Health updates through our phones, social media, hybrid vehicles, online dating and global news have all changed the way we live and communicate in just ten years.
Yet this is only the beginning. Innovative technologies like distributed ledger technology (DLT), digitalisation, driverless cars, DNA sequencing and AI are set to revolutionise how our society operates in the near future.
The World Economic Forum believes that around 10% of global GDP will be stored via DLT come 2027. However, European countries are currently capturing only 12% of their digital potential, according to consultancy McKinsey. Small businesses drive innovative technology, so the EIF has a role to play – by investing in venture capital, by boosting lending and by supporting the commercialisation of research.
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.
Boosting lending to innovation in 2019
Highly innovative start-ups are often perceived as high-risk. Their intellectual property, limited track record and innovative potential cannot provide the security or collateral against which most banks lend. If they are at a very early stage, they may be unable to demonstrate steady earnings. However, it is these small businesses that are often developing nascent, game-changing technologies. Not just in terms of innovation, but also in terms of economic growth, employment, attracting the best minds and boosting productivity. That’s why the EIF works with banks and other financial institutions across Europe and Horizon 2020-associated countries to guarantee a portion of their debt portfolios on the condition that they provide more financing to innovative small businesses.
Impact across Europe and beyond
SMEs in 40 countries have benefitted from better financing since 2014 thanks to InnovFin SMEG. This includes SMEs both in Europe (27 Member States) and in Horizon 2020-associated countries like Georgia, Israel, Tunisia and Armenia.
Supporting business in digitalisation
Europe remains behind the US in terms of digitalisation. According to EIF research, the uptake of digital solutions by businesses also remains uneven between Member States and between large companies and SMEs. Therefore, we will provide guarantees that boost lending to small businesses planning on a digital transformation. In fact, the Digitalisation Initiative for SMEs and small mid-caps is expected to release up to EUR 7.9bn to digitalisation projects in Europe. See ‘What is the Digitalisation Initiative for SMEs and small mid-caps?
Aside from digitalisation, InnovFin SMEG also supports SMEs in manufacturing, trade, ICT and scientific and technical activities.
Continuing coverage across the CEE and beyond
Accessing financing as an innovative business is tough, because banks look for collateral in order to extend a loan. We have increased the guarantee available to banks in Central and Eastern Europe (CEE), with two significant umbrella transactions guaranteeing up to EUR 250m to UniCredit CEE, leveraging 500m and guaranteeing up to EUR 400m to ProCredit, which leverages EUR 800m to innovative SMEs across 15 CEE countries.
In 2019, we also extended a EUR 60m guarantee to Banque de l’Habitat in order to support SMEs and small mid-caps in Tunisia.
….and guarantees for alternative lenders
Innovative SMEs have diverse needs. In 2019, we continued to provide guarantees to alternative lenders able to offer bespoke solutions, loans and bonds, or even capital from crowdfunding platforms. These include Sweden’s DBT Capital and Proventus (up to EUR 38.5m and EUR 37.5m guarantee, respectively), who design tailor-made financing solutions for SMEs and a EUR 15m guarantee for crowdfunder October Factory in France. The EIF’s guarantees will leverage extra financing to SMEs at double the guaranteed amounts.
“We are convinced that the commercialisation will bring lots of benefits to consumers and farmers across the world, through the availability of highly nutritious potatoes, especially in regions suffering from severe malnutrition, and much lower use of pesticides. It will be better for the planet, the wallet and for health.”
Hein Kruyt – Solynta
Wageningen, Netherlands. Breeding the ultimate potato.
Financing purpose: commercialisation, product development.
EIF financing: InnovFin
Bolstering equity investments in 2019
An equity investment and a little expertise can transform a good idea into a successful business. Business angels, venture capital investors and technology transfer (TT) funds focus on the earliest stage of a business’ life, often on products at the cutting edge of science or technology. However, capital alone is not enough. Funding game-changing innovation requires specialist investors who can combine financial expertise with scientific knowledge. These investors help entrepreneurs to position their product, develop their strategy and to grow and evolve with their business model.
