Savings and Investment Union

The EU must urgently achieve the Savings and Investment Union if it’s to meet the EUR 800 billion investment target set by Mario Draghi to finance Europe’s competitiveness. To this end, we call on the Commission to take fast, bold and tangible action on the three areas below.  

1. Priority 1: attract more institutional investors, notably insurance, savings and pension funds, as Limited Partners in VC Funds
2. Priority 2: Strengthen the role of the EIB Group, and especially of the EIF, to better meet investors’ needs
3. Priority 3:  attract more startups and scaleups to European stock markets

 

• Priority 1: attract more institutional investors, notably insurance, savings and pension funds, as Limited Partners in VC Funds

Startups in Europe raise 50% less capital than their American counterparts after 10 years of activities. The share of global VC funds raised in Europe is only 5%, compared to 52% in the US and 40% in China. This is an immense gap, one that can not be reconciled easily. 

The EU is simply not investing as much as the US in innovative firms: between 2013 and 2023, the EU raised 130 billion of dollars vs 924 in the US. And yet, the EU VC world is one that is extremely subsidized – 37% of the funds raised by VC last year came from government funds, and the EIF, BPIFrance and other national investment banks are the largest providers of funds for VCs. 

So where is the difference with the US models? The deadlock is when you are looking at where the VCs get their money – in Europe, compared to the US, we are lacking institutional investors, such as pension, savings and insurance funds. 

These investors differ a lot depending on the countries they come from, but their willingness to invest in VC funds is low in most of the European Union. 

 

Our short-term proposal: launching a European VC Initiative, inspired by national initiatives such as the Tibi initiative in France and the Wachstumsfond in Germany. 

The aim: through policy concessions, nudging institutional investors into further investing in VC funds, to grow the future tech champions Europe needs. 

Our advice: do that in 4 steps:

• Bring the vision: This initiative would start with political summit with European leaders to mobilise institutional investors in Europe, and pledge a specific amount or targeted percentage of investments;
• Ease due diligence : Then a label would be provided to VCs that have dealt with, or that have passed the European Investment Fund due diligence, as a proof of their robustness. 
• Pool money: A dedicated fund-of-fund will also be created so as to pool the institutional investors’ money and allocate it to VCs.
• Matchmaking: And lastly, in the interest of de-siloing this funding ecosystem, a dedicated club of European VCs and LPs, with events and discussions between LPs, VC and ambitious scale-ups around Europe, that will change the cultural approach to risktaking.

 

This is a short-term remedy, but not a structural change for Europe. Inspired by the Letta and Draghi report, we thus propose three complementary, mid-term measures to be announced along with the Saving and Investments Union announcements:

• The development of EU-Long Term Saving Products, which could be offered to European households to mobilise the private savings and slow the leak of capital;
• Updating capital requirements, which could help institutional investors to change their risk approach to investments;
• And improving financial literacy.. A cultural and educational change has to occur in Europe, and this can only be a bottom up approach. 

 

You can find the details of these proposals in our recent report: How can institutional investors boost the European innovation ecosystem?

 

• Priority 2: Strengthen the role of the EIB Group, and especially of the EIF, to better meet investors’ needs

Over the past 20 years, Europe has experienced the emergence of a vibrant startup and VC ecosystem. As companies and their investors become more mature, the EU and its Member States started to shift their focus from early stage to growth. This trend has been particularly visible during the 2019-2024 European term, as the InvestEU plan did not outgrow the ambitions of the previous EFSI program in terms of resources for early stage VCs. A further indicator has been the European Tech Champions Initiative, a fund of fund scheme only accessible to VCs with over 1 billion EUR under management (AuM).

 

This approach, however, raises two challenges: 

• While providing funding for the growth stage is key to the emergence of leading European tech companies, it should not lead to the crowd out of resources for the early stage. This is particularly true at a time when the EU needs to finance cash-intensive innovations, such as biotech, deeptech or the clean reindustrialisation of its economy.
• Only a fraction of European VCs meet the 1 billion EUR AuM threshold. This is not surprising considering that the top 9 European VCs manage less than 30 billion EUR compared to 177 billion USD of the US counterparts.

