EIC Fund crosses €500 million mark as EU tries a new model of startup equity support

On 24 June 2021 the European Commission reported that the European Innovation Council Fund has approved 111 direct equity and quasi-equity investments in highly innovative start-ups and small and medium sized businesses. The cumulative value of those approvals since the EIC Fund launched in 2020 now exceeds €500 million. The announcement describes the investments as targeting breakthrough technologies and business models in areas such as health, the circular economy and Internet of Things.

What the announcement says

The June statement followed an initial press release on 6 January 2021 when the Commission published details of the first tranche of investments. The first round comprised 42 companies and about €178 million in direct equity and quasi-equity. The June announcement adds 69 further approved investments to reach a total of 111 approvals and more than €500 million committed or approved to date.

How the EIC Fund fits with existing EU support

The EIC Fund was created as part of the European Innovation Council to provide a new instrument in the EU toolbox: direct equity investments in deep tech startups and scaleups, blended with grants awarded under the EIC Accelerator. The pairing of grants and equity is intended to help companies carry high risk technologies from late research and development towards commercialisation and scaling within Europe.

Process, governance and stated objectives

The Commission said all investments are preceded by external expert evaluation, a due diligence process overseen by the EIC Fund Investment Committee, and a final decision by the EIC Fund Board of Directors. The Fund is presented as a form of patient capital where high impact is prioritised over maximising financial returns. It is also intended to crowd in private capital by using the Fund s stake to attract co investors and to bridge gaps in early stage funding within the EU.

Examples from the announced portfolios

The June announcement listed illustrative signed deals that include Antofénol from France which provides natural post harvest protection for fruit and vegetables, Gleechi AB from Sweden which works on virtual reality training, Keyou GmbH in Germany which develops technology to run hydrogen in diesel engines, Lixea from Estonia which converts waste wood into raw materials, and Ophiomix from Portugal which offers a molecular signature based decision tool for liver transplantation.

The earlier January announcement highlighted CorWave from France as the first company to sign an investment agreement with the EIC Fund. CorWave received a €15 million EIC Fund investment that the Commission said helped mobilise a total round of €35 million for the company. Other January examples included Hiber, an IoT satellite connectivity firm, XSUN, a solar aircraft and autonomous drone company, GEOWOX, an automated property valuation company, and EPI-ENDO Pharmaceuticals working on respiratory disease drugs.

Context and critical perspective

The EIC Fund is an experiment in public sector direct investment that responds to well known weaknesses in the European financing landscape for deep tech. Venture capital funding, and especially late seed and series A funding for highly technical startups, has historically been smaller in Europe than in the United States and China. That dynamic can make it harder for companies to scale and to stay headquartered in Europe.

The Fund s model rests on several assumptions that will need independent monitoring. First, equity stakes and blended packages will attract larger private investors to co invest. Second, having public equity participation will not excessively distort market pricing or crowd out private investors who might otherwise fund the same companies. Third, governance arrangements for managing public equity interests will protect public value without undermining commercial incentives for entrepreneurs and co investors.

How to follow up and what to watch

Key indicators that will show whether the EIC Fund is meeting its aims include the amount of follow on private capital mobilised per euro of public investment, the geographic distribution of investments across EU member states, company survival and scale up rates, and the quality of governance and conflict management in blended rounds. Observers will also watch reporting on exits and fund level returns over time, even though the Fund emphasises impact rather than returns.

The Commission said the EIC Fund will be continued and scaled under Horizon Europe. The communication cites an expectation that the EIC will be able to invest more than €3.5 billion over the seven year Horizon Europe period. The first investments under the full EIC programme were expected to follow the June 2021 application deadlines.

Quick glossary of terms used

Bottom line

The EIC Fund s early activity shows the European Commission is willing to deploy direct equity and blended finance at scale in pursuit of EU industrial and innovation policy objectives. The approach addresses a real market gap but introduces new public sector roles in venture risk taking. The ultimate measure of success will be whether the Fund helps more deep tech companies scale and remain in Europe without creating unintended market distortions or unsustainable fiscal risks.