The European Investment Fund (EIF), the public and private-funded body which provides risk financing to small and medium-sized companies in the European Union’s (EU) 27 member states, has started laying out its strategy for equity investments over the next decade.
Major themes include the support of technology transfer and entrepreneurship in Europe and financing the start-up and growth of technology European companies. New instruments will be set-up in view of supporting all parts of the European venture capital (VC) ecosystem to maximise impact. Two pilot products under development include a sector focussed €250m ($340m) corporate venturing vehicle and a co-investment fund for non-institutional investors.
The EIF, which manages €5.6bn in about 350 primarily venture capital funds and is the largest investor in the asset class in Europe, has agreed to start a European Co-Investment Fund – a working title of a name – for a government and EIB group-sponsored pilot project being tested over the next three years.
This fund will co-invest equally alongside non-institutions, such as business angels, family offices, pledge funds and corporate venturing units. The pilot, which follows an original project in 2003, will start in Germany and be fine-tuned over three to four years before it is expected to be rolled out in Europe as part of the 2020 programme.
Matthias Ummenhofer, head of venture capital at the EIF, said non-institutions were responsible for 60% to 70% of seed to early-stage deals and an important element to support.
The pilot co-investment fund will complement a planned €250m BioE 2020 fund for life sciences. This fund will have up to six strategic corporate investors backing four to five non-traditional general partners that will invest the money in biotechnology entrepreneurs. BioE will have a strong focus on emerging teams of healthcare investment entrepreneurs following innovative and capital efficient VC investment strategies.
"There is a huge potential in Europe in an active inclusion of corporates and strategic investors in the VC ecosystem. If set-up properly everybody will benefit and this will make a major contribution to making European VC a success story.
"For medium sized corporations this product can be considered as a ‘corporate venturing-lite’ solution as it offers them access and learning and scale at a low risk [in an industry where] open innovation is a bitter reality but also if tackled rightly a huge opportunity.
"The EIF can play a role as honest broker setting the rules of game and observence through transparency of dealflow and yellow and red cards for the players. There is a role for the public sector but in joining forces with other market participants."
He said the changes were being made as part of the EU’s Innovation Union 2020 project to make the continent more competitive.
Ummenhofer added: "For the past 10 years, the EIF has primarily been a fund of venture capital fund [as well as a large lender] so we decided to build a toolkit which can be used for a tailored approach to build a sustainable VC ecosystem in Europe.
"These tools are to make good investments so in the medium to long-term the EIF is financially self-sustaining and there are more backflows than investments except during downturns when we are counter-cyclical and invest more."
The EIF has already expanded its remit by investing in micro-finance institutions, such as €1m in Italy-based PerMicro for 20.4% of its shares, but is also considering how universities can transfer ideas and technologies and philanthropy can aid social entrepreneurs through so-called impact investing.