EU Launches Technology Scaleup Fund to Compete With US, China

The commission’s executive vice-president for prosperity and industrial strategy, Stéphane Séjourné, said businesses ‘born in Europe must grow in Europe.’

European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, on April 20, 2016. Francois Lenoir/Reuters

The European Commission said on Wednesday it planned to create a multibillion-dollar fund to help support technology companies in scaling up.

The Scaleup Europe Fund is part of a strategy document devised under orders from the commission’s president, Ursula von der Leyen, who wants to close the innovation gap with the United States and China.

In a statement on its website, the commission said the strategy aligns with the broader “Choose Europe” initiative, which Von der Leyen launched with a speech at the Sorbonne in Paris on May 5, which focused on retaining and boosting scientific talent and strengthening Europe’s competitiveness.

The strategy is designed to make up for the shortage of so-called unicorn companies—startups whose value has risen above $1 billion—in the European Union.

The commission’s executive vice-president for prosperity and industrial strategy, Stéphane Séjourné, said, “Businesses that are born in Europe must grow in Europe.”

‘Unlock Growth Drivers’

“With the launch of the EU startup and scaleup strategy, we unlock growth drivers for Europe’s most innovative and promising companies,” he said.

Séjourné said the plan was to cut red tape and improve access to financing.

“We want to put Europe right in the middle of the global innovation map, for companies and investors,” he said.

With rapid growth in innovation, often driven by artificial intelligence (AI), tech companies are increasingly looked at by the world’s major economies as the main drivers of economic growth.

But EU and U.S. tech companies often outsource work to other parts of the world, where labor and other costs are lower. India has been one of the biggest beneficiaries.

In September 2014, Indian Prime Minister Narendra Modi launched his Make in India initiative, which has seen the country transformed into a global manufacturing hub that appeals to companies worldwide.

Séjourné’s comments about European companies growing in Europe echo the attitude of U.S. President Donald Trump, who recently threatened to impose a 25 percent tariff on Apple if the California-founded tech giant does not manufacture iPhones in the United States.

The EU is increasingly keen to raise the 27-member bloc’s competitiveness in tech when faced with competition from not just the United States and China, but also India, Singapore, Japan, and South Korea.

The strategy document said: “European startups often encounter two ‘valleys of death.’

“The first occurs when innovations fail to become marketable products, while the second, particularly challenging in Europe, happens when companies struggle to scale.”

30 Percent of EU ‘Unicorns’ Relocate

“Between 2008 and 2021, nearly 30 percent of European ‘unicorns’ relocated outside the EU, and only 8 percent of global scaleups are based in Europe,” the document said.

“Europe risks falling behind in strategic technologies, as it struggles to retain and attract high-potential technology scaleups.”

Europe has a shortage of venture capitalists willing to gamble on tech startups and the expansion of medium-sized companies, hence the need for the Scaleup Europe Fund.

The commission said the fund would “help bridge the financing gap of deep tech scale-up companies.”

It will also create a European Innovation Investment Pact to mobilize large institutional investors to invest in venture capital funds and unlisted scaleups.

The commission said startups “need a quicker journey from lab to market,” noting it would create several European startup and scaleup hubs to connect universities across the EU.

“This includes a blueprint for licensing, royalty and revenue-sharing and equity participation for academic institutions and their inventors when commercialising intellectual property (IP) and creating spinoffs, along with guidance on state aid IP-related rules,” it said.

In 2026, the commission said it would have a public component and around four times more private money. The fund would take stakes in promising companies and be run by a private investment manager.

The EU already has plans to steer private savings in consumer banks into investments and to encourage the private pension industry to invest more in startups and scaleups.

On May 21, the European Commission created a new category of companies that will be exempt from some rules as part of its effort to slash red tape.

Reuters contributed to this report.