EU Deploys Region’s Largest VC Fund to Create Local Unicorns

(Bloomberg) -- Europe has started deploying the largest venture capital fund ever created in the region, in its latest attempt to create health and deep-tech startups that will rival the U.S. and Asia.

The 3-billion-euro ($3.5 billion) fund run by the European Innovation Council, which formally launched last week, has invested in CorWave, a French startup that develops an implantable heart pump based on cutting-edge technology. Of the 35 million euros it raised in January, 15 million came from the EIC fund.

Private investors in Europe typically don’t have the lee-way to invest 15 million euros in a pre-clinical company, CorWave Chief Executive Officer Louis de Lillers said at the launch.

“They keep their larger tickets for later-stage clinical phase or revenue phase,” he said, referring to private investors. “The EIC fund is really filling a gap here.”

Europe’s leaders have long lamented that no homegrown tech startup has been able to scale to the likes of Google, Apple, Facebook and Amazon, a group often referred to as the GAFAs. With the next wave of breakthrough technologies, such as quantum computing, blockchain and artificial intelligence, European officials want a different outcome.

“We must take risks in order to create the conditions for some of our companies to be the leaders of the future market,” Jean-David Malo, director of the European Innovation Council in charge of the fund, said in an interview.

He said the goal by investing directly into startups is to tackle two main “valleys of death” where Europe’s entrepreneurs tend to languish, as the EU sees it: Translating lab research into commercial undertakings, and scaling up risky deep-tech startups in areas such as health care, sustainability and advanced manufacturing.

As part of the EIC’s 3-billion-euro fund, the EU will own between 10% and 25% of a company invested in directly, with ticket sizes as much as 15 million euros. Another 7 billion euros will be available to startups, primarily in the form of grants.

Europe has previously invested in startups through such financial allowances or indirectly by investing in VCs via the European Investment Fund. Officials have said financing won’t be diverted away from the VC firms under its new budget.

The EIC wants a return on investments, but says helping companies grow is paramount. It’s prepared to remain invested for longer periods than others, too, to help alleviate its concern that deep-tech firms are seen as risky investments and therefore less likely to win crucial early private funding.

“We are there as a patient capital investor, for the others it’s an additional form of security, as well as for the company,” Malo said, adding their funding would aim to crowd in private investment -- not replace it.

Not all deep-tech investment firms are convinced by the logic. Tom Wehmeier, a partner at Atomico, said it’s “simply not the case that today’s emerging class of European VCs aren’t comfortable taking scientific or engineering risks.”

“If a European deep-tech company struggles to raise VC funding,” he said, “it’s more likely related to the team, the potential to scale or the business model.”

Hermann Hauser, co-founder of Amadeus Capital Partners and vice-chair of the EIC’s pilot advisory board, said in an interview the EU’s investment approach is “working extremely well” and supports its goal of pursuing digital sovereignty. It could ease the EU’s reliance on other regions for critical next generation technologies, he said.

The EIC fund has signed deals with four companies, while another several dozen are set to receive equity financing, according to the EU. Beneficiaries besides CorWave include a Finnish biopharmaceutical company developing immunotherapies, and a Danish startup making optical components for consumer electronics.

While Europe has lagged behind in the past, Europe still has a chance when it comes to the next generation of technologies, Hauser said, adding that Europe has some of the best quantum research groups in the world. “It’s for us to lose.”

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