Germany and France are working to establish a European venture capital (VC) initiative to channel capital from institutional investors and pension funds towards innovative firms.
Drawing on the lessons of Tibi in France, and WIN-Initiative in Germany, the French and German governments want to connect similar initiatives in other member states for investments in pan-European VC and growth funds for late-stage start-up financing.
The European VC platform idea is one of the recommendations included in a report submitted last week by a task force led by Jörg Kukies, former German finance minister, and Christian Noyer, former governor of the Bank of France.
The taskforce was convened last year to drive the joint German-French Financing Innovative Ventures in Europe (FIVE) initiative, in turn part of French and German efforts to help deliver a Savings and Investments Union (SIU).
The FIVE report proposes measures to scale up the European venture capital market, with a focus on mobilising occupational and third pillar pension capital to fund start-ups across Europe competing on a global scale.
The experts propose to introduce opt-out to increase assets in occupational pension funds through contributions, also expanding personal pension schemes.
The report also argues for a quick transition to defined contribution plans, saying guarantees hinder riskier investments in start-ups, and encourages second and third pillar pension asset allocations to publicly listed equity and VC.
Without a large pool of capital from retirement savings, Europe is incapable of financing innovation at scale, according to the Kukies and Noyer report, with pension funds described as well-positioned to provide capital for VC funds and companies that need time to grow.
The FIVE initiative tries to replicate developments seen in the US, where, according to French central bank figures, pension funds account for around 50% of private equity and VC investments.
In Europe, pension fund VC allocations remain low, with the fragmentation of the single market and corporate law representing major roadblocks to channel capital towards innovative firms, the report continued.
The report published under the FIVE initiative, meanwhile, proposes to set up a single corporate regime across Member States, uniform rules on governance, capital and shareholder rights, and simplifying access to funding, among other measures.
The idea for a pan-European VC platform comes as the European Commission is partnering with private investors to set up a multi-billion Scaleup Europe Fund. The Commission is also currently separately consulting on the barriers and possible solutions to a fragmented VC and growth fund market in the EU.
State development bank KfW, which is involved in the WIN-Initiative, told IPE that the FIVE report provides the basis to further develop its initiatives and to focus even more on mobilising growth capital and on market integration to close the European scale-up gap.
