Introduction
The European Commission is planning to establish a public-private fund worth at least €10 billion ($11.3 billion) to support the growth of technology companies, as the European Union aims to reduce its innovation gap with the United States and China.
Background on the European Commission’s Strategy
The European Commission launched its “Choose Europe to Start and Grow” strategy to address the EU’s deficit in unicorn companies, which are emerging businesses valued at over $1 billion.
Challenges Facing European Startups
- Fragmented regulations across the 27 EU countries
- Access to funding, markets, talent, and infrastructure
The EU lacks venture capital willing to invest in early-stage initiatives, while funding for later stages, when companies expand markets and prepare for potential IPOs, is seven times higher in the US.
Details of the Proposed Fund
The European Commission announced plans to create a “European Scaling Fund” next year, with both public and private components. The fund will invest in promising companies and be managed by a private investment firm.
The exact size of the fund is still to be determined, but a EU official stated it would be in the millions of euros.
“We don’t want it to be a drop in the ocean. We want it to make a clear difference,” said the EU official.
EU consumers have most of their money in banks, representing 300% of the GDP, compared to 85% for Americans.
The EU already has plans to direct private savings towards investments in companies through its “Union of Savings and Investment,” aiming to develop a more extensive private pension sector across the region.
The Commission’s strategy includes proposals to simplify regulations, reduce administrative burdens for high-tech startups, encourage public procurement participation, and accelerate the entry of founders from outside the EU.
Key Questions and Answers
- What is the purpose of the proposed fund? The European Scaling Fund aims to support technology company growth and help the EU reduce its innovation gap with the US and China.
- What challenges do European startups face? Fragmented regulations, access to funding, markets, talent, and infrastructure are significant obstacles.
- How much will the fund invest in promising companies? The exact amount is still to be determined, but it will be in the millions of euros.
- Why is there a need for the Union of Savings and Investment? To develop a more extensive private pension sector and direct private savings towards investments in European companies.
- What are the proposed changes to support high-tech startups? Simplified regulations, reduced administrative burdens, increased public procurement participation, and accelerated entry for founders from outside the EU.
