Our contribution to the European Commission's targeted consultation on facilitating private equity exits

France Digitale welcomes the European Commission’s targeted consultation on facilitating private equity exits, as the absence of viable exit mechanisms for private equity investors threatens the entire European innovation ecosystem. This submission draws on our engagement with over 2,000 European startups and investors, and sets out how enabling robust exit options is fundamental to sustaining a vibrant innovation ecosystem capable of competing globally.

We commend the Commission’s recognition that exit challenges represent a significant barrier to private equity investment and growth-stage capital availability across Europe, thus affecting innovative companies’ growth in and from Europe. The relationship between exit mechanisms and ecosystem health is direct and critical. Without viable exits, the capital recycling cycle that sustains European venture capital investment breaks down. Limited partners (LPs) cannot recover capital, venture capital funds cannot distribute returns and new capital pools dry up. This strangles the entire financing pipeline, from early-stage startups to growth scaleups.

France Digitale makes the following recommendations to the European Commission:

• Adopt a comprehensive package of reforms to address exit barriers holistically. A secondary trading platform alone cannot resolve structural exit challenges. The Commission should pursue a coordinated programme encompassing investor mobilisation, regulatory harmonisation and innovation-friendly competition policy. 
  • Establish an harmonised EU-wide definition of semi-professional investors. National regulatory fragmentation creates barriers to cross-border fundraising and capital mobility. We recommend the Commission establish a unified framework defining semi-professional investor status. Such harmonisation would enable funds and platforms to operate across borders without duplicative compliance while maintaining investor protection.
  • Align SME definitions to support growth-capital-backed companies. EU State aid rules and subsidy frameworks disadvantage companies backed by private equity relative to peers. We recommend the Commission apply its Recommendation on innovative enterprises, innovative startups and innovative scaleups to ensure that growth capital does not reduce beneficiary companies’ access to public support. This alignment is essential to maintain the attractiveness of private equity investment.
  • Simplify cross-border operations by harmonising FDI screening and withholding tax regimes. 
  • Reform merger control to support European consolidation. We recommend that the Commission assess acquisitions under merger control frameworks, not under abuse-of-dominance provisions, applies a presumption of neutrality to the effects of horizontal mergers on innovation incentives, with empirical, case-by-case analysis, introduce an innovation defence allowing merging parties to demonstrate dynamic efficiency gains, particularly through accelerated R&D, improved product quality and enhanced competitive capacity at the global level.

 

• Establish a time-bound regulatory sandbox for secondary trading platforms. We recommend a 3-5 year pilot programme with clear success metrics (transaction volumes, investor participation, valuation accuracy) and explicit provisions to wind down or scale based on demonstrated market demand. This approach mitigates regulatory risk while testing whether secondary markets generate sufficient value to justify permanent infrastructure investment. Any platform must operate under distinct private market governance principles, not as a light-touch version of public market regulations, and must respect the confidentiality and control requirements central to private equity operations. The platform should complement rather than compete with IPO pathways. The Commission should pursue simultaneous measures to strengthen the European IPO market, including enhanced liquidity pools.

 

• Mobilise institutional capital through tax-efficient incentives and public-private structures. We recommend adopting tax incentive structures modelled on the UK’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), which have successfully mobilised retail capital into high-growth companies over two decades. A disciplined EU version, tied to long holding periods and with transparency safeguards against mis-selling, could include capital gains relief, loss relief and inheritance tax incentives after minimum holding periods. Such measures would reward patient ownership and broaden retail participation while maintaining prudential safeguards. We also support public-private structures leveraging long-duration institutional balance sheets. Insurance entities structurally require long-dated assets matching extended liability schedules. A European ‘top-up’ mechanism could enable the European Investment Bank to issue long-dated instruments purchased by insurers, which would finance or co-invest alongside private growth funds focusing on European strategic sectors. The EIB could accept concessional or zero-fee arrangements reflecting its public mandate, creating a transmission mechanism converting institutional savings into entrepreneurial risk capital. State investment vehicles could extend this approach thematically. Executed with appropriate governance safeguards to prevent political interference and maintain commercial discipline, this structure could substantially strengthen institutional participation in European growth capital whilst supporting economic sovereignty.

Beyond primary growth fund support, the Commission should establish dedicated secondary fund programmes through the European Investment Fund (EIF) and national sovereign wealth initiatives (similar to France’s Tibi model). Specialised secondary funds, particularly those focused on capital-intensive innovation sectors such as deep technology and software, could provide essential interim liquidity for fast-growing companies whilst accumulating institutional knowledge on unprofitable-but-promising technology investment profiles. This would trigger the creation of private secondary strategies focused on technology, which, unlike generalist buyout firms (EQT, Ardian, Five Arrows), do not yet exist at meaningful scale in Europe.

Public-private structures should draw inspiration from proven models such as Israel’s Yozma programme, which catalysed private capital deployment into strategic sectors (deeptech, AI) by offering investors downside protection while enabling them to capture full upside through call options on public stakes at cost price. A European adaptation could establish dedicated strategic funds (focused on sectors such as health, energy, AI) with similar terms: public co-investment with put/call options enabling private partners to eventually acquire full ownership while maintaining alignment of interests and market discipline. Such mechanisms align public strategic objectives with private capital incentives, creating sustainable capital mobilisation without creating permanent public market distortions.

• Establish large, publicly-mandated secondary funds with strict eligibility criteria. Public-private secondary initiatives (EIF, Tibi, national sovereign funds) should deploy substantial capital into secondary transactions, but with clearly defined investment criteria ensuring market discipline and strategic alignment. Suggested criteria could include: EU-headquartered companies only, minimum of cumulative capital raised, minimum ARR threshold, etc. Such mandates would create essential supply-side balance in secondary markets. Critically, current public initiatives focus heavily on the buy-side (deploying capital to acquire stakes), but neglect the sell-side, creating structural imbalance. Secondary markets require matched liquidity on both sides. Without corresponding seller incentives and supply-side infrastructure, buyer-side capital deployment risks creating illiquid positions and failed price discovery. We recommend the Commission design secondary mandates with explicit sell-side objectives and instruments enabling earlier-stage sellers (primary VC funds, founders) to exit positions at scale.

Embed secondary investment strategies within public-private growth capital programmes. Europe’s largest public-private growth capital initiatives (including EIF-backed funds and national sovereign investment vehicles) should allocate dedicated capital to secondary transactions in technology sectors. This institutional support would catalyse private secondary funds specialising in capital-intensive innovation, a market segment currently absent in Europe despite maturity in the US, where generalist PE firms operate dedicated secondary arms. Secondary programmes should be designed to acquire stakes in unprofitable but high-growth technology companies, providing interim liquidity without forcing premature exits or profitability pivots.