 

To reduce this gap, we call for a rescaling of the European Tech Champions Initiative (ETCI) whose primary ambition was to create European growth venture funds, able to compete with US, UK and Asian counterparts.

 

With the outstanding financial contributions of various State Members, 3.75 billion euros were granted to the EIF to allocate VC funds with at least 1 billion EUR under management. Yet, only very few European VCs are able to meet this threshold. As a consequence, non-European funds have started to receive allocations from the ETCI mandate, with the engagement to fund European startups. Though financing European startups is key, what is at stake with the ETCI is to build investment autonomy for EU-based VC funds. Even if it means that, for a start, we need to lower expectations on the threshold of assets under management within the ETCI mandate.

You can find the details of these proposals in our European Manifesto

 

• Priority 3:  attract more startups and scaleups to European stock markets

BioNTech,  Spotify, On Running,Criteo… These names are flag bearers of European tech success stories, founded in the European continent and worth billions of euros. Yet they chose to go public across the Atlantic, in the United States. It is not a question of loyalty, patriotism, or lack of trust in Europe’s workforce. The logic is purely economic: the US offers deeper and broader pools of capital, potentially higher valuations, and a better-integrated listing and trading ecosystem that does not exist in Europe. 

The US represents 50% of the global market capitalisation, dwarfing the EU’s 11%, driven by the attractiveness of the US listing and trading environment, dominated by Nasdaq and NYSE. The situation is alarming: in 2021 alone, the US experienced more Tech IPOs than Europe did over the entire period from 2015 to 2023, and 50 European-founded companies have filed for an IPO in the US since 2018, including UK-based companies. The “lost” IPOs account for a total economic loss of 439 billion USD (defined as market cap at IPO, plus the increase in market cap post-IPO) since 2015, according to a report published by McKinsey in June 2024 — and that is without counting the companies relocating pre-IPO to address the US market.

Now that Europe’s most promising scaleups are considering IPOs, the challenge is providing the environment for these companies to access sufficient investment opportunities in the EU. To this end, we call on the Commission to: 

• Create incentives for retail and institutional investments: The EU needs to deepen liquidity pools and mobilize the wealth in retail bank accounts to strengthen primary and secondary tech markets. This involves creating a tax and regulatory environment that removes barriers to investment flow, encouraging both retail and institutional investors to fund European companies. Currently, 300 billion EUR of European savings are invested in US companies instead of the EU economy.

 

• Eliminate cross-border transaction costs for equity investment: One major barrier to cross-border equity investment in the EU is the complexity of withholding tax regimes, which impose additional costs and administrative burdens. Lowering these tax barriers and streamlining procedures for reclaiming withholding taxes will foster a more integrated and attractive equity market, encouraging European investors to diversify their portfolios and support innovative companies.

 

• Improve financial literacy among EU citizens: Increasing financial literacy is crucial for the EU’s strategic autonomy and economic prosperity. Currently, 72% of European citizens do not invest in any financial products, often avoiding riskier investments. European governments and financial ecosystems should work together to build trust in capital markets and encourage long-term investments in equity, which are essential for advancing the EU’s digital and green transitions and creating prosperous European savings.

You can find the details of these proposals in our open letter signed with Euronext and Deutsche Börse: Can Europe create a tech ecosystem… without offering exit opportunities?

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For each of these priorities, we expect the Commission to deliver clear, measurable and ambitious KPIs: simply doing more than what we do today is not enough. We must set today the goal of where we want to be in 2030, and start acting now to get there. The first political engagements, for example, should be taken by the end of this year and the first investment decisions 12 months from the publication of the Savings and Investment Union. This should enable Europe to measure the impact of its policies on the market 5 years from now and hopefully be able to claim a real success for the continent’s prosperity.