In February 2023, five EU Member States and the European Investment Bank Group have signed the European Tech Champions Initiative (ETCI). The initiative aims to identify and support the most promising European tech companies to support and provide guidance. Stefan Hasselbeck, Corporate Venturing at ERGO Group, gives an overview.
The program aims to address the lack of funding and support for European tech companies compared to their counterparts in other regions, such as the United States and China. Europe’s tech start-ups often do not have sufficient capital to compete on a global scale and are pushed to relocate overseas. Closing this scale-up gap could create a large number of highly skilled jobs and boost growth & innovation.
ETCI will deepen Europe’s scale-up venture capital (VC) markets by bridging gaps in financing availability, especially for companies seeking to raise amounts of over €50 million (“late-stage growth phase”). It will help create an asset class for European institutional investors to diversify their portfolios, thus maintaining a continuous flow of funding to European scale-ups.
The ETCI has secured commitments from Spain (€1 billion), Germany (€1 billion), France (€1 billion), Italy (€150 million) and Belgium (€100 million) during the initial subscription period.
The European Investment Bank Group has deployed additional €500 million, thus bringing the grand total to €3.75 billion at this stage.
The size of the fund is expected to grow further with future commitments, all managed by the European Investment Fund.
The selection process for the European Tech Champion initiative involves several stages. First, companies are nominated by a network of industry experts and national innovation agencies. Next, a panel of independent experts evaluates the nominated companies based on their innovation potential, market traction, scalability, and social impact. The panel also assesses the team, leadership, and financial performance of the companies.
The selected companies receive a range of benefits and support from the European Tech Champion initiative. These include access to funding, mentorship, networking opportunities, and exposure to potential customers and investors. The program also provides tailored support to help companies overcome specific challenges and scale their businesses.
In addition to supporting individual companies, the European Tech Champion initiative aims to strengthen the overall tech ecosystem in Europe. The program promotes collaboration between tech companies, investors, policymakers, and academic institutions, with the goal of fostering innovation and entrepreneurship in the region.
While the European Tech Champion initiative has received generally positive feedback, there have also been some criticisms and concerns raised about the program.
One important question is about the success factors of other venture capital ecosystems (especially the US) and if government funding is helpful to close the cap.
The United States has a much larger pool of venture capital funds than Europe, with many of the world's largest venture capital firms based in the US. This has led to a more robust and mature startup ecosystem in the United States, with more companies able to secure funding and grow at a faster rate than their European counterparts.
Probably one of the main causes for the difference is the regulatory environment. On top of that, the US has a greater degree of flexibility and risk-taking among investors. In Europe, however, there are stricter regulations around issues such as data privacy and intellectual property, which can create additional challenges for startups.
The ETCI is part of the broader efforts of the European Union to strengthen the European tech ecosystem and increase its competitiveness globally. The European Commission aims to create a favorable environment for tech companies in Europe by promoting innovation, reducing regulatory barriers, and supporting the development of digital skills.
Providing access to capital is important for the startup-ecosystem, however providing government funding won’t be enough to close the gap (as a reference, the committed capital for venture capital funding in the US end of 2022 was around $440 bn). Therefore, a bigger emphasis should be on creating a favorable environment for start-ups and investors. Only this will attracts additional investor and foster the creation of new innovations and companies.
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