Innovative and growth-oriented small businesses need to acquire capital (equity investment) from external sources if they do not have their own or cannot access other sources. Firms typically use venture capital to expand, break into new markets and grow faster. Although only relevant to a smaller group, venture capital is essential for the growth of innovative firms.
Venture capital funds raise a large part of their funding from institutional investors and usually invest in firms with the potential for rapid growth. However, many investors are reluctant to invest in venture capital funds for start-ups, scale-ups and innovative firms because of their limited size, more attractive alternative asset classes, etc.
The Commission has put in place several initiatives and works closely with EU countries to improve equity investment markets so that sound projects can find suitable investors.
Related venture capital activities
Regulatory initiatives
Launched in 2015, the Capital Markets Union initiative aims to create a single market for capital. The aim is to get money, investments and savings, flowing across the EU so that it can benefit consumers, investors and companies, regardless of where they are located. Among its various actions, the initiative aims to provide businesses with a greater choice of funding at lower costs and provide SMEs in particular with the financing they need, including via venture capital.
As part of the Capital Markets Union, the EU introduced and relaunched a series of measures to diversify the funding of EU businesses, strengthening cross-border capital flows and providing investors with better investment opportunities. The Regulation on European Venture Capital Funds (EUVeCa) and the Alternative Investment Fund Managers Directive (AIFMD) are the most relevant in the field.
Financial instruments
Under the 2021-2027 Multiannual Financial Framework, the EU supports SMEs and small mid-caps’ access to venture capital through its flagship InvestEU programme, which supports sustainable investment, innovation and job creation in Europe. With the EU budget guarantee provided to international and national promotional banks, the InvestEU programme aims to leverage more than €372 billion in private investments into high EU policy priority areas, including equity investments via venture capital funds.
The European Tech Champions Initiative (ETCI) is a fund of funds that will channel much-needed late-stage growth capital to promising European innovators. The fund, which is managed by the European Investment Fund with contributions from Germany, France, Spain, Italy, Belgium, the Netherlands and, hopefully soon, other EU countries, is expected to grow and attract fresh commitments in the future.
Small and Mid-Cap awards
Growth stock markets
Investors seek exit points to free up funds for new ventures. Growth stock markets offer a simplified listing process for firms that cannot or do not want to join main exchanges, providing access to a broader investor base.
However, European alternative equity markets remain weak. Easier EU-wide access to these markets would help firms list and attract qualified investors. Stronger stock market financing could boost IPO opportunities, offering venture capital investors clear exit routes and valuation benchmarks. Without flexible exit markets and advisory support, venture capital funds struggle, limiting SME growth.
Promoting growth markets
The European Small and Mid-Cap Awards, organised by FESE, European Issuers and the European Commission, highlight top European small and mid-sized companies accessing capital markets via IPOs. These awards promote best practices and encourage stock listings across the Union.
InvestEU gender-smart investing
Women entrepreneurs struggle to raise funds to start and grow their companies. In the past years, only 2-4% of venture capital raised in Europe went to female-only founder teams. To a large extent, this is driven by the lack of diversity amongst investors. Men account for more than 85% of decision-makers in venture capital.
One of the objectives of the InvestEU Fund is to support female-inclusive teams. For the InvestEU equity products, the Commission and the EIB Group, which is the main implementing partner, decided to introduce a set of gender criteria to ensure that more funding flows to gender-diverse Venture Capital, Private Equity and Private Credit funds. By doing so, we are also helping to foster female inclusion downstream.
A financial intermediary adheres to the gender criteria if it satisfies at least one of the three benchmarks, namely
- female partners make up at least one-third of its management team
- its senior investment team has at least 40% female representation
- its investment committee has at least 40% female representation
Moreover, the InvestEU Advisory Hub supports gender equality in the financial community through a series of measures such as mentoring for female investors, training programmes targeting different types of intermediaries and investors, as well as communication activities to raise awareness of the gender investment gap.
To complement these activities, at the initiative of the European Parliament, the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, together with EISMEA, launched a European Network of Gender-Conscious Investors: WomenINvestEU.
The network brings together leading players from across the investment supply chain, with the common goal of increasing gender-focused investing to enable many more women-led businesses to access investment across Europe. The network provides opportunities for members to forge connections and engage each other through networking events, as well as creating new pathways for women to enter the sector and become decision-makers.
Throughout the project, WomenINvestEU also aims to educate and raise awareness on the benefits of gender-focused investment, engaging key players from all across Europe in the effort to address inequality, while recruiting and empowering more women to pursue a career in finance.