Elżbieta Bieńkowska, European Commissioner for Internal Market, Industry, Entrepreneurship and SMEs, highlights both barriers to and opportunities for commercialisation and tech transfer in Europe and how the EU is working to boost Europe’s competitiveness.
As discussed by Elżbieta Bieńkowska, the European Commission is placing an increasing focus on the commercialisation of European innovation. This is evident in the emphasis on this in Horizon Europe – the successor to Horizon 2020 – exemplified by the allocation of €52.7bn to pillar two (global challenges and industrial competitiveness) as well as in many other EU initiatives.
Speaking to SciTech Europa, the European Commissioner for Internal Market, Industry, Entrepreneurship and SMEs, Elżbieta Bieńkowska, highlights both barriers to and opportunities for commercialisation and tech transfer in Europe, as well how the EU, along with its many partners, is working to boost Europe’s competitiveness and thus its economy.
What needs to be done to increase access to risk capital in Europe?
A key problem in Europe is the limited access to finance faced by our companies. This can in part be explained by the fact that investments in the EU remain heavily reliant on banks and that risk capital financing is poorly available. There is a need to develop a more diversified financial system with more developed capital markets across all stages of the ‘funding escalator’, i.e. from business angels to crowdfunding, venture capital, and all the way down to Initial Public Offerings (IPOs).
For this purpose, Europe can do a lot. With the Capital Markets Union, one of the 10 priorities of the Juncker Commission, we are aiming at broadening the range of financing options for SMEs, particularly risk capital. Just to mention a few: this year, we put forward new rules to make it easier for SMEs to get funding through dedicated stock exchanges. And we also proposed a regulation establishing a pan-European passport for crowdfunding platforms that allows those labelled intermediaries to operate across borders more easily.
And there is more: the Commission is deploying a budget to facilitate access to risk capital for SMEs, at both early and growth stages. This is done through the European Fund for Strategic Investment (the so-called ‘Juncker Plan’), InnovFin financing tools under Horizon 2020 and the Programme for the Competitiveness of Enterprises and Small and Medium-Sized Enterprises. SMEs can also access finance for innovation through financial instruments supported by the European Regional Development Fund.
Moreover, we launched a pan-European venture capital (VC) funds-of-funds programme (VentureEU) to tackle the issue of European VC funds that aren’t big enough to attract major institutional and private investors. This initiative should stimulate institutional investors and encourage more fund managers to enter the European market. It has the potential to double VC investment in Europe. In addition, the Commission is currently developing the concept of the Escalar initiative, whose objective would be to help VC funds to reach a larger size more quickly by mobilising large private funds, such as pension or insurance funds.
Venture capital (VC), which is vital to a well-functioning Capital Markets Union, remains too small in Europe (funds in Europe averaged €56m compared to €156m in the USA). How will the VentureEU initiative help to address this? What are your biggest hopes for this funds-of-funds programme?
EU venture capital, as compared to the USA, receives far more public funding and much less private investment. Additionally, 90% of the EU’s supply of VC is concentrated in just eight member states, and there is little cross-border investment. This fragmentation hinders larger funds from emerging. That is why we want to increase investment opportunities for institutional private investors – from both inside and outside the EU. The primary purpose of VentureEU (pan-European venture capital funds-of-funds) is to use public money in a smarter way to attract substantial amounts of private investment from investors who are not currently investing in European VC because there is no appropriate vehicle.
Funds-of-funds, acting as intermediaries, can bridge the gap between large institutional investors and smaller venture capital funds. In this way, they can provide access to larger pools of international capital and so enable more European SMEs and start-ups to be financed as they grow and get support for longer periods of time.
Thanks to cornerstone investments totalling €410m from the EU that crowd in private investors, the six VentureEU funds aim to raise up to €2.1bn of public and private investment. These six VentureEU funds will invest around 25% of the target size of smaller VC funds, which will in turn raise additional capital from other investors, resulting in an estimated €6.5bn of new investment in innovative start-ups and scale-ups across Europe. The six funds will cover projects in at least four European countries each. The investee funds will help finance SMEs and mid-caps from a range of sectors, such as digital, life sciences, medical technologies, and resource and energy efficiency. Around 1,500 start-ups and scale-ups are expected to gain access to this new source of financing across the whole EU.
