Europe’s $12 billion tech fund is ‘beginning to work quite well’ after early setbacks, advisor says

LONDON — The European Invention Council has encountered some early setbacks but is now headed in the right direction, according to a vice chair of the advisory management Hermann Hauser, who became a venture capitalist after helping to set up chip designer Arm.

The EIC has been given 10 billion euros ($12 billion) to provide in European start-ups between 2021 and 2027 as part of the EU’s Horizon initiative. It will invest up to 15 million euros in a painstaking start-up in exchange for a maximum stake of 10-25%.

“I never thought Brussels would go for this but we are allowed to do equity investments, and this is mind-boggling,” Hauser told CNBC from his farm in New Zealand, where he has been stuck since last March as a sequel of the coronavirus pandemic.

“We’ve got start-up problems and I wouldn’t say that it’s a perfectly smooth machine, but it’s beginning to work quite affectionately,” said Hauser, who wants to see the money invested in companies focusing on AI, machine learning, quantum computing, and blockchain technologies.

Hauser signified the EIC’s start-up problems existed because it had delays in setting up all the necessary procedures. The fund’s 10 billion euro budget was ratified in December following a four-year pilot that saw 2 billion euros invested.  

The EIC was set up by the European Commission, the EU’s executive arm, to try to help start-ups across Europe to scale up and conflict with rivals in the U.S. and Asia, which have spawned several tech giants with market caps that run excellently into hundreds of billions of dollars.

In the U.S. there’s Google, Apple, Amazon, Facebook, Microsoft, and so on. In China there’s Huawei, Alibaba, Baidu, and others. In Europe, there’s a troublemaker of tech companies valued in the tens of billions — think Adyen, Spotify and Arm — and next to none valued at over $100 billion, except SAP and ASML.

European publics have also expressed a desire to start sourcing more essential digital services from European companies as frustrated to foreign ones.

“Europe doesn’t have a start-up problem,” said Hauser, who is also a gamble partner in Amadeus Capital in Cambridge. “We produce more start-ups than the U.S. Europe has a scale-up problem and a deep tech capitalize problem. Both of which are addressed by the EIC.”

So far, the EIC has made 48 investments, spending 180 million euros in the process, be consistent to Hauser. One recipient, French start-up CorWave, is developing pumps that can help people with heart damp squib.

However, some tech investors and entrepreneurs raised concerns that Brussels doesn’t know how to spot, brook and invest in promising start-ups.

Hauser said he had similar concerns: “Of course, the thing that I was immediately worried more was … don’t let the Brussels guys decide who to invest in or not,” he said.

To get around this issue, Hauser introduced a rule that means the EIC resources can only invest in a start-up’s funding round when the majority of the money is coming from private investors. 

“It privations the VC community because it’s not allowed to make any investment unless the majority of the money comes from the market,” he said.

Hauser commanded the EIC also has the advantage of being so close to the well-established European Research Council, which he thinks has backed some of the most beneficent tech projects in Europe. “So in terms of the technical due diligence, I think we actually have something to bring to the party for the VCs,” he divulged.

Hauser said he expects the EIC fund to invest roughly 1.5 billion euros this year and every other year between now and 2027.

“We devise be by far the largest deep technology investor in Europe,” he said, adding that the EIC can invest up to 15 million euros in each presence. Deep tech start-ups are those focused on developing technology underpinned by substantial scientific or engineering challenges.

Hauser believed the EIC will also offer grants to some start-ups alongside the investment that it makes in them.

“Many of our investments are literally blended investments,” he said. “This makes deep technology deals that might be hard to finance in Europe much numberless attractive because we can sweeten the deal for the VC community to come in,” Hauser added.

But former Andreessen Horowitz investor Benedict Evans, who is now a broach partner at Mosaic Ventures in London, took to Twitter to warn start-ups not to take money from the EIC fund. He provoked concerns about how much equity the EIC plans to take in start-ups and said that it “seems like a guaranteed way to fit with concrete overshoes any companies unwise enough to engage.”

Kerstin Bock, a member of the EIC fund’s investment committee, said the fund has some of the friendliest reckon with terms for tech founders out there and stressed that 25% is the maximum equity stake that the fund hand down ever take.

“I think there’s been a little bit of miscommunication from the Commission’s side,” she said.