New fund for in­no­va­tion in Europe will en­cour­age more in­vest­ment

Financial Mirror (Cyprus) - - FRONT PAGE -

Euro­pean ven­ture cap­i­tal re­ceived a boost this week with the an­nounce­ment of EUR 1.6 bil­lion in ven­ture cap­i­tal funds. It will pro­vide much-needed ad­di­tional fund­ing for Europe’s start-ups and early-stage com­pa­nies.

Car­los Moedas, Euro­pean Com­mis­sioner for Re­search, Sci­ence and In­no­va­tion, un­veiled the new fund at the Web Sum­mit 2016 in Lis­bon. The new fund will be seeded with up to EUR 400 mil­lion of Euro­pean Union money, which the Com­mis­sion and Euro­pean In­vest­ment Fund (EIF) hopes will ‘crowd in’ up to three times that amount from other sources, in­clud­ing pen­sion funds and other large pri­vate in­vestors from around the world.

Un­like other EU pro­grammes that sup­port ven­ture cap­i­tal and in­no­va­tion, this one will be run by the pri­vate sec­tor, us­ing the con­tacts and the cred­i­bil­ity of a recog­nised fund man­ager to en­cour­age in­sti­tu­tional in­vestors to look again at this as­set class.

With this an­nounce­ment, the Com­mis­sion will be­gin the hunt for a man­ager to run the pro­gramme. It will com­ple­ment, but run in­de­pen­dently of, the EIF which al­ready in­vests in small busi­nesses, in­clud­ing through ven­ture cap­i­tal.

Soon this new fund could be in­vest­ing money with some of Europe’s best ven­ture cap­i­tal man­agers who, in turn, will sup­port Europe’s bright­est ideas and smartest in­no­va­tions.

We have high hopes. In­vest Europe’s re­search has shown that a ve­hi­cle backed by the EU could at­tract at least EUR 3 bil­lion of new cap­i­tal that could sup­port 1,300 ad­di­tional start-ups and early-stage com­pa­nies in Europe.

Last year, ven­ture cap­i­tal in­vested EUR 3.8 bil­lion into close to 2,800 com­pa­nies across the con­ti­nent, ac­cord­ing to In­vest Europe’s own data. More cap­i­tal will en­able these com­pa­nies to ex­pand, de­velop and com­mer­cialise the cut­ting-edge med­i­cal tech­nol­ogy or the new con­sumer­fo­cused app they have built, push into new mar­kets, and – by so do­ing – cre­ate jobs.

It will also be good for in­vestors and the ven­ture cap­i­tal ecosys­tem across the con­ti­nent.

The new pro­gramme is de­signed to at­tract large in­ter­na­tional pen­sion funds, in­sur­ers and sov­er­eign wealth funds that of­ten strug­gle to ac­cess ven­ture cap­i­tal op­por­tu­ni­ties. The av­er­age ven­ture cap­i­tal fund in Europe is around EUR 65 mil­lion, which is sim­ply too small to ab­sorb the min­i­mum in­vest­ments these global in­vestors need to make.

In­vestors that man­age hun­dreds of bil­lions of eu­ros of pen­sion or in­sur­ance as­sets sim­ply have to write pretty big cheques. The time and en­ergy they have to com­mit to the due dili­gence process – to work out pre­cisely who to in­vest with – is not very dif­fer­ent for a small fund than a big one.

So, it’s just not cost ef­fec­tive (and not in the in­ter­est of the pen­sioner or the saver who is the ul­ti­mate ben­e­fi­ciary) to go through that en­tire process to in­vest only a few mil­lion eu­ros.

That mis­match cuts these in­vestors off from much of the Euro­pean ven­ture cap­i­tal scene. And this is a scene they want to ac­cess be­cause it has spawned suc­cess sto­ries like Skype, Spo­tify and De­liv­ery Hero.

Ac­cord­ing to data groups track­ing the VC space, there are 47 so-called “uni­corns” in Europe – start-ups that have grown to achieve a val­u­a­tion in ex­cess of $1 bil­lion. This VC fund of funds pro­gramme will be large enough to ac­com­mo­date large in­vestors’ large com­mit­ments of tens or even hun­dreds of mil­lions of eu­ros, and will give them a way to con­trib­ute to (and ben­e­fit from) the next wave of worldlead­ing com­pa­nies.

We ex­pect that the whole in­dus­try will re­ceive a boost and could start to close the fund­ing gap that ex­ists be­tween Europe and the US. Some EUR 5.3 bil­lion was raised for Euro­pean ven­ture in 2015, up from about EUR 4.5 bil­lion the pre­vi­ous year.

But Europe still lags well be­hind the US, where some EUR 25.3 bil­lion was raised in 2015. More avail­able cap­i­tal will mean more com­pa­nies can choose to stay and pros­per in Europe, rather than be lured away to Sil­i­con Val­ley.

In­vest Europe has long called for a VC fund of funds on be­half of its mem­bers for all these rea­sons. So, we are de­lighted that the Com­mis­sion has taken our rec­om­men­da­tions on board and recog­nises how im­por­tant ven­ture cap­i­tal is for in­no­va­tion, eco­nomic growth and jobs.

It’s also im­por­tant to ac­knowl­edge that this is a very pos­i­tive step by the Com­mis­sion to­wards its aim of cre­at­ing a Euro­pean Cap­i­tal Mar­kets Union. The pub­li­ca­tion of its ac­tion plan a year ago put ven­ture very much at the heart of its pro­pos­als and also en­vis­aged mea­sures to stim­u­late in­fra­struc­ture in­vest­ment, pri­vate eq­uity and in­vest­ment by long term in­vestors, such as in­sur­ers.

The fund of funds is a con­crete mea­sure that will en­cour­age more pri­vate in­vest­ment into ven­ture cap­i­tal in Europe, in turn fu­elling more en­trepreneurs, more bright ideas, and ul­ti­mately big­ger suc­cesses.

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