How LPs Are Financing Growth Equity To Fuel European Tech Champions
Europe’s innovation ecosystem has never lacked entrepreneurial talent or startup ideas. But when it came to the funding needed to develop and scale breakthrough ideas, the continent lagged far behind regions like the United States for too long.
Revaia has been at the forefront of a movement to close that growth equity gap. Those efforts have been accompanied and enabled by government programs at the French and European levels led by institutions that provided critical financing and strategic guidance.
At Revaia’s 5th anniversary celebration in November, we were honored that representatives from two of our most important public limited partners joined us to share their thoughts on the growth equity industry in Europe: Jacques Darcy, Departmental Director for Mandate Management – Equity for the European Investment Fund (“EIF”); and Pascal Werner, Investment Director for France’s Secrétariat Général Pour l’Investissement (“SGPI”).
Despite the short-term challenges facing startup investing, both Jacques Darcy and Pascal Werner made clear that their institutions remain committed to ensuring that visionary startups have sufficient financial resources to lead the digital transformation, sovereignty, and decarbonization of Europe’s economy.
“I'm necessarily an optimist,” Pascal Werner said. “But you have to be proactive. And if you're proactive, there's no reason not to be optimistic.”
Both institutions play massive roles across Europe’s innovation economy and have been instrumental partners for Revaia.
Founded in 1994 and restructured in 2000, the EIF is a subsidiary of the European Investment Bank, which controls about 60% of the institution with another 30% held by the European Commission and the balance held by about 40 banks across Europe. With a capital of 5 billion euros, its activities are mainly financed by mandates from the private sector and public investment banks. It invests through instruments such as a fund of funds which are designed to help private equity and venture capital funds attract private capital.
Meanwhile, France created the SGPI 13 years ago to oversee investment in future innovation programs through subsidies and equity financing to finance the entire innovation value chain, from research to growth capital. That work includes the €54 billion France 2030 program which celebrated its 2nd anniversary in Toulouse this week and will finance 2,200 projects that accelerate the nation’s transition to clean energy while boosting the development of technologies that will keep the economy competitive and protect sovereignty.
While both institutions take a long-term view of innovation financing, the difficult financing environment over the past 2 years has made their support even more critical.
“There's tension in innovation financing,” Pascal Werner said. “Inevitably, this has put a strain on markets and investors and has made the financing of innovation a little more complicated. In this context, as a public investor, we're obviously more in demand.”
Pascal Werner forecasts that 2024 will start with similar changes and the question now is how long these conditions will endure. In the meantime, he said it’s essential that public institutions and investors monitor the health of companies that are in critical sectors but may struggle to raise capital.
Amid this uncertainty, government partners are keeping their focus on long-term goals by increasing support for the continued development of growth equity that will help promising companies scale. In France, that most recently has come with Phase 2 of the Tibi initiative. The government launched Phase I in 2019 by convincing 23 French institutional investor partners – particularly insurance companies – to invest €6 billion as limited partners into growth funds. That money was used as leverage to raise a total of €30 billion from other private investors.
Phase 2 has a target of €7 billion. The process for determining which funds are eligible to receive support is ongoing, with 60 private equity and venture funds so far being given the Tibi label. Both Revaia Growth I and Revaia Growth II benefit from it.
With a greater emphasis on themes like GreenTech, DeepTech, and the industrialization of startups, Pascal Werner said programs like Tibi are needed to attract the massive amounts of funding these companies need to succeed and realize their ambitions.
“We do hope that private investors will come back en masse, and we also hope that the current Tibi initiative will help them to do so,” Pascal said.
At the European level, Jacques Darcy said the EU has embraced the theme of sovereignty, a topic on which France has been one of the most vocal. French leaders had been pressing this idea as a motivation for investment, but the pandemic and then the Ukraine crisis helped push tech and economic sovereignty onto the European agenda, he said.
The region took a big step toward addressing this challenge in 2022 with the announcement of the European Tech Champions initiative. The goal is to create a €10 billion European scale-up fund. France and Germany each pledged €1 billion to kickstart the program. Jacques Darcy said Europe has an opportunity to forge greater investment cooperation to improve its global competitiveness.
“Today, it's a matter of convincing other member states to align the way they see sovereignty and strategic investment,” he said. “Because when you look at Asia and North America, the venture capital ecosystem is seen as a strategic and geopolitical vector. That's how it's been for decades, but Europe needs to take this step.”
That’s become even more urgent, he said, because of the need to support startups in strategically important areas, such as European defense and space. Jacques Darcy said North American investors still have far more financial power, so Europe must continue accelerating its efforts to develop the growth equity ecosystem required to support innovation.
“European and French technology is at the cutting edge, but there's still a lack of resources,” he said. “We're doing everything we can to fill the gap, but the others are moving very fast. In my opinion, it's a question of alignment between the different European countries.”
Pascal Werner echoed that view by noting that France has only created one HealthTech company over the past 15 years valued at more than €500 million. It’s the kind of success that should be occurring far more often given the remarkable talent and research available in France. Both investors remain convinced that putting the right financing in place to catalyze such companies is possible for Europe which is ready to work together.
“I think there is a growing awareness that in Europe, there are far more breakthrough technologies being discovered than anywhere else,” Pascal Werner said. “We're still having trouble transforming them into companies of substantial size. So we need to get there. We've got to transform the situation. It's not easy, but we can do it.”