The European Investment Fund (EIF) makes it easier for small and medium-sized businesses (SMEs) in Europe to access financing - across multiple sectors, countries and needs.
Yet the needs of SMEs are always changing. Advances in life sciences, digitalisation and technology are breeding new types of start-ups in Europe, certain SMEs are prioritising their impact as much as their financial returns, and fragmentation between countries and sectors in Europe creates challenges that all need unique financing solutions.
That’s why in 2019 we have tried to strike the balance between delivering our existing programmes and spurring new initiatives to support Europe’s digitalisation, space, artificial intelligence (AI), blockchain, impact investing and blue economy areas. We know that sources of financing need to endure, so we continue to pool our resources with partners across Europe and attract diverse public and private investors to SMEs.
We also know we must stay true to our core values; including the policy goals of the European Commission (EC), the European Investment Bank (EIB) and Member States, crowding in private investors and successfully deploying the European Fund for Strategic Investments (EFSI). Ultimately, if we believe in small, big things can happen.
Individual transactions have been allocated to thematic areas based on a combination of investment stage and/or mandate objective. This overview is for illustrative purposes only and provides an indication of our main areas of investment focus in 2019.
What does the EIF do?
The EIF designs financial instruments that absorb some of the risk that banks, guarantee institutions, microfinance lenders and funds take when they finance small businesses. This encourages banks to lend, funds to invest and private investment to crowd in, to create a sustainable financing ecosystems for Europe’s SMEs.
We believe in small – Europe’s small businesses. This means working with the EC and other partners to deploy capital in areas that need it, from innovative businesses to farmers. It means identifying underserved areas, whether that be geographical or simply structural, like early-stage businesses. It means knowing our markets so well that one comparatively small commitment in a carefully selected bank or fund can generate millions of extra euros to small businesses.
Who are our stakeholders?
The EIF works with many stakeholders - Member States, the EC, a giant network of banks, including national promotional institutions (NPIs), funds and our parent, the EIB. Resources invested by the EIF come from our shareholders the EIB and the EC, mandates like EFSI, national and regional institutions, other public bodies, private capital and the EIF’s own funds.
So what does this mean for 2019?
In 2019, investments deployed by the EIF supported 323,000 small businesses and 2.8 million jobs. Investments under EFSI are on track to make up more than one million of these jobs.
However, volumes are not enough
Europe remains fragmented, with financing gaps between what different countries offer. Certain innovative subsectors are underfunded, for example, life sciences, and some new technologies lack the capital to grow beyond the prototype phase. The private sector is finding ways of offering alternative financing to small businesses, such as private debt and crowdfunding, but could benefit from more institutional capital. We are also seeing an appetite amongst institutional investors for investment to generate positive impact. Continuing to tackle these financing gaps head on will help to maximise this impact.
So how do we make an impact beyond our volumes?
We have to strike the balance between standardisation and customisation. Delivering our existing products but also talking to the market, understanding where the financing gaps lie, customising our products and designing new ones so that a viable SME, no matter how niche, anywhere in Europe, can realistically access the financing it needs to grow.
Striking the balance - achievements in key areas
We work with the EC and other partners to drive innovation, support growth and competitiveness, back creativity and cultural expression and much more. In 2019, we saw some key developments, including:
• A thriving venture capital market with big exits from venture capital and strong performance in life sciences under the InnovFin mandate (see Innovation Chapter);
• Strong uptake of the Cultural and Creative Sectors Guarantee Facility (CCS GF), with 10 participating countries and more than 1,200 CCS SMEs supported since the start of the programme in 2016 (see Society Chapter);
• Increased leverage and volumes under the EFSI competitiveness mandate, COSME LGF (see Growth and Competitiveness Chapter);
Large volumes in venture capital
The European venture capital market in general recorded large volumes in 2019, including 18 unicorns (businesses valued at more than USD 1bn, or EUR 900m, each). However, successes are not reserved solely for unicorns: from our own portfolio we witnessed seven exits at a value of USD 100m or more each (see the Innovation Chapter), while regional venture capital funds are also bearing fruit. Matooma, a French internet-of-things (IoT) business backed by an EIF-supported regional venture capital fund, exited in 2019 at 10 times its original valuation.
