The European Innovation Council (EIC) Fund, Europe’s most active deeptech investor, is now doing two deals a week, says the president of the EIC Board, Michiel Scheffer.
100 startups have been backed by the EIC Fund since 2021, to the tune of €391.6m. Around €1bn of further investments has been approved (but not yet executed) for 108 more startups.
The EIC Fund, which has €3.5bn to invest over seven years, struggled with a payment backlog when it launched — leaving several startups short on cash while they waited for promised funding to arrive — but that has now been resolved, says Scheffer.
And that means its board members can instead start worrying about what kinds of technologies it should be investing in to ensure Europe remains a global leader in innovation — and how to then help grow those companies into business giants.
“My mission is [for] Europe to control our own destiny and to have what we need,” Scheffer tells Sifted. “Europe has been a leading continent. It’s in our DNA to be able to excel — and it’s frustrating to not be able to do that.”
Europe’s strategic priorities
In Scheffer’s view, Europe has three main strategic priorities, the first being more energy autonomy via renewables.
“We have to invest substantially in Europe in alternative energy sources that are not weather-related,” he told Sifted at the EIC Summit in Brussels in March. “We have sun and wind [power], but it’s highly cyclical.”
We also need more innovation around energy storage, he adds. “Either with batteries, or other systems.”
Next up on his strategic wishlist to share with the European Commission: materials. “We are extremely dependent on imported materials,” he says, seeing a big opportunity to develop bio-based materials, drawing on Europe’s strength in agriculture.
Third up: taking a leadership role in quantum. The EIC has already invested in 22 quantum companies — and would like to strengthen that portfolio further, says Scheffer.
“We want to move from a portfolio to more of a value-chain approach — and even looking at consolidation,” he adds. That could involve helping EIC-backed startups buy up other companies, he says, or encouraging a few of them to merge, or even for a corporate to take over several of them.
“Consolidation of portfolio is something that we, the EIC, as a shareholder can promote.”
Sure, he says, it’s a bit early for many of the companies in the portfolio to be thinking about an exit. The EIC Fund, which has been investing since September 2022, expects to wait five to seven years, if not longer, for a return on its capital — but he expects the EIC to play this role in the future.
His team will look into how to put public listings more firmly on the roadmap for EIC startups: “We’re going to look in the second half of the year in advising how the IPO market can be promoted for EIC portfolio companies.”
Money, money, money
Portfolio companies need a lot more than EIC funding to grow and thrive, however.
“We do a lot [to] crowd in investment,” says Scheffer — encouraging other kinds of investors to back deeptech companies. “We think we should try and squeeze our influence on the market… And we also look at regulation and advise the Commission changing regulation to make it easier for VCs or larger investors to invest in longer-term ventures.”
He’s also a fan of the EU’s STEP — the Strategic Technology for Europe Platform — which hopes to bolster critical technologies like deeptech, biotech and climate tech, and was conceived of as Europe’s answer to the US’s Inflation Reduction Act. The scheme has struggled to get the funding, however, that its supporters hoped it would attract from member states.
“We are going to recommend doing a pilot STEP — hoping that member states will see it as a success and we’ll be able to give it more money in two or three years,” he says.
Scheffer thinks governments need to do their bit too. “We have to animate much more public procurement,” he says. “The French Army has recently decided to do big public procurement in computing. And they have mobilised at least five of our beneficiaries.”
Ignorant VCs
Landing contracts with industrial giants and governments is crucial for many deeptech startups — and having landed EIC funding helps them get a foot in the door, says Scheffer: “It helps them to have the stamp of recognition.”
But to achieve buy-in from slow-moving and big organisations it also helps to have “at least one or several investors that know the market”, says Scheffer.
“We see more and more that our champions have VCs that are sectoral literate — they know the industries they invest in, and they open doors.”
Having generalist VCs is less helpful, he adds. “We see a shift of agnostic VCs — not linked to a technology — and I think agnostic is almost ignorant.”
That isn’t Scheffer’s only gripe with VCs.
“I would like them to be more cross border,” he adds. “They should realise that sometimes you can get more value for money by investing in a Greek or Portuguese company,” he says, adding that VC funds could learn from the EIC’s rigorous due diligence processes.
“Our procedures take some time, but they're thorough — I think VCs could learn from our procedures.”
Not chasing unicorns
The EIC is, of course, not a VC — and is working to a very different model.
“As with any public funder, we go more for the societal impact,” says Scheffer. “A unicorn is a ‘nice to have’.”
Of its portfolio companies, 42% are currently in health, 38% in industry and space (including advanced manufacturing, quantum, hardware and semiconductors) and 21% in climate tech. Of the companies backed by the EIC Accelerator, 19% have a female founder.
Unlike VCs, which typically expect just a handful of startups to be knock-out successes, the EIC hopes almost all of the companies it invests in will be successful.
“It is very likely that the failure [rate] will be somewhere between 5-10%,” says Scheffer.
“The American VCs have a model where you have a few unicorns, a small middle and huge disasters. And public funds tend to have a Guassian curve — a few successes, a big bulk of them will become okay SMEs and a small pot of companies that never materialise — so we only do one round of funding and they never grow. And then you have some outright failures.
“That’s a benefit of being a bit slower in paying out; you’ll never lose a lot in the failure because the full amount was never disbursed. So we promised maybe €50m, but we put in only €2.5m.”
Correction: This article was updated on April 15 to correct the number of startups that have been backed by the EIC Fund.
