Open letter - A European Venture Capital Initiative to unlock investments for innovation

A European Venture Capital Initiative to unlock investments for innovation

Dear President of the European Commission Ursula von der Leyen,
Dear Vice-President Virkkunen,
Dear Vice-President Séjourné,
Dear Commissioner de Alburquerque,
Dear Commissioner Zaharieva,

On behalf of the key actors of Europe’s innovative ecosystem, we would like to congratulate you for the approval of the new European Commission.

Your mandate will take place at a crucial moment for the European Union. Both the Letta and the Draghi reports act as a wake-up call for a stagnant European economy, which threatens its independence on the global stage. These reports highlighted the missing piece in Europe’s competitiveness: innovation, which is too complex to develop on our continent, due to a fragmented market and a lack of funding.

There is a broad consensus that public investment will not suffice to support our entrepreneurs and innovators, hence the recent push for a Savings and Investment Union. Mobilising European private savings will be key to supporting strategic autonomy, and to developing the European tech champions our continent needs. Otherwise, Europe will once again be left in the position of a large but fragmented single market, leading in research and talents, but which uses technologies made abroad, because it could not support the development of its own ecosystem.

The current state of play is not ideal for startups and scale-ups in the EU. Faced with a fragmented market and a lack of capital, they often develop their ideas in the continent before seeking funds overseas, notably in the USA, at their growth or exit stages. Consequently, the value created by ideas brought forward by Europeans and often incentivised by European public funding ultimately benefit US funds and flows indirectly… to American retirees. Europe’s innovation ends up being someone else’s capital gain, as it is a net importer of capital.

The funding chain in Europe is therefore deficient. While new technologies such as AI, cleantech and quantum computing need large rounds of funding, European VCs are not capable of meeting these needs – and US VCs are the ones filling this gap. The absence of larger VCs can be attributed to several factors, and one is widely known: the lack of involvement from European institutional investors. These important financial actors are over-investing in the US market and under-investing in the European risk market, due to our regulatory and cultural barriers.

If Europe wants to remain competitive with the rest of the world, these barriers should be broken. However, concrete proposals are missing to truly leverage private funding.

Drawing inspiration from Member States’ initiatives to improve the involvement of institutional investors and to Europeanise the funding chain of Europe, France Digitale, alongside a coalition of representatives of Europe’s innovative ecosystems, has drafted solutions which you can find in details in the related study, and which are briefly summarised here:

1. The creation of a European VC Initiative (EVCI), to foster exchanges between institutional
   investors and VCs in Europe, therefore de-siloing the funding chain of Europe. Drawing from national initiatives, the EVCI would create a label and a fund-of-fund structure to enhance institutional investors’ investments in VCs, by mapping the ambitious funds in which they can invest, and carry out a due diligence process for them. Promoted by a political summit, this initiative will shed light on the issue and increase the Europeanisation of innovation funding, by creating a platform whereby the different levels of the EU’s funding chains can interact.
   This initiative alone would not solve the lack of liquidity in the European Union, however, which is why we advocate for three complementary measures to be taken;
2. The development of new types of assets, such as the EU Long-Term Saving Products, which will help to mobilise European’s savings to fund innovation and involve retail investors in innovation funding.
3. An update of capital requirements for institutional investors, to ease their involvement in startups’ financing.
4. A deeper involvement of European citizens in the transformation of our economy, through an increase of the financial literacy on the continent, incentives to make angel investments, and to the ability of sophisticated investors to invest in long-term funds, can foster a viable ecosystem in Europe.

These measures would strongly enhance the efficient use of Europeans’ savings, bring valuable returns to them and offer our entrepreneurs and innovators an opportunity to stay and scale in Europe, before conquering global markets. Please find them in more detail in our in-depth study on the issue.

We remain at your disposal to present these ideas to you personally and advance together towards the creation of a fruitful Savings and Investment Union for Europe.

Co-signatories:
– Maya Noël, Director General – France Digitale
– Martin Bresson, Public Affairs Director – InvestEurope
– Clark Parsons, CEO – European Startup Network
– Serena Borbotti-Frison, CEO – Allied for Startups
– Jacopo Losso, Director General – EBAN, the European Business Angels Network
– Jules Besnainou, Director – Cleantech for Europe
– Stefan Drüssler, COO and Managing Director – UnternehmerTUM & Rise Europe Program
Committee
– Francesco Cerruti, Director General – Italian Tech Alliance
– Gianmarco Carnovale, President – Roma Startup
– Simone Skovshoved, Head of Policy – Danish Entrepreneurs
– Steven Bourgeois, Public Affairs & Strategy Director, EuraTechnologies
– Csongor Biás, Managing Director – Startup Hungary Foundation
– Giorgio Ciron, Director – InnovUp
– Miguel Ferrer, VP executive – EsTech / Adigital
– Christoph J. Stresing, Managing Director – Startup Verband (German Startup Association)
– Leen Anthuenis, General Manager – Startups.be | Scale-ups.eu
– Alexander Nutsov, Policy and Strategy Director – BESCO, The Bulgarian Entrepreneurial
Association
– Hannah Wundsam, Managing Director – AustrianStartups
– Liisi Org, CEO – Latitude59
– Tomasz Snażyk – CEO Startup Poland
– Ellinor Bokedal, Policy Director – Swedish Incubators & Science Parks
– Simon Enderli, President – Swiss Entrepreneurs & Startup Association
– Marijana Šarolić Robić – Vice President, CRO Startup
– Michal Kardoš, Executive Director – Slovak Alliance for Innovation Economy (SAPIE)
– Lucien Burm, President – Dutch Startup Association, Prompting Europe
– Athanasios Paraschos, Managing Director – Startup Greece
– Ricardo Marvao, Co-founder & Partner – Beta-i