For the very first time, the European Union will become a direct shareholder in startups. This will be possible via the creation of one of the biggest investment funds in Europe.
Well, the European Innovation Council Fund is believed to invest €3B (nearly £2.7B). This funding is intended to fill what is termed to be a critical funding gap for groundbreaking technologies, thereby letting them scaleup to commercial levels and compete with rivals in the US and Asia.
Focuses on deep tech
As per the EU, it will combine grants and equity stakes to invest in early-stage companies in the deep tech ecosystem. It will include advanced manufacturing, sustainability, and healthtech industries. The ownership will be between 10% and 25% of a company with ticket sizes of maximum €15M (nearly £13.6B).
Initially, the first EU investment round will include €15M (nearly £13.6B) funding into CorWave, a French startup, which develops a device that helps those suffering from advanced heart failure.
When compared with the US, the traditional VC firms have relatively smaller funds in Europe. As per EU officials, this makes investors to take fewer risks. Venture Capital firms have a defined investment horizon, having to issue returns to investors in a decade.
By making direct investments in scientific breakthroughs, EU officials claim that the funding will derisk the investments and attract traditional investors as well.
As of now, EU invests money into tech companies in the form of grants from the commission and via the European Investment Fund. This fund will in turn invest in VC firms. This move will let EU bypass investors and their fees and boost early-stage companies.