Although the markets in European venture capital are maturing, there remains more to be done. In fact, 16 countries were still below the European average percentage of venture capital as a share of GDP in 2018. Certain new technologies, for example, blockchain and space, need funding to compete in a globalised economy, while others, such as personalised immunotherapy, need funding in order to treat major diseases like cancer.
Innovation is no longer the privilege of a few hubs in Western Europe. Together, we can build a financing infrastructure that reaches underfunded geographies, making sure that innovative businesses everywhere can access equity financing.
Attracting investors to European venture capital
Crowding in private investors is essential to a thriving venture capital market. Thanks to years of cornerstone investments from the EIF, this market has grown. As of June 2019, the EIF was invested in over 750 funds and 8,800 portfolio companies across all of its venture capital and its private equity activity in Europe. Venture capital in Europe has caught up with the world, delivering attractive returns to investors since more than a decade now, while fundraising momentum has picked up, attracting capital from around the globe.
In 2019, venture capital funds backed by the EIF generated bigger company exits than ever before. These included unicorns and dragons (companies with an exit big enough to return an entire fund’s capital to its investors).
UiPath, a robotic process automation company, originally supported by a number of EIF-backed venture capital funds, raised EUR 500m of funding at a EUR 7bn valuation. The company employs 3000 people, a quarter of which based in Romania.
The average size per fundraising also grew in the first half of 2019, despite a slower overall volume. According to KPMG, European venture capital raised USD 6bn (EUR 5.5.bn) averaging EUR 148.85m per fund, compared with an average of EUR 132.81m per fund in the first half of 2018. One example of a significant fundraising is the EIF’s co-investment with HV Holtzbrinck Ventures into a financing round of more than EUR 500m for German transport innovator Flixmobility – one of the largest-ever funding rounds for a German growth-stage company.
Funds from peripheral Europe are investing in companies outside of their home markets – and vice versa. EIF-backed Polish venture capital fund, Market One Capital and Portuguese venture capital fund, Indico Capital Partners, have both gained exposure to German electric scooter company Tier. Meanwhile, German venture capital fund Early Bird Digital East includes companies in the CESEE region and Turkey in its investment portfolio.
The growing market demand for equity financing means that more funds are being raised. We are backing this healthy diversification by taking a growing number of cornerstone investments in promising emerging teams. In other markets, where fundraising dynamics allow fund managers to gain access to private sector capital more easily, we are bringing our previously dominant cornerstone investments in line with other investors to make space for additional private sector investors.
With life sciences leading the way
Life sciences is the top-performing sector in the EIF’s European venture capital portfolio. As of the second quarter 2019, the best-performing life sciences fund generated more than 300% internal rate of return (IRR). However, performance is not everything. Investment in life sciences also helps us to combat some of society’s most pressing problems. We are living longer – in fact, the world population is set to increase by one billion by 2030, our lifestyles are unhealthier and 75% of diseases are yet to be cured.
Targeted support like our 2019 co-investment in Camel IDS, a Belgian life sciences company developing a radiopharmaceutical that targets brain tumors, will help to improve the treatment of diseases like cancer. At the same time, we are developing ways to support more prevention-based healthcare, by boosting investment at the earliest stages of equity support (for example, our 2019 investment in Kurma Biofund), while increasing the financing available for breakthrough discoveries in the treatment of major diseases.
Focusing on underserved areas
European life sciences may be performing strongly, but the picture is fragmented. Not all countries offer easy access to life sciences venture capital funds, and some sectors, particularly medical devices, are underfunded in favour of sectors that offer greater opportunities for strategic partnerships with corporates. In 2019, the EIF committed to cornerstone investments in two new teams on the Spanish market: up to EUR 20m into Alta Life Sciences, which is targeting EUR 125m fundraising in total and up to EUR 15m into Sabadell Asabys Health, which is targeting EUR 70m total fund size. We also committed up to EUR 20m in 415 Capital Fund 1, (total fund target EUR 75m) focusing on pre-commercial medtech companies. Medtech focuses on preventative medicine – saving billions in public health costs.
