Impact & Looking Ahead
So what is our impact? In 2019, we continued to research the effects of our financing on the different financial markets we support and the results are positive.
Loan guarantees work
Last year we published a large-scale analysis covering over 360,000 EU guaranteed loans granted from 2002 to 2016. These loans amounted to an overall EUR 22bn and represented 19 European countries (approximately 60% of all loan amounts guaranteed by the EU in this period). After receiving a loan guaranteed by the EIF, small businesses grew more rapidly than the control group in terms of total assets, sales and employment. The additional effect on growth is economically significant: it typically ranges from seven to more than 35 percentage points for total assets, 6 to 35% for sales (or turnover) and 8 to 30% for employment levels.
Securitisation mobilises additional lending volumes
Our impact in securitisation is most powerful at a catalytic level – for mobilising resources for additional SME lending. By analysing the value added prior to closing (ex-ante), then after (ex-post), we could see where the EIF can add the most value through its securitisation transactions.
EIF-backed VC investments work
EIF-backed start-ups grow almost three times as large in terms of assets, almost twice in terms of revenues and twice in terms of employment compared to innovative start-ups that did not receive VC financing. With the help of Invest Europe, we have been able to pull together data on more than 11,500 start-ups supported by venture capital between 2007 and 2014 and identify the economic impact of about 800 early stage VC investments backed by the EIF over this period. With the help of Invest Europe, we’ve also looked at the recent developments of the European VC ecosystem, the way start-ups grow after a VC investment and the way they would have grown had they not received it. VC can make all the difference for some bold and innovative ideas: if we remove VC backing from the picture, half of high growth start-ups (superstars, visionaries, all-rounders) would experience slower growth (for more information, please see The VC Factor report).
Exit environment and fundraising are the biggest challenges in European VC
We carried out the largest-ever survey on European venture capital firms (774 responses from 538 firms) and found that the exit environment, fundraising, high investee company valuations and the lack of high-quality entrepreneurs are perceived as the biggest challenges to the European VC business. Only half of the fund managers considered the fundraising environment to be good. However, the results differ substantially by the respondents’ investment stage and sector focus as well as by region. Analysing the EIF VC Survey results in detail helps us target our support better. For more information please see The EIF Survey 2019 and Ten Things Europe's VC Managers are Talking About.
High added value of the EIF activities under the European Angels Fund (EAF)
Most business angels (BAs) increased their investments thanks to the EAF and, at the same time, did not reduce their personal exposure to the business angel investment. The EAF enables BAs to increase both their reputation among investees and their network. Three quarters of the responding BAs perceive the EAF’s overall added value to be high or very high, and the vast majority of all respondents would work again with the EAF. The EAF procedures are reported to be appropriate, transparent and clear by most of the respondents. For more information, please see The EIF Business Angels Survey 2019.
Sweden has the best conditions for access to finance
Small businesses in Sweden experience the best access to finance and SMEs in Greece, the worst. Understanding which countries need extra support and in which areas, helps us design programmes which help. For more information, please see The EIF SME Access to Finance Index (June 2019 Update).
Improvement in access to finance but one in four SMEs still report severe difficulties
Loans remain important to SMEs. The availability of leasing has improved. Investments in private equity funds are increasing. The crowdfunding market is showing signs of maturity. Yet securitisation is still underdeveloped. Please read The European Small Business Finance Outlook to understand more about the state of small businesses’ access to finance in Europe.
The EIF has worked with its partners to catalyse many markets – in different regions, such as Bulgaria, different financial instruments, such as microfinance and varying sectors, such as life sciences. However, many challenges remain. We are becoming more conscious of the world in which we live, particularly climate and sustainability.
Serious changes in technology mean we need to give small businesses and developers in Europe the support that they need, while high-growth businesses in Europe need support scaling up. Our challenge will be to anticipate the needs of future SMEs and meet these demands.
The EIB Group has ambitious targets to grow its support for climate action and environmental sustainability. This includes aligning to the principles and goals of the Paris Agreement by the end of 2020 and supporting a total of EUR 1 trillion of investments from 2021 to 2030. In fact, the EIB Group will gradually increase the share of its financing dedicated to climate action and environmental sustainability to reach 50% by 2025 and beyond.
…and how the EIF can help
The EIF has identified climate change as a pressing issue for a number of years now and has actively supported environmental sustainability through its venture capital investments into cleantech funds but also through our guarantee programmes. Going forward, we believe we can play a critical role in delivering on climate action through InvestEU and other mandates:
• We are already designing equity and guarantee products that could support the delivery of InvestEU through all of the four future policy windows;
• We will work on aligning our future investments to the UN Paris Agreement as of 2021.
DLT (including blockchain), AI and IoT promise to change how we live and interact. Yet, according to the EC, Europe is behind in private investments in AI alone, which totalled around EUR 2.4-3.2bn in 2016, compared with EUR 6.5-9.7bn in Asia and EUR 12.1-18.6bn in North America. The launch of dedicated equity financial instruments in digitalisation will help to leverage investment of approximately EUR 600m in the period 2018-2020 (based on leverage targeted through the current EFSI SME Equity window) to small businesses developing these technologies.
Being more impactful
A focus on sustainability and impact-related themes is becoming more central to the European economy – and to our investments. We already invest for social impact under the EaSI and SIA programmes, but now we are looking at new initiatives that will pull institutional investors into a variety of impact-related investments, including health.
Raising the bar with InvestEU
We must continue to create a playing field in which European companies can kick off their business, scale up and compete internationally. We do this through our programmes, but also through contributing to the objectives of the Capital Markets Union and strengthening the EU single market. InvestEU will channel private and public investment into sustainable infrastructure, research, innovation and digitisation, SMEs and social and investment skills.
Filling financing gaps at earliest stage and latest…
We need to offer continuity in our support throughout the lifetime of a company, from its early days to commercialisation, growth, straight through to internationalisation and eventually even IPO. This also goes for debt instruments. We have developed several generations of guarantee instruments and reached a point where they are working well. We need to capitalise on this and ensure that the next generation of debt instruments is equally ambitious and impactful.
Diversifying our funding sources
We will continue to diversify funding sources. By building relationships with NPIs and multilateral institutions. By working on crowding in more institutional investors. By directly investing institutional investor capital in European small businesses through our AMUF vehicle and other new initiatives.
…and now we’re breaching new frontiers
How to support new innovative technologies such as DLT and AI is at the forefront of our priorities.
DLT workshops, life sciences, AI
In 2019, we spoke in depth to market practitioners to understand how the EIF could support DLT, AI and life sciences. Our findings may produce new pilot mandates for these areas.
New markets for technology
We are accessing one of the most developed markets for technology in the world with four venture capital investments signed in Israel. Three of them closed, while the fourth one is still raising an amount equivalent to what we committed. Our objective is to address the pre-seed and seed-stage market gap and to help develop the business relationship between the EU and Israel.