Why we write about this topic:
The trend is obvious: Europe needs more government guidance in the free market. Which is why Innovation Origins is keeping a close eye on the changes of course in EU policy.
The lesson learned from European politics in recent years is that our continent is vulnerable. First the corona pandemic and now the war in Ukraine have shifted the goalposts. Our dependencies on countries like Russia and China are far too extensive, necessitating investment on all fronts to make Europe more resilient.
European politics is banking heavily on technological innovation. Due to the energy crisis, the green transition needs to be speeded up. And the almost complete dependence on microchips produced in Taiwan must also be brought to an end.
It is these challenges that drive Jean-David Malo to go to work every day. The Frenchman heads the European Innovation Council out of Brussels. A European Commission fund that is loaded with €10 billion of taxpayers’ money. It is dedicated to investing in technological breakthroughs to give Europe the independence it wants.
Start-ups can approach him of their own accord for funding for their own ideas and are doing so in large numbers. In addition, Malo frequently sets so-called ‘challenges’ in the market to ask innovative companies to come up with solutions to problems that European politicians are keen to overcome.
His huge sack of money means that Malo is a popular player in Brussels, as he himself acknowledges: “I’m definitely popular, as it’s quite a challenging and competitive program.” And yet, his billions are just “a drop in the ocean,” the venture capitalist in the service of the state tells Innovation Origins.
Really? It sounds like a lot of money.
“Yes, it is the biggest budget for innovation at the EU level. In that sense, it is an important program. But is a budget for seven years and it is only a small contribution to what is actually needed. Just to give you an example: we are open for proposals for our accelerator three or four times per year. We have around €450 million available each time. But we have received requests from applicants that amount to over €6 billion! In the end, we are only able to finance a percentage of the projects that need financing”
What do you think is the main benefit your existence brings to society?
“In Europe, we have a venture capitalist market that is not satisfactory in comparison with the USA. Especially in the amount of funding that is available for innovative start-ups. Therefore, European investors are not able to take as much risks as Americans can. You know, if you have a fund of €1 billion or a fund of €100 million, the risk you take with an investment of let’s say €10 million is completely different.
With the European Innovation Council, the EU is for the first time investing directly in companies. That is a big change when compared to the the past. It didn’t used to be normal for European governments or the European Commission to directly take shares in a company.”
So, you are a state-run venture capitalist?
“Yes. But we have a strategy which is based on impact, not financial returns. Our first objective is to help companies that are promising to grow. We act as a patient venture capitalist investor. Meaning we can stay in for 5, 7, 10 or 12 years.”
But in the end, will you sell your shares in the companies that you support?
“Yes, we make an exit. Because our objective is not to crowd out the market. In the end, we are a public body, and we cannot create fair competition with private companies.”
What is the political goal of your work as a state investor in companies?
“We want to change the market. We want to convince private investors that something they might consider as a too risky is in fact not so risky after all. Of course, they may end up losing money, because we are talking about technologies that are not yet mature. But if they work, they have the potential to totally change society.”
Digital innovation has already been dominated by American companies for many years. In Europe, do we need the help of the state to be competitive with Silicon Valley?
“We are already in competition with the Americans and the rest of the world. It’s not our intention to create this level of competition. And yes, we need the help of the state because of the characteristics of our financial market. By the way, people often forget that at the very beginning, the American venture capitalist market was also supported by the state.”
You mean the way internet was first developed for the US military?
“Which is the state. So, if we want to be able to compete with the USA, we should use the opportunities the state offers to stimulate the market. We believe that it is the role of a public body to finance activities that the private market now finds too risky. Our ambition is to create the environment for a bigger investment market in Europe, so that the private sector is able take more risks. And by the way, while I say this, don’t forget that in fact I’m really a liberal.”
But you are also French! And in France they tend to like state intervention.
“And thanks to that we have the TGV. You need the support of the state to be able to deal with risky things. But then when it works, the state should leave.”
You said you received for €6 billions worth of applications for funding. How do you make sure the right projects are supported?
“It’s not easy to do. Because we aspire to support the next disruptive technologies. In essence, you can only characterize a new technology as disruptive once it has taken place. After the fact.
We are using several means to do this. The first one is our program managers, people who have good knowledge in the field of a particular technology. These are people who have a background in entrepreneurship or in investments.
Secondly, although the bulk of our program is bottom-up (companies applying for funding based on the work they are already doing), we also issue open calls for challenges in certain fields we deem important. For example, during the pandemic, we put out specific calls relating to covid diagnostics and vaccines. In any case, we focus on the best in our selection process.”
‘Focusing on the best’ – that means most of the money goes to northwestern European countries and not so much to the Eastern part of the European Union?
“Which is the case in any program for innovation within the EU. In an open competition, it is not so surprising that you book better results with proposals coming from the Netherlands than from Poland. This is just because of how the situation is in the various different countries in Europe.”
Isn’t that a political problem among the member states?
“Yes, it is a political problem. We try to address this through the Horizon Europe program with several measures that support research organizations and companies which have the aim of increasing the research and innovation capacity among Eastern European Member States.”
Another huge political problem is the war in Ukraine. Are you looking at more investments in military innovation?
“Our legal framework forbids us from investing in military innovation. But anything that has a dual use is possible. For instance, a drone can be for entertainment but also for military purposes.
What is happening in Ukraine, after the pandemic, was another alarm signal in Europe that said that we have several problems where safeguarding our stability is concerned. We have to defend our values and make sure we are autonomous.”
How does that change the focus of your funding?
“The Covid crisis and the war let us see that, for instance, we now have problems with our supply chains and our access to certain raw materials. Since our program is driven also by our political needs, we issue open calls for challenges in these fields.
When it comes to supply chains, for example, the European Union is working on a “chips act” that seeks to encourage microchip manufacture in Europe. We need to completely regain control of the supply chain in this area. Obviously, evolving society has an impact on how we identify the challenges that we believe need to be addressed.”
One more thing: we’ve met up in your office in downtown Brussels. But we are fairly far away from the rest of the buildings of the European Commission. Why are you not housed inside the famous European bubble of Brussels?
“You do have some added value because you are very close to those who set policy so that you can influence them. But at the same time, within the European bubble, you are quite removed from the needs of the people you are supposed to help. We are quite a long way from that here. And by the way: it’s only 10 minutes by metro to the headquarters of the European Commission.”