For the first time in its history, the European Commission is making direct investments of overall €178m into 42 startups from around the continent. Under the new European Innovation Council, companies from the EIC Accelerator Pilot are selected to receive between €500,000 and €15m, with ownership stakes ranging from 10% to 25%. There are currently 117 companies still in the pipeline and pending due diligence.
The French company CorWave was the first to receive the investment: They develop innovative blood pumps for people with life-threatening heart failure. Others included Hiber (Netherlands), XSUN (France) and GEOWOX LIMITED (Ireland).
While these news were perceived positively by some, there was also pushback: Experts warn about a “f***cked up cap table”, and founders themselves urge to avoid this instrument because such new processes are potentially unstable and intransparent at the beginning. Adjustments might have to be made and these could mean less vantage points for participants.
Until now, EU funds had solely consisted of grants, loans or guarantees; with the exception of the European Investment Bank which has put money into venture capital firms’ funds, but never directly decided how it is invested. So, why this shift of paradigm?
Backing Deep Tech in 2021
Although the selected companies come from a variety of sectors such as health or circular economy, there is a clear focus on deep tech innovations. The EU is heavily investing in strengthening Europe’s Deep Tech and Blockchain ecosystem in order to compete with their counterparts in America and Asia. As Mariya Gabriel, Commissioner for Innovation, Research, Culture, Education and Youth puts it, “Europe has many innovative, talented start-ups, but too often these companies remain small or relocate elsewhere”.
One of the problems with deep tech companies is that it takes much longer to get returns, making it more risky for investors in comparison to other technologies. Therefore, on the one hand, the EU’s investments are meant to encourage private investors in backing up more deep tech projects.
But on the other hand, critics might say that the EU better not play VC, after all there are reasons for why capital investment works as it does. Alternatively the EU could build their own state-owned companies like Germany did with Deutsche Bahn or the UK with BBC. Fact is that many startups fail, that’s how it goes. Wouldn’t it be a shame to lose all of that tax-payer’s money this way?
Call for Stronger European Capital Markets
Ultimately, the EU’s paradigm shift into equity investment is also driven by Europe’s lack of venture capital available for startups. In comparison to the US, the VC market is three to four times smaller. And this means unlocked potential within Europe’s world-class universities and research institutions.
The German company BioNtech is a good example to demonstrate the importance of long-term R&D and having stronger European capital markets. While now providing the first coronavirus vaccine worldwide, BioNtech previously received over $1.3 billion in funding, from European, US and Asian investors.
We need to bridge the gap between all the Einsteins and Marie Curies sitting in research institutions to the commercialization stage of their ideas. Einsteins and Curies out there – we hear you and look forward to supporting you!