EIB Report Highlights Barriers to Financing for European Scale-Ups and Calls for Capital Markets Union

EIB Report Highlights Barriers to Financing for European Scale-Ups and Calls for Capital Markets Union

(IN BRIEF) A new EIB report identifies significant financing barriers for European scale-ups and calls for the development of a comprehensive European capital markets union. Despite support from the EIB Group, scale-ups face challenges in raising capital, leading to slower growth and dependence on foreign investors. The report recommends enhancing private investment, providing diversified funding sources, and encouraging investments from private pension funds and insurance companies.

(PRESS RELEASE) LUXEMBOURG, 24-Jul-2024— /EuropaWire/ — A new report from the European Investment Bank (EIB) Group reveals that removing investment barriers and implementing targeted public interventions could effectively channel European savings into innovative companies, thereby supporting their growth and technological advancements. The study, titled “The scale-up gap: financial market constraints holding back innovative firms in the European Union,” emphasizes the importance of enhancing capital market access for European scale-ups.

Challenges and Opportunities for European Scale-Ups

Despite the support from public organizations such as the EIB Group, scale-up companies in Europe continue to face significant financing challenges. These high-growth firms, situated between the start-up and mature-firm stages, have the potential to become global leaders in sectors such as green tech, artificial intelligence, and quantum computing. However, the limited size and depth of EU capital markets have hindered their ability to raise necessary capital, particularly during the crucial scale-up phase.

The report suggests that deepening Europe’s capital markets, especially the venture-capital market, is essential to overcoming these barriers. It highlights the successful role of the EIB Group, with the European Investment Fund (EIF) acting as a lead investor in mobilizing private investment, and the EIB dominating the venture-debt market.

EIB Group’s Commitment to Innovation

“The EIB Group is playing an important role in supporting Europe’s innovation ecosystem,” said EIB President Nadia Calviño. “We stand ready to do more, especially in paving the way for a true capital markets union, a key priority to drive sustainable growth and job creation.”

The report underscores the need for a comprehensive European capital markets union to improve financial integration and facilitate the financing of fast-growing companies. This would provide an alternative to relocating abroad in search of better access to finance, which is a current trend among European scale-ups.

Addressing Financial Constraints and Recommendations

European scale-ups often rely on foreign investors, leading to slower capital accumulation compared to their Silicon Valley counterparts. After 10 years, European scale-ups typically raise 50% less capital. This dependence on foreign investment also increases the likelihood of European companies being acquired by foreign entities, draining entrepreneurial talent and impacting future start-ups.

Debora Revoltella, director of the EIB Economics Department, stated, “It is imperative to address the growth constraints of innovative companies to ensure that Europe remains at the forefront of technological advancements and sustains its global competitiveness.”

The report recommends several measures:

• Completing the European capital markets union.
• Catalyzing private investment and providing support at earlier stages of technological development.
• Offering diversified sources of funding.
• Encouraging private pension funds and insurance companies to invest in innovative companies.

European Commission President Ursula von der Leyen has also urged for these steps, highlighting their importance for sustaining economic growth and innovation.

Future Actions

The EIB Group, in collaboration with the European Commission, plans to implement measures to enhance financing for scale-ups. This includes facilitating investments from commercial banks, investors, and venture capital, and mobilizing national private savings by engaging private pension funds and insurance companies.

For more details, read the full report: “The scale-up gap: Financial market constraints holding back innovative firms in the European Union.”

About the EIB Group

The European Investment Bank (EIB) is the long-term lending institution of the European Union owned by its Member States. It provides finance and expertise for projects that contribute to EU objectives. The EIB Group works closely with public and private-sector partners to support sustainable investment, job creation, economic growth and innovation across Europe.

The European Investment Fund (EIF) supports Europe’s micro, small and medium-sized businesses (SMEs) by helping them to access finance. The EIF designs and develops venture and growth capital, guarantees and microfinance instruments, which specifically target this market segment. In this role, the EIF contributes to the pursuit of key EU policy objectives such as competitiveness and growth, innovation and digitalisation, social impact, skills and human capital, climate action and environmental sustainability and more.

The European Investment Bank Group – comprised of the European Investment Bank and the European Investment Fund – is one of the largest public supporters of innovation in the European Union, providing long-term capital and advisory support. Since 2000, we have invested over €270 billion in innovation and skills. In 2022 alone, we provided €17.93 billion in support of innovation, digital and human capital. Through the European Investment Fund (EIF), the Group is also the largest provider of venture capital in the European Union. The EIF has supported almost half of the European unicorns (young companies valued at over $1 billion) that have emerged in the past 15 years.

The European Tech Champions Initiative (ETCI) was launched in February 2023 with EIB Group resources alongside contributions from Germany, France, Spain, Italy, Belgium. ETCI is a fund of funds with €3.85 billion of capital with the goal of channelling much-needed late-stage growth financing to promising European innovators. By making significant investments in large-scale venture-capital funds, ETCI helps deepen the venture-capital markets for later-stage companies. To date, ETCI has mobilised €10 billion in investment.

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SOURCE: European Investment Bank