The European Investment Bank (EIB) group and the governments of five EU countries have announced a new €3.75bn fund of funds to invest in VCs that back European scaleups.

The new fund will be managed by the European Investment Fund (part of EIB group) and has been dubbed the European Tech Champions Initiative. It’ll invest in 10-15 late-stage VC funds of more than €1bn that participate in funding rounds of more than €50m. 

The initiative is being anchored by a €500m investment from the EIB. It’s so far secured commitments of €1bn each from Germany, France and Spain, €150m from Italy and €100m from Belgium. The size of the fund is expected to grow with future commitments from other EU governments.

The agreement comes as European governments are increasingly eager to support startups with public money — earlier this month Germany announced a €1bn fund for deeptech and climate tech growth-stage companies, while NATO’s €1bn fund for defence startups emerged last year.

They’re doubling down on the EU’s efforts to achieve “technological sovereignty” — a push to shore up the continent’s ability to produce cutting-edge tech, like semiconductors, quantum computing and groundbreaking climate solutions, to compete with innovations coming from the US and China. 

Scaleup gap

European startups often don’t have sufficient capital to compete on a global scale and are pushed to relocate overseas, especially to the US, where they can access fresh funds more easily, according to the EIB’s analysis. 

The continent is struggling with “a scaleup gap”: while early-stage investment in European startups is comparable to that in the US and the number of unicorns in Europe doubled in 2021, it still has significantly fewer growth-stage tech businesses than the US and China.

There’s also a lack of domestic growth-stage capital. From the start of 2021 until May 2022, more than 280 European tech companies across different sectors raised megarounds above €100m, but 67% of funding for these rounds came from non-European investors, according to the EIB.

The majority of European VCs also felt that investment opportunities had become less competitive at Series C and above in 2022, compared to 97% thinking they’d become more competitive in 2021, according to Atomico’s State of European Tech 2022 report.

“Offering support to Europe’s innovative firms in their late-stage development, when they want to scale up their business, is essential for safeguarding the EU’s strategic autonomy,” Werner Hoyer, EIB Group’s president, said in a statement. 

“Europe has strong innovators, but it needs to improve the environment for companies to transition from startup to credible competitors and market leaders.”

Zosia Wanat is Sifted’s central and eastern Europe reporter, based in Warsaw. She tweets from @zosiawanat