The EU’s plan to finance the digital economy
Luís Roquette Geraldes and Miguel Dinis Lucas of Morais Leitão look at how the EU is moving towards transformative and innovative technologies
In order to support SME financing in the fields of artificial intelligence, blockchain, space technology, impact investing and blue economy, the European Commission and the European Investment Fund have been making available additional resources to fund these businesses.
Initiatives include the European Fund for Strategic Investments Equity Instrument and InnovFin Equity (the former targets emerging companies in the expansion and growth stage while the latter focuses on early stage).
Particularly, the InnovFin Artificial Intelligence and Blockchain Technologies (AI/BT) initiative is dedicated to providing equity investments and co-investments to or alongside venture capital funds whose strategies target AI/BT activities. Despite the fact that this pilot has been backing funds since October 2020, only in July 2021 did it back a fund mandated to invest in digital assets, having signed off €25 million. The $130 million fund will invest in traditional equity and software tokens and other digital assets native to distributed ledger technologies.
In the words of the European Investment Fund’s Chief Executive Alain Godard “[t]his partnership seeks to address the need [in Europe] and unlock financing opportunities for entrepreneurs active in the field of blockchain technologies – a field of particular strategic importance for the EU and our competitiveness on the global stage.”
This investment may mark a clear pivot from what have been, to date, the strategic priorities of the EU in relation to technology companies and the digital economy. As an illustration, one should note that, at the moment, Europe’s largest technology company is SAP, which market capitalisation is worth just a small fraction of its American counterparts, such as Amazon or Microsoft.
In addition, according to a report from the European Investment Bank published in June 2021, companies and governments in Europe were substantially underinvesting in AI/BT. The study estimates a total investment gap in the EU of approximately €5 to €10 billion per year. While the US and China collectively account for over 80% of the €25 billion annual equity investments in AI/BT, the EU only represents 7% of this global amount, with an annual equity investment of €1.75 billion.
Hence, the move seems to indicate that the EU is now starting to bet on transformative and innovative technologies. If the EU is able to grasp the implications of exponential and decentralised technologies sufficiently in advance, it could gain the technological and geopolitical power it now lacks.
Luís Roquette Geraldes
Partner, Morais Leitão
Miguel Dinis Lucas
Associate, Morais Leitão