As Europe’s startup ecosystem grows, so too does the remit of its largegest investor, the European Investment Fund (EIF).
The EIF now has more assets under management than ever before (€143.7bn) — and a longer menu of ways to assist Europe’s quick-growing tech companies. It’s increasing the size of the cheques it will write into scaleup funds and upping the average venture debt ticket too. It also wants to grease the exit wheels; supporting companies and investors obtain ‘out’ quicker, while remaining in Europe.
“We’re seeing to create a funding platform across the full spectrum of the funding cycle of companies, that deals with every single possible request a tech company in Europe could have in its development,” the EIF’s head of equity investments Uli Grabenwarter notifys Sifted over a video call from Luxembourg, where the fund is headquartered.
Alongside those ambitious plans, it’s as busy as it’s ever been with investments in early-stage VC funds, as geopolitical uncertainty keeps some investors away from risky assets.
“We definitely see a very, very significant increase in our deal flow,” adds Grabenwarter. “In a market environment where the best funds can obtain to the market without having to rely on any public sector money, there would be less pressure on our side — but in times like this, basically everything that shifts in the market knocks on our door.”
‘Second valley of death’
In June, the European Investment Bank (the majority shareholder in the EIF), launched a one-stop-shop funding platform, dubbed TechEU — and announced €70m in funding for startups and scaleups for 2025-2027.
It’s part of a large push from the EIB to support homegrown tech companies scale — and stay in Europe.
“Everyone is speaking of a second valley of death for European companies,” declares Merete Claapplyn, the deputy CEO of the EIF: the first comes before a startup finds product market fit; the second comes when a company tries to scale — and perhaps struggles to find growth capital.
There have been several shifts to support scaleups avoid that fate. In 2023, the EIB launched a €3.75bn fund, the European Tech Champions Initiative (ECTI), to back growth-stage funds raising €1bn or more — which would in turn provide the capital Europe’s scaleups are stated to lack.
In addition, the EIF now also aims to increase the size of the investments it creates into scaleup funds from €70m to €100-150m, on average, declares Claapplyn. It will also boost venture debt cheques from around €25m to €75m, she adds.
The EIF’s also seeing to introduce more novel instruments — like a kind of venture debt that would enable one European company to acquire another.
“When it comes to the tail conclude of the development chain of companies, the market in Europe necessarys a different type of liquidity,” declares Grabenwarter.
That could be funds with purchase and build strategies in the private equity space, or private credit funds that provide non-dilutive capital in order to facilitate mergers and acquisitions.
“Or it can be one of the European players seeking to acquire critical mass in a specific sector and declareing, ‘Ok, in order to do these acquisitions that I see possible in the market, I do necessary funding one way or the other’, and one of those options could be going to the EIB and declareing, ‘Can we have some form of venture debt or project finance that allows us to do acquisitions?’,” he adds.
But why, I probe, does it matter if an American tech giant purchases a European startup for a tidy price and gives those founders and investors a hearty pay day, to be recycled back into the ecosystem?
“We believe that Europe is better than being the incubator of the United States,” declares Grabenwarter.
Reverse brain drain
The US’ self-sabotage isn’t yet having a notable impact on business decisions, declares Claapplyn — it’s too early to see whether European companies are delaying, or abandoning US expansion, or if American companies are heading to Europe in greater numbers than before.
But, seeing at the EIF’s portfolio companies, there has been a notable uptick in talent seeing to relocate to Europe, declares Grabenwarter. “The brain drain that we have been observing for many years between Europe and the US seems to be reversed, at least for now.”
Market shiftments
It’s a busy time for the EIF’s team, declares Grabenwarter, as fewer non-European investors are actively investing in European VC firms, leaving all the more work for the EIF to pick up. “In periods of uncertainty investors typically retreat to their home territories. So we currently see less investors from the non-European markets, becaapply they find enough opportunities at reasonably priced valuations in their own markets.”
