EU Will Become Shareholder in Startups for the First Time

The European Union, for the first time, will become a direct shareholder in startups through the creation of one of Europe’s biggest investment funds.

The European Innovation Council Fund, expected to total about 3 billion euros ($3.7 billion), is an effort to plug what the EU said Wednesday is a “critical” funding gap for breakthrough technologies to scale up to commercial levels and better compete with the U.S. and Asia.

It will combine grants and equity stakes to finance early-stage companies in so-called deep tech, such as health, sustainability and advanced manufacturing. Ownership will range between 10% and 25% of a company, with ticket sizes as much as 15 million euros, the EU said.

Traditional venture capital firms have smaller funds in Europe compared to the U.S., leading investors to take fewer risks, EU officials said. VCs also have a defined investment horizon, typically having to issue returns to investors within ten years.

By directly financing scientific breakthroughs until they become viable for traditional investors, EU officials say the funding will derisk the investments and thereby attract other investors.

The EU currently puts money into tech companies through grants from the commission and via the European Investment Fund, which invests in venture capital firms. While the EU won’t divert funds away from venture capital firms under its new budget, the move allows it to bypass those investors, along with their fees, to boost early-stage firms.

The EU fund’s first round of investments included a 15 million euro investment into the French startup CorWave, which develops a device to help people with advanced heart failure.

©2021 Bloomberg L.P.

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