The European Investment Bank (EIB) has emphasized the urgent need for more innovation financing within the European Union to maintain and enhance the region’s technological leadership. A new report released on July 24 highlights the necessity of removing investment barriers to channel savings into key sectors, ensuring the EU remains competitive on the global stage.

The Scale-Up Gap

Entitled “The Scale-up Gap: Financial Market Constraints Holding Back Innovative Firms in the European Union,” the EIB report underscores the importance of investing in scale-up companies. These investments are crucial for advancing technologies in areas such as green tech, artificial intelligence (AI), and quantum computing. The report follows a similar publication from June 2021, which discussed the future of AI and blockchain in Europe.

Despite the EU’s pioneering efforts to implement robust regulations for AI and blockchain under the Markets in Crypto-Assets (MiCA) regulation, the region still faces significant challenges. A May 2024 report by the European Court of Auditors highlighted the need for the EU to accelerate its pace to remain competitive in emerging technologies.

Financing Challenges

One of the major hurdles identified by the EIB is the limited size and depth of EU capital markets. This constraint poses significant challenges for innovative companies, particularly during the scale-up phase when financing is scarce. The shortage of venture capital has hindered firms’ ability to accumulate capital, grow, increase productivity, and create employment.

The report advocates for deepening Europe’s capital markets, with a special focus on the venture capital market. The EIB Group has a successful track record in supporting innovative companies and scaling up key technologies. Nadia Calviño, the president of the EIB, stated that the bank is ready to do more, especially in paving the way for a true capital markets union, which is essential for driving sustainable growth and job creation.

The Path Forward

The disparity in venture capital investment between Europe and the United States has led to slower capital accumulation for European firms compared to their Silicon Valley counterparts. European scale-ups often rely on foreign investors, resulting in local firms being acquired by foreign companies or listed abroad.

To address these challenges, the EIB calls for strategic investments to bridge the financing gap and foster an environment where innovative companies can thrive. Strengthening the EU’s capital markets is crucial for maintaining technological leadership and ensuring sustainable economic growth.

To know more visit: https://www.eib.org/en/publications/online/all/the-scale-up-gap

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