Innovation & Digitalisation

The world is changing at an unprecedented pace, driven by the relentless pace of technological advancement. Innovation and disruption are defining our lives today as much as they will tomorrow.

The EIF has continued to channel resources in the direction of early-stage investments in innovative businesses. This has focused on new frontiers like artificial intelligence/blockchain (AI/BT) and the space industry as much as it has on the more traditional but highly innovative field of life sciences.

At the same time, we have boosted our support to private debt funds and also made sure to provide financing for traditional businesses to help them navigate the transition to a digital future.

This year has also seen several new EIF-backed unicorns emerge from the European venture capital scene.

Fernride: driverless technology

Location

Munich, Germany

Financial Intermediary

Fly Ventures

EIF financing

RCR/own resources; ERP

Financing purpose

commercialisation

Number of employees

30

“With volumes shipped around the world increasing by the hour and people expecting ever-shorter delivery times, autonomous driving technologies are the ideal solution for today’s goods transport.”

Hendrik Kramer

CEO

Digitalisation and the digital transition

The lockdowns and market disruptions associated with the pandemic have obliged businesses to map out and execute digital strategies with a renewed sense of urgency. They’ve had to be agile and adapt and transition to a future which is connected, and where digital is rooted in every layer of our lives, our interactions, our operations and our businesses. Our intention is to support this transition.

In June we signed a guarantee agreement backed by the EGF with Riva Y Garcia Gestión to support the liquidity needs of SMEs active in the Spanish digital sector and mitigate the economic constraints posed by the pandemic. With this transaction, the EIF will provide an uncapped guarantee of up to €24.5m to Riva Y Garcia Gestión to cover a portfolio of loans of up to €35m. The provision of debt financing on favourable terms will help boost the development of Spanish SMEs and will consolidate the venture debt opportunity existing today in the Spanish digital SME market.

We have also been part of the bigger picture, contributing to efforts at European level. In September 2021, the EIF and the European Institute of Innovation and Technology (EIT) signed a Memorandum of Understanding (MoU) to collaborate more closely and boost European innovation for the green and digital transitions, leveraging on synergies arising from the respective institutional competences and business networks.

The MoU creates a framework for the EIF and the EIT to collaborate and share information on financing and innovation opportunities, in areas such as equity investments in European SMEs and start-ups, as well as key European sectors including climate, energy and environmental technologies, strategic digital and deep technologies, education and skills. This new collaboration adds another building block to our engagement towards a climate-neutral Europe and the digital and skills transformations of European businesses.

Unicorns

Supporting innovative entrepreneurs at an early stage in their business lifecycle is risky business. It’s the essence of venture capital. Many investees won’t make it; some will; and some will lead the pack and grow into market leaders. The EIF has supported around half of Europe’s unicorns and this year saw several additions to that list:

SWORD Health, a company backed by the VC fund Faber Tech II, was the second unicorn emerging from the innovation-, research- and technology-focused VC fund of funds Portugal Tech. SWORD Health is a virtual physical therapy solution that pairs patients with musculoskeletal conditions with doctors or physiotherapists. Patients can follow therapeutic sessions from the comfort of their home any time of the day. In November, the company was valued at $2bn (€1.76bn), 18 times what it was in January, proving the success of Portugal Tech in stimulating the ecosystem and in funding high growth businesses.

Infarm is the world’s leading urban vertical farming company. The company has built a network of urban farms to grow fresh food closer to consumers. Berlin-based Infarm employs over 1,000 people and operates in 11 countries across three continents. Their cutting-edge modular vertical farming technology generates massive savings in terms of water and land. In December 2021, the company’s valuation surpassed $1bn (€0.88bn). The company has been supported by four different funds in which the EIF has invested.

New frontiers: AI/BT and space

The strategy of targeting very specific innovative and developing industries is now in full swing, with the EC’s InnovFin pilot programmes targeting the fields of (1) AI and BT, and (2) the space industry both meeting with strong demand from the markets.

