Can extra funds keep startups and scaleups in Europe? The European Investment Bank (EIB) hopes so.
The EIB – which is the European Union's funding agency and is controlled by EU members – has asked European finance ministers for help closing the funding gap between the US and EU by supporting venture capital and private equity markets, in the hopes of discouraging startups from decamping to the US for investment.
By one count, the venture capital (VC) industry in the US is six times the size of that in Europe, while the amount invested in US companies is five times that won by European startups. That means the US continues to be the destination of choice for innovation companies looking to grow – though American VCs also directly invest in companies based in Europe, too.
"We're talking about ensuring that European companies, technologies that are born in Europe, stay in Europe, and that we invest in Europe's champions, in Europe's unicorns, that we reinforce Europe's competitiveness through a stronger capital market," EIB president Nadia Calviño said, according to a Reuters report.
The EIB proposal is part of wider plans to boost capital markets in the European area, and aims to "help close the financing gap and to retain the most innovative scale-ups in Europe," the organization said. That includes plans to help startups reach scale to unicorn level with an extension to the European Tech Champions Initiative, a new dedicated fund, and an "exit platform" to help finance acquisitions and list startups. Beyond that, the aim is to increase equity and venture debt investments, the EIB said.
"The Action Plan discussed with ministers will help European innovators scale up their business and contribute to channel savings into productive investments, boost innovation, create jobs, and lead Europe toward a more robust growth model, ensuring that European companies born in Europe, stay in Europe," added Calviño in a statement.
EU vs US
The move follows troubling reports about the state of European tech, despite the AI bubble drawing investment. At the end of last year, the Atomico State of European Tech report revealed a 45% fall in investment from the year before, with eight in ten European founders saying they found it difficult to raise capital – despite more startups being founded in Europe than the US.
Indeed, the EU earlier this year launched a separate initiative to support regional AI startups by ensuring access to supercomputers for training and design.
Of course, money isn't everything. Earlier this year, Nicolai Tangen, the head of Norges Bank Investment Management, said Europe had too much regulation, was risk averse, and lacked ambition. "There's a mindset issue in terms of acceptance of mistakes and risks. You go bust in America, you get another chance. In Europe, you're dead," he told the Financial Times. "We are not very ambitious. I should be careful about talking about work-life balance, but the Americans just work harder."
