EU funding driving startup growth

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This week, we spotlight the impact of EU government funding on startup growth and investments amid 2023's challenging European venture capital scene.

Here's what we have this week:

• EU-Funding Impact on Startups 📊

• Breaking Down EIC Funding 📈

• The $240M AI Venture Funding 🤖

• Where is the EU Placing its Bets? ⚖️

EU Funding Boosting European Startups

Government investments allocated through EU funds & grants have a key stake in over 40% of VC and alternative investment funds targeting early-stage venture funding. With the 2023 macro environment leading to investor caution, these funds are a significant driver of growth for startups across European countries.

2023 EU Funding & Initiatives

• Investment Fund: EU early-stage venture initiatives have invested a total of €18.4B since 2021, with €110B committed.

• Investment Effect: EU government grants & institutions have a central role in driving startup growth despite a contractionary investment outlook for 2023.

• Sectoral Growth: Growth in renewable energy, health tech and AI, driven by EU funding through the Horizon fund.

• Investor Attraction: EU funding initiatives are enhancing investor interest, channelling further investments into EU-focused startup sectors.

Data on leading EU funding initiatives

The chart provides an overview of the European Union’s funding initiatives. Horizon Europe with a total capital fund of €12.4B is the largest EU early-venture fund, investing the majority of EU’s financial contributions.

With a contractionary 2023 outlook, EU-backed funding provides an alternative investment avenue for early-stage ventures.

Key Takeaways

• Investment Momentum: EU funding is boosting sectors like renewable energy, AI, health tech and climate tech.

• European Innovation Council (EIC): Per the Horizon Europe initiative, the EIC invests in European deep tech companies operating in capital-intensive industries.

• Policy Enactment: The EU’s financial contributions reflect its commitment to implementing policies that encourage growth and innovation in the startup ecosystem.

📈 Breaking Down EIC Funding

EIC early-venture funding

The chart breakdowns the funding of €2.2B provided by the EIC divided between Challenge Calls (€737M), and Open Calls (€1.5B).

The Challenge Calls are reserved for companies in sectors that fall in line with the European Commission's strategic goals, while the Open Calls are more broadly applicable.

Key Takeaways

• Minority Interest: Total per company investment by the EIC targets a minority interest of 10%-25% of equity.

• Investment Criteria: The Horizon fund reserves investments for startups belonging to key focus sectors, as well as EC strategic goals.

• Average investment: The average startup investment is €5.6 million with the most significant investment volume granted through open calls.

The €220M AI Venture Initiative

The EU's recent €220 million commitment to AI startups is a critical move amidst a global AI market valued at $142.3 billion mostly controlled by the US. The proliferation of generative AI tools and their rapid integration into business functions underscore the urgency and relevance of such investments, signalling a shift towards a more tech-focused EU.

This capital commitment by the EU comes from the creation of Trustworthy European AI Sandboxes (TEFs), targeting key sectors to provide a real-world testing ground for AI technologies.

1. CitCom.ai TEF: Spearheads AI integration in smart cities, focusing on energy, transport, and connectivity.

2. TEF-Health: Supports AI in healthcare, from advanced medical imaging to robotic rehabilitation.

3. AI-Matters TEF: Drives AI and robotics in manufacturing, promoting industrial adaptability.

4. Agrifood TEF: Innovates in agriculture, using AI for tasks like crop optimization and autonomous machinery.

Each TEF provides a practical platform for testing and advancing AI technologies in their respective fields.

Link to Article →​​

⚖️ Where is the EU Placing its Bets?

 EIC funding by country

This data shows the number of early-stage ventures backed by the EIC 10 billion dollar fund over 2 years, since 2021. France has the largest number of startups directly backed through minority interests (10-25% equity) by the EIC, largely being driven through tech & energy ventures. The graph also showcases the limited funds granted to the UK following Brexit.

An important note is that the grants and funds are specifically allocated on a sector and purpose basis. The EIC places a notable focus on sustainability & Artificial Intelligence developments.

Key Takeaways

• France & Germany: Two countries receiving significant EU investment in the startup sector totalling 121 companies funded

• UK Brexit: Limiting the EU involvement in the startup ecosystem

• Total EIC Funding: Over 391 startups have been directly funded by the EIC Horizon initiative despite a slowdown in startup funding for 2023.

Summary

EU funding has been crucial in 2023, fostering growth in AI, health and renewable energy amid a venture capital slowdown. This targeted support boosts vital sectors, aligning with Europe's strategic goals and bolstering its technological leadership, despite economic headwinds.

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See you next week

Cheers,

Odin Lund & Hariprasad Mohandas