We have fully deployed both pilot programmes, resulting in more than €500m being made available on the market for start-ups active in these fields. In parallel, throughout the year, we have been participating in several industry events, underlining the strong commitment of the EU to support such strategic technologies.

One of our successes in this field is the incredible story of UiPath, a software company from Romania supported since its inception by several VC funds backed by the EIF. UiPath achieved the largest IPO for a Europe-born technology company, with a $36bn (€31.78bn) market cap after the first day of trading on the NYSE.

Other EIF-backed VC funds are investors in the Parisian fantasy football platform Sorare, which is based on blockchain technology, and raised the largest European Series B funding round of $680m (€600.4m) in September with a valuation of $4.3bn (€3.79bn).

This year also saw the first deployment of the AI Co-Investment Facility, a €150m joint EIB/EIF equity instrument targeting companies in the field of artificial intelligence. It was launched in December 2020, to provide four years of support to the European Digital Strategy. The core idea is to target the financing gap that companies face when they move into the growth phase of their life cycle. In 2021, we made a first co-investment alongside HV Holtzbrinck Ventures Manager into Verbit, a technology company developing best-in-class machine-learning speech recognition technology. The additional equity financing allowed the company to finance its R&D activities.

Spaceflow: digitalising buildings

Location

Prague, the Czech Republic

Financial Intermediary

Day One Capital CEE, Credo Ventures, UP21

EIF financing

InnovFin Equity, EFSI

Financing purpose

product development, new hires, sales

Number of employees

40

“Spaceflow is about digitalising buildings. The goal is to make buildings more appealing for tenants and to make their life more comfortable.”

Lukas Balik

CEO

Fintechs and alternative finance

The fintech sector has grown significantly over the last few years, and the pandemic has only accelerated this trend. Fintech solutions offer small businesses an alternative to classic bank loans, including bespoke financing. They are deployed speedily and are typically more flexible.

The EIF has helped the development of this sector with a number of investments in the course of 2021, such as its €30m investment in Magellano (Italy) managed by ART SGR, the asset manager company of Opyn, an Italian fintech group for SME lending. This deal, made possible with resources from the EFSI Private Credit Tailored for SMEs programme, will facilitate access to finance for SMEs impacted by the COVID-19 crisis and confirms the importance of fintech as a channel through which the real economy is funded.

The EIF has also supported senior private credit funds offering alternative finance to SMEs at a record pace in 2021, reaching more than twice the annual number of transactions seen in 2019 and 2020. We backed 17 new funds, predominantly with EGF - Senior Private Credit resources, in both developed (France, Germany) and less-developed private credit markets such as Poland, Ireland, Sweden, Norway and Estonia.

With EIF support, alternative asset managers are making an important step forward in developing the very low end of the European private credit market. By the end of the year, we had signed €110m worth of deals with four funds supporting SME lending through fintechs, further developing alternative finance in Italy, the Netherlands, Spain, Germany and France.

In particular, the EIF has committed €20m in MiiMOSA Transition #1, the first senior private credit fund lending to SMEs in the agri-food sector and actively contributing to the UN SDGs for small businesses operating in the French agro economy. It has already been financing projects such as the installation of methanation units on farms to convert waste to energy, or the transition to organic and sustainable farming on an olive oil farm.

And in the Netherlands, through the DACI mandate (see Competitiveness & Growth section) we have so far invested in two funds supporting SME lending through fintechs - October and Voordegroei. October offers investors access to a highly diversified and granular portfolio of loans ranging from €30,000 to €5m across five different countries. Voordegroei, established in 2014, aims to support Dutch SME financing not adequately addressed by banks due to their small size and/or lack of collateral. Its target borrowers are small Dutch companies mainly active in the industrial, manufacturing and ICT sectors.

Recently, in the private credit market too, investors have been capturing opportunities represented by companies that are innovating to build a more sustainable future. ESG is beginning to play an integral role in strategy formulation and fundraising within the space, with a number of funds this year disclosing information about their investments’ ESG risks, as well as their impact on society and the planet, a trend that we expect to continue and grow in the future.