Supporting social impact…
Our 2013 pilot fund-of-funds investing in social impact has reached the end of its investment period, committing EUR 220m in 19 social impact funds in 9 countries over its lifetime and supporting more than one hundred social enterprises (see the Society Chapter).
Exceeding the resources available…
This year, our commitments leveraged more than EUR 1.3bn of resources to microfinance and social entrepreneurship.
…and creating more resources for social enterprises and micro enterprises
We are now in a position to deploy EUR 272m in support of loans or leases to social enterprises and micro enterprises under the new EaSI Funded Instrument (see the Society Chapter).
Applying securitisation to boost availability of capital
We deployed EUR 1.9bn, freeing up EUR 4.1bn for SMEs in Europe, with a particular focus on additionality and impact (see the Growth and Competitiveness Chapter).
Cooperating across countries
We have united 45 national promotional institutions (NPIs) in 29 countries across Europe, over the past three years, representing every EU Member State with an NPI (see the Cohesion & Regional Chapter).
…and widening the investor pool
The Asset Management Umbrella Fund (AMUF), which offers institutional investors access to the EIF’s portfolio of venture capital, life sciences and growth equity funds, is taking shape. As of the end of 2019, we had more than EUR 360m in commitments across 32 different funds (see the Innovation Chapter and the Growth & Competitiveness Chapter).
Yet 2019 was also about new funding and new products
More funds under EFSI
We have already deployed EUR 8.2bn out of EUR 10.5bn under the EFSI SME Window, benefitting more than a million small businesses. Thanks to new resources under EFSI 2, we can enhance our existing products – and drive forward some new ones. See below:
A digitalisation pilot of up to EUR 330m, which will improve access to finance for SMEs carrying out digital transformation projects (see the Innovation Chapter and the Growth & Competitiveness Chapter);
A EUR 50m skills & education pilot, still under development, to enhance the availability of education, training and skills for the European workforce (see the Society Chapter);
A EUR 300m growth pilot (ESCALAR), also still under development, to address the financing gap experienced by high-growth companies (see the Growth and Competitiveness Chapter);
EUR 50m capital to the EFSI Private Credit Tailored for SMEs instrument (see the Growth and Competiveness Chapter);
EUR 75m of investments targeting the blue economy, to support the sustainable economic activity related to the marine and maritime sectors;
New initiatives in the fields of impact and health that aim to bring private investors into the social impact and sustainability space (see the Society Chapter).
So how much capital did we put to work in 2019?
In 2019, we deployed EUR 10.2bn, which leveraged EUR 58.9bn to SMEs in Europe thanks to the crowding in of private investors. This means that for every one euro via the EIF, more than five euros are put to work with SMEs in the real economy.
…and what kind of impact did we make in 2019?
In 2019 alone, these investments translated into supporting 323,000 SMEs and 2.8m jobs. It also meant signing 382 transactions with 317 financial intermediaries (of which 118 are new relationships) and designing 11 new mandates. We also established through our research that EIF venture capital-backed companies grew more than non-venture capital-backed businesses in assets, employees and revenue, while companies which received loans guaranteed by the EIF performed better than companies who received a loan that did not benefit from a guarantee.
…but there is still more to do
Financing to small businesses has to be sustainable and flexible enough to withstand changes in the economy and in society.
Diversifying our funding sources
In 2019, we not only continued to use to public resources, through combining EFSI with structural funds. We also engaged with a greater number of private investors, whether through our AMUF vehicle or our new EFSI Private Credit Vehicle, or corporates through our collaboration with the European Institute of Technology, all in order to ensure critical mass for current and future investments.
The EIB Group has committed to aligning to the principles and goals of the Paris Agreement by the end of 2020 and will gradually increase the share of its financing dedicated to climate action and environmental sustainability, expecting to support in total EUR 1 trillion of investments by 2030 (see the Looking Ahead Chapter).
Adding value under InvestEU
Under InvestEU, in the new budgetary period from 2021, we will turn from market builder into a thematic market maker, building up themes now that we have laid the groundwork. As well as this, we will add value as a partner for NPIs and as a capacity builder.