European Venture Fund instead of H2020

The problem:

• Something like 40% of companies who got Horizon2020 funding and that are sold, are sold off to investors outside of the EU, taking upside and talent with them.

• Grant making organisations like the H2020 or their money distributors are disconnected from the market, making poor investment decisions into projects that should not be funded in the first place (or would never get money on the public market). Success rate of H2020 funded companies is IIRC about 3x less than the public market.

• There is no incentive to be better for those grant making organisations. They don’t use their own money. No skin in the game. No reward if things go well, no punishment if not.

• Europe’s VC ecosystem is very risk averse for a variety of reasons like tax regulation and culture making check sizes usually very small compared to e.g. US and China.

Potential solution:

A pan european network of venture funds or matching pools that have backing by European public funds, and to which the EU becomes a key shareholder to - not in the funds, but in the companies that are invested into.

What this would do:

• Ensure the market driven and competition focused allocation of funds

• Give EU VCs more ability to take big bets

• Europe keeps benefitting from companies’ future profits/growth even if sold outside of EU
  

A foreboding example:

If we compare Saudia Arabia with Dubai we might see how things play out if we primarily keep giving grants to people.
Dubai is managing to develop an economy outside of the dependence on oil. They do that by stepping in as a co-investors in projects that have market driven private funding secured.
Saudi Arabia on the other hand is projected to have a risk of bankruptcy because their model is a centrally planned “grant making”-first approach for mega projects by MBS that are missing out on key market driven validation of those projects.

This feels similar to the grant-making vs. investment approach of the EU vs US.