Paperjam Club: Where do you see financing gaps for specific segments of the market (pre-seed, growth, bridge, etc.) and what can be done to close these gaps?
Financing gaps in Europe remain most pronounced at scaleup stages of company development. As the Draghi report underscores, Europe does not suffer from a lack of ideas or talent--researchers and entrepreneurs are generating patents and building innovative technologies. However, the key bottleneck lies in translating this innovation into commercial success. Regulatory fragmentation, coupled with underdeveloped risk capital markets, continues to obstruct this transition.
Seed-financing is critical for transforming early-stage research into viable startups. Yet, risk-averse banking systems dominate European finance, and banks often lack the tools to assess intangible assets or disruptive business models. Unlike angel investors or early-stage VCs, traditional banks are structurally unsuited for financing unproven ideas with uncertain returns. The scaleup financing gap is even more acute. In 2024, European startups raised half the number of growth rounds compared to US firms, and in deals over €100m, US companies secured nearly six times more funding. This capital shortfall often forces Europe’s high-potential firms to seek foreign acquirers or relocate to access sufficient financing--over half of VC-backed exits in Europe involve non-EU buyers, eroding Europe’s technological sovereignty. Evidence from the EIF’s 2024 Equity Survey regarding the exit routes of venture capital-backed companies further revealed that more than half of trade sales and IPOs involved non-European Union buyers, reconfirming the persistent scaleup gap facing the European VC industry.
To address this, public-private initiatives are gaining traction. The European Tech Champions Initiative (ETCI), with €3.85 bn in capital, aims to strengthen large-scale VC funds targeting growth-stage investments. Under InvestEU, programmes like Escalar and the SME IPO Fund are designed to support scaleup funds and pre-IPO stage companies, filling a vital gap in the capital continuum. National initiatives like the Luxembourg Future Fund, through cooperation between the EIF and SNCI, are furthermore instrumental in addressing this gap on a local level by supporting early-stage funds and fostering entrepreneurial ecosystems.
Closing these gaps requires a coordinated EU-wide strategy that goes beyond financial instruments. Europe must deepen its capital markets, attract long-term institutional investors and implement legal reforms to harmonise regulations. A robust, unified venture ecosystem with sufficient risk capital across all stages is essential for retaining and growing the continent’s next generation of tech leaders.
In your investment decisions, how important are ESG criteria, and how do you balance financial return with societal value creation?
The EIF takes a comprehensive approach to ESG, embedding environmental, social and governance considerations throughout its investment lifecycle. ESG assessment begins at the pre-investment stage, where potential risks and opportunities are assessed based on sector and activities. At the due diligence stage, the investment teams evaluate an in-house developed ESG questionnaire that is allowing us to rank the general partner/manager in terms of commitment towards ESG practices. Post-investment, the EIF continues monitoring ESG performance through regular reporting and active engagement with the investment teams. The goal is to drive continuous improvement and ensure ESG factors remain central throughout the holding period.
The EIF’s approach is aligned with international standards such as the UN Principles for Responsible Investment (PRI) and the EU’s Sustainable Finance Disclosure Regulation (SFDR).
All EIB Group financing follow the EIB Group Paris alignment framework and are orientated towards low-carbon and climate-resilient development. In 2024, the EIF’s focus on sustainability and the green transformation has taken centre stage, representing 49% of our commitments.
In the EIF’s continued commitment to supporting SMEs and smaller businesses across Europe and beyond, we are aligned with the Paris Agreement and are moving towards a more impact driven institution that goes way beyond the “E” considerations. Diversity and inclusion, social impact and sustainability at large are all elements that form part of the EIF’s investment considerations while continuing to deliver financial returns for our shareholders.
Business succession is often a challenge. What best practices are you observing to ensure a successful transition and how can private equity play a role?
Business succession is indeed a significant challenge in a company’s existence. It is expected that around 150,000 SMEs in Europe will undergo ownership transitions in the next five years. The process of succession involves much more than just a change in leadership; it’s about ensuring the company’s long-term continuity, preserving its identity and balancing tradition with the necessary innovations to thrive in a competitive global marketplace.
A successful transition often requires a combination of careful planning, strategic support, and external expertise. In many cases, private equity (PE) investors can play a pivotal role in facilitating smooth successions. In the EIF’s private equity portfolio, many business successions have been successfully executed with the help of PE firms. These investors bring not only capital but also invaluable strategic insight, experienced management teams, and the operational expertise necessary to scale the business, modernise processes and explore new market opportunities.
Private equity firms can help family-owned enterprises or retiring founders ensure their business legacy continues by providing the necessary resources for expansion, adopting new technologies and enhancing operational efficiencies. Moreover, they can assist in managing the balance between preserving the company’s heritage and infusing fresh perspectives that drive growth.
A well-executed succession strategy also requires clear governance structures. For family-owned businesses, introducing non-family executives or external advisors can prevent internal conflicts, bring objective decision-making, and guide the company through the complexities of global competition. Modernising leadership approaches by blending family and non-family professionals allows for the retention of core values while fostering innovation and modern management practices.
In sum, business succession is most successful when it is approached with foresight, flexibility and the right support--whether that’s through strategic partnerships with private equity or by embracing governance structures that enable continuity, stability and sustainable growth.