EIF and Economics Ministry Join Forces: EUR 500m in support of high-tech VC in Germany

EIF announced today the launch of the EUR 500m ERP Facility for investments in Venture Capital Funds focussing on German high tech companies. The European Investment Fund (EIF) is to be responsible for the management of the Facility on a mandate awarded by the German Federal Ministry of Economics and Labour (BMWA). Funding will be provided on a 50/50 basis by BMWA and EIF.

This agreement between EIF and BMWA is novel in that it is the first mandate that EIF will manage on behalf of a third party. Currently, EIF operates 5 other Venture Capital mandates entrusted to it by the European Investment Bank (EIB) and by the European Commission.

The EIF-ERP Facility will have an investment period of up to 5 years and a divestment period of up to 10 years (extendible). Investments made under the facility will be matched by EIF on the basis of a co-investment agreement; the overall amount available for investments will be up to EUR 500m. It is expected that the Facility will ease the fundraising of private investors, and finally result in EUR 1.7bn of additional investments for the support of innovative companies, through venture capital funds.

The objective of the Facility is to support the establishment and financing of specialised VC Funds that focus on investments in early, development and mid-stage technology companies. The Facility will aim to establish a diversified portfolio of commercially viable VC fund investments with an industry-typical financial return expectation. Investments will specifically address two VC market segments:

• Seed and early stage funds with a strong technology transfer emphasis, i.e. funds that have access to or cooperate closely with major public and private research centres. A strong emphasis will be on the establishment of new funds in this area.
• Funds that target follow-on financings of tech companies in their early, development and mid-stages, i.e. investments are typically undertaken in second and subsequent financing rounds.

This new and important mandate is consistent with EIF's aim of supporting EU objectives for growth and R&D, specifically that of reaching a 3% of GDP level of funding for European research by 2010. The EIF has already committed EUR 2.5bn in 184 VC funds in all the EU Member States and in the Acceding Countries, and is a key player in the technological VC scene.

The Facility also provides an opportunity to consolidate and further strengthen EIF's role in Germany (EUR 315m in investments committed in 22 VC funds) as a cornerstone investor with a market approach to its investments, its quality due diligence process, the spreading of best industry practice, its catalytic role with respect to other institutional investors and specifically its support in establishing first time funds. Moreover, the Facility is built around EIF's core strengths and experience in Germany, i.e. Venture Capital Fund of Fund investments, and comes at a time when commercial opportunities related to VC investments are considered to be becoming much more interesting and promising - mainly related to lower company valuations for new and existing technology companies.

F.A.W. Carpenter, Chief Executive of the EIF expressed yesterday how pleased he was that, for the first time, EIF has received an investment mandate from a third party other than the EIB or the Commission; This is a natural extension of EIF's present mandates, all ultimately at the service of European technology and innovation, through venture capital. The fact that it has been awarded to EIF, in a country as important as Germany, is witness that the EIF is a strong reference on the European VC market. It is a perfect example of partnership and I hope we can strike other mandates with public or private investors in other countries.