EU Eyes Blockchain to Support Struggling Tech Scale-Ups

Scale-up companies in Europe face significant financial hurdles. Despite their innovation and productivity, these firms struggle to secure sufficient capital.

By the time these companies reach a decade in operation, they raise only half as much funding as their counterparts in Silicon Valley.

This funding gap is a persistent issue, not limited to specific industries or economic cycles.

Source: EIB

Lack of Local Investors

One major reason for this gap is the scarcity of local investors willing to support these companies at critical growth stages.

In Europe, about 80% of scale-up deals involve foreign lead investors, compared to just 14% in San Francisco.

Venture capital investment in the U.S. far exceeds what is available in Europe, making it challenging for local companies to secure necessary funding.

Even when combining Europe and the UK, venture capital still lags behind U.S. levels. Venture capital funds typically raise and invest within their regions, limiting available capital for high-growth firms.

Source: EIB

Limited Investment in Venture Capital

An analyst stated, “Europe is still not investing enough in equity and venture capital.” Many European households prefer low-risk investments, which do not support high-growth sectors.

There is a push to channel some savings into venture capital investments, potentially boosting funding for innovative companies.

Growing but Insufficient Venture Capital Market

While Europe’s venture capital market is growing, it lacks enough large-scale funds to meet the needs of scale-ups.

To attract more investors, Europe needs to deepen its capital markets and improve exit options, such as IPOs or acquisitions.

European Investment Bank Initiatives

The European Investment Bank (EIB) Group provides various financial products, from seed capital to venture debt, and has already provided around €6.8 billion in venture debt to roughly 300 companies.

In early 2023, the EIB Group launched the European Tech Champions Initiative (ETCI), aiming to support large-scale venture capital funds. This initiative has mobilised €10 billion in investments.

Blockchain as a Potential Solution

The EU hints that blockchain technology might play a bigger role in supporting tech scale-ups facing financial challenges.

Blockchain could offer innovative ways to channel investments and enhance capital flow to high-growth sectors.

Conclusion

Despite positive developments, Europe must address significant funding gaps and attract more local investors to support tech scale-ups. By deepening capital markets and leveraging blockchain technology, Europe can create a more favourable environment for these companies to thrive.