The launch of the European Tech Champions Initiative is a game-changer for startups in the EU. It addresses the persistent challenge of late-stage funding, supports home-grown talent, boosts investment, and creates a startup-friendly environment in the region. The ETCI will not only nurture home-grown innovation and entrepreneurship but also reinforce Europe’s strategic autonomy and competitiveness.
However, while the ETCI is an exciting and promising opportunity for innovative entrepreneurs across the continent, financial support alone might not be enough. Reduced bureaucracy, easier access to funds, and implementing regulation that supports and sets clear boundaries for tech companies are critical for startups to operate at speed and scale up successfully.
The EU has already demonstrated its commitment to supporting innovative companies with the ETCI, and it is now time to build on this momentum to create a more robust and sustainable ecosystem for startups in the region. By doing so, the EU can unlock the full potential of its talented entrepreneurs and investors and secure its place as a leading innovation hub globally.
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