How can Europe's missing middle be financed?

Europe needs to tread new paths when it comes to financing innovation scale-up. While Europeans often invent frontier technologies and bring them to the stage of commercial validation, competitors invest in and industrialise them rapidly and at scale; thus securing long-term economic advantages.

Traditionally, Europe has been looking to the “Silicon Valley” for inspiration, in the hopes of replicating the US’ successes. Europe’s key export sector, however, is not digital technology but manufacturing, which needs a different kind of finance to scale up than digital innovation does.

Looking East instead

In a policy study for the Friedrich-Ebert-Stiftung and the Foundation for European Progressive Studies (FEPS), Cornel Ban, associate professor of International Political Economy at Copenhagen Business School, therefore turns towards China, the world’s largest economy and, recently, the biggest source of industrial superscalers. 

The leading expert on Chinese industrial policy and financing unpacks the country’s innovative approach for deploying innovative and modular forms of state-directed government venture capital, particularly its government guidance funds, to bridge financing gaps at both the early and late stages for industrial startups. 

Key takeaways for Europe

• Increase the amount of available capital with sufficiently long timelines to accompany start-ups to internationally competitive companies;
• Facilitate stronger coordination from the EU to the regional level to reduce fragmentation of funding instruments;
• Focus on very select sectors in which Europe wants to become or remain a world leader, since the EU does not yield the same amount of capital as China;
• Create a stronger connection between universities and public venture capital to ensure the effective commercialisation of research;
• Leverage state-owned enterprises’ capital for scale-up financing.

Read the full paper below. For more information, please contact Jonathan.Schnock(at)fes.de.