Tracking venture capital, unlocking investment, fuelling innovation
The problem, according to Mario Draghi, “is not that Europe lacks ideas or ambition. We have many talented researchers and entrepreneurs filing patents. But innovation is blocked at the next stage: we are failing to translate innovation into commercialisation…”
Innovation potential defines our future
Looking at our innovation potential and what it takes to realise that potential has never been as critical as it is today. The world is changing fast. Artificial intelligence, machine learning and big data are becoming central to so many different sectors of the economy. From medicine and biotechnology to generative text platforms and space, and from defence to agriculture, innovative technology is spreading like wildfire, changing everything around us.
However, Draghi continues, “Europe’s position in the advanced technologies that will drive future growth is declining. Only four of the world’s top 50 tech companies are European and the EU’s global position in tech is deteriorating: from 2013 to 2023, its share of global tech revenues dropped from 22% to18%, while the US share rose from 30% to 38%.”
Fuelling bright ideas
So the race is on, and we’re not exactly in pole position. And while it is generally agreed that we do have the skills and the depth in research and academia to come up with bright ideas, these bright ideas don’t become commercialised household names overnight. Typically, a bright idea has to undergo a lengthy, painful and expensive process of commercialisation, making its way out of the lab, into a start-up, and from there out into the world.
One of the key factors determining the success of any bright idea along that path is the financial backing it receives. Enter venture capital (VC), where innovative ideas find the fuel they need to lift off. If we want to counter the trends that Draghi is describing, we’re going to have to boost the European VC ecosystem. VC investments in the EU averaged a meagre 0.3% of GDP per year over the last decade. In the US it was triple that. During the period 2013–2023, EU VC funds raised about €130bn compared to more than €920bn in the US.
European investors seem to shy away from venture capital investments or at least don’t engage in the same way that Americans do. Is there a difference in risk appetite? Entirely possible. But, with ample liquidity in the markets in the post-covid era, we need to do better in steering investors towards supporting our innovative entrepreneurs. Large institutional investors and pension funds, in particular, need to be encouraged to see more of the opportunity and less of the risk in venture capital investments. European pension funds have €3.5tn under management, yet their VC exposure doesn’t exceed 0.02%. It could be as high as 3%.
Addressing information gaps
So, what can be done? Well, one aspect of the problem is information. Venture capital is by nature opaque. Those bright ideas often don’t have a wealth of information behind them to facilitate investment decisions. They’re ideas and that’s the nature of venture capital. But if we take the VC ecosystem as a whole and look at past performance, we may be able to draw some conclusions.
At the EIF, we’re sitting on a wealth of data. We’ve been active for more than 30 years in the European venture capital and private equity markets, investing more than €42bn, and working with more than 1500 fund managers. In total, we’ve supported close to 30,000 European businesses in this way. All of that has created a lot of interesting data. And there are other organisations out there with equally voluminous and interesting data. We want to put that data to work. That’s why we’re in the process of developing a new platform, TrackVC, that will offer insight into the European venture capital scene and the broader equity ecosystem, tracking performance and improving transparency, ultimately contributing to de-mystifying it and making it more attractive for potential investors.
This is just the start of a journey. The platform is only just getting off the ground, but we want to move fast and we want to make a real difference. Working with Blackrock — and hopefully also other investors going forward — we aim to feed it with fresh data and strengthen it so that it can do its part in bridging information gaps and shedding more light on European venture capital. Because, at the end of the day, European innovators deserve it.