Life sciences

One sector that has been thrust into the spotlight over the course of the past 19 months is undoubtedly life sciences. The pandemic has propelled it to the forefront of the political agenda. Innovation has always been at the core of life sciences, in the continuous pursuit of improving human and animal life. Addressing the growing number of unmet medical demands, better coping with upcoming challenges for patients and healthcare systems alike, and promoting EU competitiveness in general, will require substantial commitments of resources.

Venture capital can play a key role in bridging financing gaps and bringing life science innovation to the market. The EIF has been a supporter of life sciences (LS) since the late 90s, investing in LS funds on average €250m per year. In 2021, we committed a record amount of about €1bn to LS funds, representing a threefold increase in our investment activity in this sector compared to 2020.

The availability of the EGF mandate has allowed the EIF to increase its support to this sector, which despite strong financial results and an outstanding societal impact, has been historically neglected by private investors due to seemingly long holding periods and high risk of the underlying investments. The EGF has facilitated notably larger commitments into LS funds, thereby helping them reach their target size and hence be optimally financially equipped to deploy their investment strategy.

We have backed blue-chip LS managers, which are the backbone of European life sciences, to help them reach sizeable fund sizes (> €500m) and maximise their support to EU LS champions, but also emerging LS or first-time teams, to increase the pool of specialised investors in the LS space across the EU. In 2021, we committed over €700m in first-time LS funds. These include:

€25m of InnovFin and EGF resources in I&I Biotech Fund I, a Tech Transfer fund based in the Czech Republic focusing on spin-off companies from Central European biomedical research organisations, particularly the Institute of Organic Chemistry and Biochemistry - IOCB - of the Czech Academy of Science. IOCB is one of the few LS research organisations in Central Europe that succeeded in having several compounds discovered in their labs developed into pharma blockbusters, with global sales exceeding €870m. IOCB is notably known for having co-discovered in partnership with the REGA Institute of the KU-Leuven several antiviral drugs that have been licensed to and developed by large global pharmaceutical companies.

€40m of InnovFin, Alpine Growth Investment Platform (AlpGIP) and EGF money in Claris Biotech 1, an Italian early-stage LS VC fund focusing on biotech early and late preclinical projects primarily in the fields of oncology and immunology. With this transaction, the EIF has supported the establishment of an emerging first-time investor in the Italian LS VC market, which, despite strong innovation potential, remains largely underserved.

€80m commitment from EGF and SDUF resources in 2021 and €20m commitment from RCR resources in 2020 into Jeito, a €534m female-led fund primarily based in Paris whose key strategy is to address the entire funding spectrum of therapeutic companies, from pre-clinical stage up to and after IPO. The fund’s unique strategy and large size give it the ability to design the companies’ drug discovery and clinical trials programmes from the outset, provide them with continuous funding up to and possibly beyond IPO and accelerate their growth by investing significant amounts when needed. The EIF’s support will contribute to addressing the fragmented and time-consuming fundraising process faced by biotech entrepreneurs, who usually have to raise multiple rounds and must carefully consider stage-relevant syndicates.

Central & Eastern European Technology Transfer Platform (CEETT)

We expanded our reach in the CEE region with a new initiative launched in 2021, the Central & Eastern European Technology Transfer Platform: CEETT is a cross-border initiative with SID Banka and HBOR to support technology transfer investments in Slovenia and Croatia. The new regional platform will provide €40m for investments in research-derived projects and spin-offs. This is the first multinational investment platform for technology transfer ever launched in the EU. The EIF estimates that the universities and research institutes in Slovenia and Croatia targeted by the platform will generate more than 350 patent applications and 100 spin-off companies in the next five years.

Sustainable Development Umbrella Fund

In early 2020, the Sustainable Development Umbrella Fund (SDUF) was launched to deliver investment focused on selected thematic sectors important for sustainable investing.

The SDUF-Health compartment, following its first closing in December 2020, has on-boarded several corporate investors that include Institut M rieux and Google and has invested into eight life science funds so far, with a healthy pipeline in place for the future.

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