Underserved investment stages
Early-stage financing in life sciences is often risky and therefore underfunded. In 2019, we committed up to EUR 15m into venture builder MD Start III, which is targeting a EUR 60m fundraising for early-stage life sciences companies. The EIF also offers co-investment opportunities in life sciences companies, giving fund managers access to additional capital for backing their best-developing investments. In 2019, the EIF co-invested with Dutch NPI, the NIA, in a EUR 15m co-investment facility to help fund AM-Pharma’s clinical trials for first-line sepsis treatment.
…and collaborating with the corporate world
Research and development is critical to corporates in the life sciences field. We have therefore decided to collaborate with EU body the European Institute of Technology (EIT), which has a large network of health research institutions and corporates and bring them closer to our extensive network of venture capital funds. The partnership will open up new avenues for collaboration in the health and life sciences sector and encourage knowledge sharing and networking.
Technology transfer demand outpaces supply
The earliest-stage start-ups are the most risky and therefore in greatest need of funding. Technology transfer funds commercialise promising research, allowing it to make that crucial step from the prototype world into the commercial space. In 2019, we made our first commitment into a Finnish technology transfer fund – up to EUR 20m into Voima Ventures, which is targeting a EUR 40m close. Our existing ITAtech programme in Italy was also fully invested after just two and a half years, a full eighteen months ahead of the initial end of its investment period.
“We’ve been through a lot, from changing countries to working day in and day out from our living room…We believe in our team a lot. Things take their time, but nothing can crack us. We can change direction, we can adapt and we can find solutions to keep moving forward.”
Zsuzsa Kecsmar – Antavo
Szeged, Hungary. Building loyalty schemes for fashion & retail.
Financing purpose: developing sales & marketing.
EIF financing: InnovFin
…while business angels gather strength
Angel investors are a key component in the equity financing mix, not only investing, but also mentoring entrepreneurs throughout their business lifecycle. Business angels actively shape the strategy and direction of a company, work closely with the team and can alert entrepreneurs to the common pitfalls and mistakes. We co-invested with 14 new business angels in 2019, bringing the EIF’s total portfolio to 118 business angels by the end of the year.
…with deeper connections
Knowledge exchange between business angels is important. We added 152 companies to our digital networking platform for business angels in 2019, totalling 633. We launched a business angel survey, which shows the EIF’s added value to be useful in this segment and held the ConnectAngels event, uniting 54 business angels from 10 countries.
…in new regions and countries
We launched the first compartment focusing on a region – Flanders, Belgium. We also signed the first business angel under the new Italian compartment of the European Angels Fund. In the future, we hope to consolidate the pan-European platform for business angels, as well as increasing angels’ interaction with one another and as part of an important investment community.
…but we are constantly focusing on new technologies and sectors
Innovation drives the changes necessary to help us secure a sustainable future. We need to tackle climate change, we need to use our resources more consciously, and we need to develop alternatives to the linear growth model for our economy. These changes require innovative approaches underpinned by AI, space technology, deep tech and the circular economy, to name only a few. Given the right support, these technologies may very well bring us to the brink of one of the biggest innovative periods in history. Here are a number of areas we focused on in 2019:
• Impact for the climate and environment
We already hold eight investments in cleantech funds, but in 2019, we made the first commitment into a cleantech fund whose financial incentives are subject to achieving environmental targets set for each portfolio company. SET Fund III targets companies active in the smart energy value chain and is fundraising EUR 75m. In January 2019, we increased our commitment to SET to EUR 25m.
• First investment into space
We have also made our first commitment into a space-focused fund. Primomiglio Space is a technology transfer fund investing in proof-of-concept space-related technologies in Italy, Europe, the US and Israel. The EIF’s EUR 30m investment in Primomiglio Space is a step towards the fund’s target size of EUR 80m and part of a planned EUR 100m of investments and co-investments in funds and companies active in upstream and downstream space technologies.
• Investments into AI and blockchain
With the EC, we are launching a dedicated investment scheme that will make EUR 100m available to venture capital funds or other investors that support AI and blockchain-based products and services. We expect a total of EUR 300m to be generated for AI and blockchain from other private investors crowding in. The scheme, which comes under the InnovFin Equity product, will also allow co-investments with national promotional banks, which will increase the capital even further. The process will start from 2020.