Europe’s $ 12 billion expertise fund is beginning to work
Arm co-founder Hermann Hauser.
LONDON – The European Innovation Council experienced some early setbacks but is now heading in the right direction, according to a vice chairman of the Advisory Board Hermann Hauser, who became a venture capitalist after helping build chip designer Arm.
The EIC has received € 10 billion (US $ 12 billion) to invest in European startups between 2021 and 2027 as part of the EU’s Horizon initiative. It will invest up to 15 million euros in a specific start-up to get a maximum stake of 10-25%.
“I never thought Brussels would do this, but we are allowed to make stakes and that’s incredible,” Hauser told CNBC of his farm in New Zealand, where he’s been stuck since last March as a result of the coronavirus pandemic.
“This is starting,” said Hauser, who plans to invest the money in companies that focus on AI, machine learning, quantum computers and blockchain technologies. “We have problems starting and I wouldn’t say it’s a perfectly smooth machine, but it is starting to work pretty well.”
Hauser said the EIC’s launch problems were due to delays in setting up all the necessary procedures. The fund’s € 10 billion budget was confirmed in December after a four-year pilot project in which € 2 billion was invested.
The EIC was set up by the European Commission, the executive branch of the EU, to help startups across Europe to assert themselves and compete with competitors in the US and Asia who have spawned several technology giants with market caps, the hundreds of billions of dollars that reach far.
In the US, there is Google, Apple, Amazon, Facebook, Microsoft and so on. In China, there are Huawei, Alibaba, Baidu and others. There are a handful of tens of billions worth of tech companies in Europe – think Adyen, Spotify, and Arm – and almost none worth over $ 100 billion, except for SAP and ASML.
European politicians have also expressed a desire to obtain more substantial digital services from European companies as opposed to foreign ones.
Turn start-ups into scale-ups
“Europe has no start-up problem,” said Hauser, who is also a venture partner at Amadeus Capital in Cambridge. “We produce more startups than the US. Europe has a scale-up problem and a deep-tech financial problem. Both are handled by the EIC.”
So far, the EIC has made 48 investments and spent 180 million euros, according to Hauser. One recipient, the French start-up CorWave, is developing pumps that can help people with heart failure.
However, some tech investors and entrepreneurs have raised concerns that Brussels does not know how to identify, support and invest in promising startups.
Hauser said he had similar concerns: “Of course what I immediately worried about was … don’t let Brussels people decide who to invest in or not,” he said.
To get around this problem, Hauser introduced a rule according to which the EIC fund can only invest in the financing round of a start-up if the majority of the money comes from private investors.
“It needs the VC community because it is not allowed to invest unless most of the money comes from the market,” he said.
Hauser said the EIC also has the advantage of being so close to the established European Research Council, which he believes has supported some of the best technology projects in Europe. “In terms of technical due diligence, I think we actually need to bring something to the party for the VCs,” he said.
Largest deep tech fund in Europe
Hauser expects the EIC fund to invest around 1.5 billion euros every two years this year and until 2027.
“We will be by far the largest deep technology investor in Europe,” he said, adding that the EIC can invest up to € 15 million in any company. Deep tech startups focus on developing technologies that are based on significant scientific or technical challenges.
Hauser said the EIC will offer grants to some startups in addition to the investment it makes in it.
“A lot of our investments are mixed investments,” he said. “This makes deep technology deals, which may be difficult to fund in Europe, much more attractive as we can sweeten the deal for the VC community,” added Hauser.
Andreessen Horowitz’s former investor Benedict Evans, who is now a venture partner at Mosaic Ventures in London, took to Twitter to warn startups not to take money from the EIC fund. He raised concerns about how much equity the EIC is looking to raise in startups, saying that “seems like a guaranteed way of killing companies that are unwise enough to get involved”.
Kerstin Bock, a member of the EIC fund’s investment committee, said the fund had some of the friendliest terms of contract for tech founders, stressing that 25% is the maximum stake the fund would ever take.
“I think there has been a bit of misunderstanding on the part of the commission,” she said.