Brussels, Belgium: The European Investment Bank (EIB) has called for heightened innovation financing within the European Union to bolster the region’s technological leadership, according to a recently released report.

On July 24, the EIB published the report titled “The Scale-up Gap: Financial Market Constraints Holding Back Innovative Firms in the European Union,” which emphasizes the “critical need” to dismantle investment barriers and redirect savings into vital areas of the EU market.

EU Pushes for Innovation

The report underscores the importance of increased investment in scale-up companies to maintain the EU’s technological edge and global competitiveness. Closing the financing gap for these firms is deemed essential for advancing technologies in green tech, artificial intelligence, and quantum computing.

The EIB has been advocating for investment in these technologies since June 2021, when it released a similar report titled “Artificial Intelligence, Blockchain, and the Future of Europe.” Since then, the EU has become one of the first regions globally to implement comprehensive regulations for the AI sector and has been actively legislating on crypto and blockchain under its Markets in Crypto-Assets (MiCA) regulation.

However, a report from the European Court of Auditors in May 2024 indicated that the EU must “pick up the pace” to remain competitive with global leaders in emerging technologies like AI.

EU Challenges

The EIB identifies the limited size and depth of EU capital markets as significant challenges for innovative companies, particularly during the scale-up phase when financing is scarce. This shortage has reportedly hindered firms’ capital accumulation, growth, productivity, and employment opportunities. The report advocates for deepening Europe’s capital markets, especially the venture capital market, and highlights the EIB Group’s successful track record in supporting innovative companies and scaling up key technologies.

Nadia Calviño, President of the EIB, stated, “We are ready to do more, especially in paving the way for a true capital markets union, a key priority to drive sustainable growth and job creation.”

The report points out that European venture capital investment is significantly lower than in the United States, resulting in slower capital accumulation for European firms compared to their Silicon Valley counterparts. European scale-ups frequently rely on foreign investors, with most lead investors in funding rounds coming from outside the EU. This leads to local firms being acquired by foreign companies or listed abroad.