If an innovative start-up is looking for equity investments under VentureEU, they can contact the selected funds that have signed a contractual agreement with the European Investment Fund (EIF) – which is the delegated entity implementing VentureEU on the EU’s behalf. The six VentureEU funds are Aberdeen Standard Investments, Axon Partners Group, Isomer Capital, LGT, Lombard Odier Asset Management and Schroder Adveq. The first investments are likely to take place within one to two years of EIF’s agreement with the funds-of-funds managers, which means that the initiative will start to yield results as of 2019.
The Commission’s renewed Industrial Policy Strategy explained that a European Scale-Up Action for Risk Capital (ESCALAR) to enable venture capital funds to increase their investment capacity might be established. What role will this play?
The objective of ESCALAR is to contribute to the creation of jobs and growth in Europe by increasing the investment capacity of European venture capital funds. ESCALAR will enable venture capital funds to increase significantly their investment capacity by quasi-debt financing through bonds issued by the EIB and guaranteed by EFSI. The ESCALAR mechanism will activate investments from private, patient investors at the European level in order to cope with the scale-up equity gap.
ESCALAR is being planned as a complementary mechanism the Pan-European Venture Capital Fund-of-Funds programme. Agreement on implementation modalities will be signed in 2018 and the first call for expression of interest will be launched early 2019.
The aim is that this scheme avoids scale-ups leaving the EU in their scale-up phase as is, unfortunately, currently the case for around 45% of our successful scale-up businesses.
What should member states do to embrace innovation contributing to Europe’s global competitiveness?’
A shared agenda between regions, member states, and the European Commission is essential. We must build on Europe’s strengths and give a new direction and a new impetus so that Europe becomes a true global leader in innovation for all. Together we need to reinforce our efforts in three dimensions:
First, it is clear that substantial investment is needed in scientific and technological research, with a focus on major societal and industrial challenges. In its proposal on the Multiannual Financial Framework (MFF) 2021-2027, the Commission made it clear that research and innovation must continue to be an essential EU priority. The Commission proposed to increase investments in research and innovation by allocating €100bn to Horizon Europe. Equally, the Commission proposed to mobilise around €11bn for market-based instruments including financial instruments and budgetary guarantees in a dedicated window under the InvestEU Fund, which will mobilise €200bn of private investment to support research and innovation.
It is important that member states swiftly adopt the next Multiannual Financial Framework to ensure that research and innovation continues to be one of the essential EU policy and funding priorities. At the same time, member states should take the necessary steps to maximise their own investments in research and innovation.
Second, the business environment must be made more innovation-friendly and less risk-averse. At all levels, regulation should strike a balance between predictability and flexibility. It should guarantee fair competition without sanctioning failure or risk-taking. To ensure that European policies are developed with innovation in mind, the European Commission already applies the Innovation Principle when preparing major legislative initiatives. Member states should step up similar efforts.
Third, European citizens must be supported through what will be a fast and, for some, turbulent transition. To a very large extent, providing the necessary social protection falls within the responsibility of member states.
Very importantly, one size does not fit all. As part of the European Semester, the Commission presents each country with a set of country-specific recommendations on how to boost jobs and growth, while maintaining sound public finances. The recommendations adapt priorities identified at EU level to the national level. The Commission’s Structural Reform Support Service and the Horizon 2020 Policy Support Facility help EU countries to design and carry out respective reforms.
How would you characterise the current environment in Europe with regard to innovative industries and access to funding from a policy perspective?
Europe is the global leader in many industries, especially in high value added, low carbon and sophisticated products and services. This position has been built on a large Single Market with 500 million consumers, strong value chains, a skilled and talented workforce and a world-class science base.
However, with an accelerated pace of economic, societal and environmental transformations as well as technological breakthroughs, we need to strengthen our industry’s ability to continuously adapt and innovate. We need to facilitate investments in new technologies and embrace changes brought on by increased digitisation and the transition to a low-carbon and more circular economy. But companies must do their part by upgrading the technology base, future-proofing business models, internalising sustainable development principles, and embracing innovation.
Commissioner for Internal Market, Industry, Entrepreneurship and SMEs
This article will appear in SciTech Europa Quarterly issue 28, which will be published in September, 2018.