The European Investment Bank (EIB) has emphasized the necessity for increased innovation financing within the European Union to maintain the region’s technological leadership and competitiveness in key sectors such as artificial intelligence (AI) and emerging technologies, according to a new report.

Critical Need for Investment

On July 24, the EIB published a report highlighting the “critical need” to remove investment barriers and channel savings into vital areas of the EU market. The report, titled “The Scale-up Gap: Financial Market Constraints Holding Back Innovative Firms in the European Union,” stresses the importance of greater investment in scale-up companies to sustain the EU’s technological edge and global competitiveness.

Advancing Technologies

The EIB’s report outlines the crucial role of closing the financing gap for innovative firms to advance technologies in green tech, AI, and quantum computing. The bank has been advocating for increased 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 implemented a comprehensive set of regulations for the AI sector and has begun passing laws related to crypto and blockchain under its Markets in Crypto-Assets (MiCA) regulation. However, a May 2024 report by the European Court of Auditors highlighted that the EU needs to “pick up the pace” to stay competitive with global leaders in emerging technologies like AI.

Challenges in EU Capital Markets

Despite these efforts, the EIB points out that the limited size and depth of EU capital markets present significant challenges for innovative companies, especially during the scale-up phase when financing is scarce. This shortage has hindered firms’ capital accumulation, growth, productivity, and employment opportunities.

Deepening Capital Markets

The report advocates for the deepening of Europe’s capital markets, particularly the venture capital market. It also highlights the EIB Group’s successful track record in supporting innovative companies and scaling up key technologies. EIB President Nadia Calviño stated that the bank is “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.”

Venture Capital Investment Disparity

The report notes 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 dependence often leads to local firms being acquired by foreign companies or listed abroad.

By addressing these financing challenges, the EIB aims to strengthen the EU’s innovation ecosystem and ensure that Europe remains competitive in the global technological landscape.

Source: Cointelegraph