Brussels ready to take risks with bets on emerging companies.
Move over, Peter Thiel.
There's a new venture capitalist in town, as the European Union launches into a new role taking ownership stakes in technology companies that receive injections of public funds.
The change was presented in the EU capital this week by digital czar Margrethe Vestager and Innovation Commissioner Mariya Gabriel, and marks a break with the previous practice of issuing grants or supporting private investors.
In an interview with POLITICO, chief investor Jean-David Malo said a new investment vehicle called the EIC Accelerator would focus on emerging technology, particularly in the early stages when founders might have difficulty raising money.
"We are taking risks that nobody is taking," said Malo, who is the director of the agency in charge of the European Innovation Council (EIC), the EU's main program to help startups scale.
Malo explained the accelerator fund will allow the EU to become a shareholder in companies that receive its investment. The EU can take profits if a startup goes public or gets sold, which it pledges to reinject into its €10.1 billion innovation budget.
Behind the initiative is EU policymakers' longstanding desire to help "unicorn" tech companies — valued at $1 billion or more — sprout up across the Continent.
As of July, Europe had 268 unicorns, with 71 based in London — a third as many as in the United States.
A pilot of the program has been running since the fall of 2019, with initial investments in 137 companies for a total of €600 million.
The new Horizon Europe program is now kicking in, and the fund will expand its total investment pot to €1.1 billion just this year. 65 companies were already selected in a first funding round this year, ranging from a Danish refinery for coffee waste to a French orthopedic surgical robotics maker.
EU officials defend the bloc's risky investments by saying private investors are reluctant to back startups working with advanced technology that isn't mature yet.
"Our main objective on our side is to have an impact," said Malo, "and to accompany these companies until the moment the technology is more mature and the private investors are ready to totally take charge of this."
Is it working?
Early results suggest the EU's initial investments are paying off, and private investors are watching where the bloc is putting its money.
The innovation fund measures success by counting the number of supported companies valued at $100 million or €1 billion. It also tracks the amount of capital pledged by private investors to companies selected by the EIC.
The bloc boasts that 91 companies were valued at €100 million so far, with two — Swedish biotech companies BICO and BioArctic — obtaining unicorn status. Private investors have also invested €9.6 billion in EIC-supported companies throughout the years, officials counted, taking into account earlier EU support programs going back to 2014.
The EIC Accelerator can count on experts from the European Investment Bank (EIB) who act as advisers for the fund, as well as a few private investors who have taken up roles in its investment committee.
That's a boon to the fund's credibility. Private investors have generally been positive about the EIB's investment knowledge. The European Investment Fund (EIF), part of the EIB, has been backing private investors with capital for years.
"As a citizen of Europe, I liked it, them being tough, being precise, not afraid to ask all the complicated question," said Alexander Ribbink, partner of the Amsterdam-based private investor Keen Venture Partners, which just last week secured a €30 million investment from the EIF.
Pipeline of opportunities
The EU has also been trying to connect the dots between the new fund and the alphabet soup of startup-oriented initiatives under Horizon Europe, like the more university-focused European Institute for Innovation and Technology (EIT).
The EIT has a budget to set up support schemes for researchers and aspiring startup founders, but the institute doesn't invest on its own. It already made a name for itself, however, when it came out publicly as one of the first fans of Swedish battery producer Northvolt.
"When EIT decided to support Northvolt, very soon other public and private investors also came along. Probably, this was a signal to them that this is an idea and a technology that has been vetted and validated," EIT's Chief Operating Officer Adam Rottenbacher said.
It's why both programs struck a deal earlier this year that positioned the EIT as a talent scout for the EIC. Founders that got support from the EIT in the past can enter a "fast track" through which they can seek an equity investment by the EU.
"When the EIC announced the successful companies of the latest round of the Accelerator call, it was 65 companies," Rottenbacher said. "We checked and 20 out of those 65 companies had actually come from the EIT."
A recurring problem both the innovation institute EIT and the EU's innovation fund EIC will have to tackle, however, is the lack of startups out of Eastern countries that seek support — and get it. Only three out of the 65 companies that got support in the latest funding round were from the Eastern bloc.
It matches a deeper divide of where tech capital is located across the bloc: Just 3 out of the 91 "centaurs," or companies valued over €100 million, are based in eastern European countries, namely Croatia, Estonia and Hungary, according to a list seen by POLITICO.
Malo acknowledged the east-west investment gap: "For the EIC, we're here at year one," he said.