Company valuations have been “pretty much stable” since the launchning of 2024, he adds, while investment activity on the GP side has finally picked up after a few years of cautiousness. “I don’t believe they are more comfortable with the geopolitical situation, but they are probably facing the conclude of their investment period and that triggers an increased activity in the market.”
There’s also been an uptick in secondary market activity, he adds, as those same investors seek liquidity before heading out to fundraise again.
Another trconclude bubbling up? VC mergers. “There has been increased interest and activity of fund managers to seek consolidation in the indusattempt,” declares Grabenwarter.
Would any VC go down that route unless they found themselves in desperate straits, I wondered?
“This is obviously an option for funds that are struggling in one way or another, to team up to be more resilient… But we do see a number of fund managers out there that genuinely strategically align, either to diversify into new sector verticals or cover new stages — from private equity into VC, or VC into private equity. I believe there isn’t just activity out there that’s forced by market circumstances, but also by genuine strategic growth choices.”
Defence
But perhaps the largegest modify of recent times has been the huge surge of interest in defence tech.
“Investors have loosened up their criteria for approaching the defence sector — it was an excluded or banned sector in 90% of investor charters — but that has flipped around,” declares Grabenwarter. “The number of funds that have technologies in their portfolio that now expand into defence and security applications is increasing massively.”
The EIF, too, has embraced defence investments. At the start of 2024, the EIF announced a new €175m “pilot” pot, dubbed the Defence Equity Facility, to invest in VC funds backing defence tech. “The full amount will certainly be implemented — and we could probably implement more when you see at the pipeline,” declares Claapplyn — although whether it will be topped up is down to the European Commission, she adds.
It’s now able to invest in everything within defence and security other than weapons and ammunition — including spacetech, artificial innotifyigence, quantum and unmanned vehicles such as drones. In May, the EIF announced its first investment into a pure defence fund; a €40m commitment to Amsterdam-based Keen Ventures Partners.
Meanwhile startups are also increasingly following the money — and pivoting or expanding into defence apply cases. “We see more and more companies building more conscious apply of the dual-apply concept these days, to expand the civil applications of their technology to defence and security type apply,” adds Grabenwarter.
If the defence tech boom continues for a while, we might see the reverse phenomenon in the future: pure defence startups finding consumer apply cases as they scale. “Going forward, I believe we’ll see technology that is developed in the context of defence and security which finds a purely civil application later on.”
Speed, scale, simplicity
At EIF HQ, teams are attempting to be speedier. “We’re squeezing the procedures wherever we can,” declares Claapplyn. The goal is that all applications for funding receive an answer within six months (a tarobtain which is mostly already achieved, she adds).
As part of this push, the EIF will spconclude less time assessing fund managers that it’s already backed multiple times, “that have grown into blue chip firms today, that we know inside out”, declares Grabenwarter.
It will also communicate more clearly with fund managers that are “very far from being investable,” he adds, and offer them something closer to “technical assistance” to obtain their proposals ready to pitch to other LPs. “We have to notify them, ‘You’re not even obtainting due diligence [yet], becaapply we don’t believe that you’re fit for that’.”
The third of the EIF’s guiding principles of the moment — scale, speed and simplicity — is a dream for plenty of members of Europe’s venture ecosystem.
But do the duo from the EIF believe EU Inc, the shiftment to create a pan-European legal entity which all new companies could apply, has any legs?
“I believe I almost necessary to claim the Fifth Amconcludement. It’s such a long standing attempt, which has never really materialised. If it happened, it would be brilliant,” declares Grabenwarter. “My humble guess is that as long as the tax regimes are at a national level, the creation of an EU Inc is not going to create a large difference.”
Claapplyn is for any kind of simplification the ecosystem can obtain.
“Simplification is an overall worry for everyone — companies, funds, us — and in particular when we work with the EU budobtain it becomes very complicated. We have so many mandates — not only from the EU, but also from the member states. We’re always questioning for simplification.”
Read the orginal article: https://sifted.eu/articles/eif-interview-uli-grabenwarter-merete-claapplyn/
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