Venture-EU to help raising bigger funds in Europe
On 10 April 2018 the European Commission and European Investment Fund launched a new fund-of-funds (FoF) initiative called “VentureEU”, which is estimated to trigger approximately EUR 6,5 bn. of new investments in European SMEs. An interesting opportunity for Scandinavian venture fund managers.
How does it work?
Initiated by a cornerstone investment of EUR 410m from the EU (managed by the European Investment Fund), six already existing and experienced FoF managers will match the above mentioned public money with additional EUR 1.7 bn. raised from private investors, which will then be spread across smaller European VC funds (approximately 25% of their fund target size). The investee funds will in turn raise capital from other investors, resulting in approx. EUR 6.5 bn. of new investments in innovative companies across Europe:
Credits: European Commission
What’s the purpose?
The main goal is to give start-ups every opportunity to become world-leading companies while remaining in Europe (preventing them from moving to the US). European VC funds are still too small to be able to support exponential companies to the fullest of their potential and produce unicorns at the same pace as in the US. In an effort to keep up with the US VC activity level, EU has decided to help venture fund managers in raising bigger funds with more room for larger tickets by global institutional investors. Such investors, like pension funds and insurance companies, often find European VC funds to be too small. Also to note, about 90% of the EU’s supply of venture initiatives is concentrated in just eight member states. There is Hence, one of the requirements for the FoF managers when participating in the so called “call for expression of interest” issued by EIF, was to invest across minimum 4 EU countries.
Fact: An average size of a European VC fund is approx. EUR 56m compared to EUR 1.5bn in the States.
Who’s got the money?
Two of six EU FoF managers have been selected as of April 10 this year; Isomer Capital and Axon Partners Group. The other four are Aberdeen Standard Investments, LGT Capital Partners, Lombard Odier Asset Management and Schroder Adveq, and agreements are expected to be signed soon. It is expected to take between one to two years for the first allocations in investee funds to take place, awaiting fund managers to complete fundraising, but smaller VC fund managers looking to fundraise in a year’s time, may already get in touch with the selected FoF managers – not directly with EIF. The smaller investee funds are to help finance European SMEs and mid-caps from a range of sectors, such as digital, life sciences, medical technologies, and resource and energy efficiency.
Europe has still a lot to do to reach American level of VC activities on the continent, but current changes to the EuVECA regulation, which we wrote about here (entered into application on 1 March 2018) and initiatives such as VentureEU (among others) are definitely bringing us a step forward.
Stockholm, 13 April 2018