The multi-billion euro EU fund has a Finnish director whom few people know – “In Europe you have to think really big”

Europe needs more investments and innovations.

This work in Europe has been promoted for 30 years by the European Investment Fund (EIF), which grants loan guarantees and capital financing to European SMEs and micro-enterprises.

Few people know the institution, even though its annual budget is 15 billion euros. Even fewer know that it is run by a Finn Marjut Falkstedt.

“We cannot directly invest in companies. That’s why not much is known about us,” says Falkstedt.

Falkstedt knows the European financial field like the back of his hand. Before becoming the CEO of EIF, he worked for a long time at EIF as Deputy Managing Director, but also at the European Investment Bank, which focuses on financing large companies, and at the Economic and Financial Affairs Department of the European Commission.

Falkstedt, who left Finland after high school, has lived in both Germany and Luxembourg. He is visibly excited about his work and his organization of more than 700 people.

“We want and are really able to influence people’s lives. It keeps our work motivation up.”

EIF does not finance projects directly, but with the help of its partners. In Finland, EIF has 48 different partners, such as most banks and Finnvera. EIF also makes joint investments Tesin with. A Finnish company can also apply for financing from specialized European financiers.

When talking about the EU in Finland, the conversation turns to net payment. However, Finland has been a good recipient of EU funding in innovation and business funding.

Finland’s share of the total EU budget and correspondingly of the EIF’s funding is about 1.7 percent. Finland’s share of funding from the EIF has been around three percent. Finland is the tenth EU country that has received the most EIF funding.

For example, five percent of the program’s funding has flowed to Finland from the InvestEU program.

A total of 4.4 billion euros have been granted to Finland from the EIF since 1996, which has enabled a total of around 12 billion euros in financing for more than 14,000 companies.

“Finland has recovered many times over its size. I cannot assess whether Finland’s share can be increased further. “

The financing must be international

Innovations, new technologies and growing companies need money. In Europe, money has largely come from banks. Banks are not the best way to finance startups, for example, where the various risks are high and the business is just beginning.

According to Falkstedt, there have been huge leaps forward in recent years. When the EIF was founded in 1994, there were no functioning capital markets in Europe. Development has taken place.

“The share of equity financiers in the financing of startups has increased. Especially in the last ten years, the development has been incredible. We have involved Eastern European countries such as Bulgaria and Romania in the development. But yes, the differences are still huge. The European Investment Fund is still needed for the next 20 years.”

According to Falkstedt, the problem is that politicians think of investment as a domestic matter.

“But an innovation company doesn’t stop there. If it wants to grow, it has to be international. The financing must also be international, the bigger the company develops.”

European countries also have their own good public financiers, such as Finland’s Tesi, Germany KfW Capital and France Bpifrance.

According to Falkstedt, the problem in Europe is still the fragmentation of legislation. Despite the free movement of capital, it is not one, but 27 markets.

“Finland has a predictable operating environment, but this is not the case everywhere in Europe, as the legislation can change from day to day. It creates uncertainty for investors.”

According to Falkstedt, that is one of the reasons why so many venture capital funds are registered in, for example, the Netherlands and Luxembourg. So it’s not just about taxation.

Funding for the growth phase

Europe’s competitiveness is new Ursula von der Leyenin at the top of the Commission’s priority list. One of the challenges of competitiveness is the difficulty for companies to grow big in Europe.

According to Falkstedt, innovation companies need more late-stage growth funding from Europe in order to grow on a global scale. It often happens that a European company is sold or listed in the United States because there is liquidity there.

Mario Draghin according to the report, about 30 percent of unicorns, i.e. startups that grew to a value of one billion euros, founded in Europe between 2008 and 2021 have moved their headquarters abroad, mainly to the United States.

Europe’s problem has been bank dependency. While roughly 80 percent of corporate financing in the United States comes from capital markets and 20 percent from banks, in Europe it is just the opposite.

“When companies go outside of Europe, the risk of losing the company and its employees increases. It is a loss of competitiveness. We need to be able to invest in growing innovation companies so that we can keep know-how and companies in Europe.”

The need to develop the European capital market has been talked about for years, and the key word is capital market union. However, unfortunately little progress has been made.

“In Europe, you have to think really big. And put enough money in the bank to invest in companies that have the capacity to grow globally. If we want companies to stay in Europe, they and the financiers must be given exit opportunities.”

Falkstedt takes, for example, the European Investment Fund’s program called the European Tech Champions Initiative. It is a fund of funds that invests in mega funds of around one billion euros. These funds, in turn, invest in high-tech companies in their later growth phase and offer individual financing of more than 50 million euros.

“The size of ETCI is currently EUR 3.85 billion. It’s a drop in the ocean.”

According to Falkstedt, there are too few such funds in Europe.

“More of them are needed, because such funds could invest up to 100 or 150 million euros in one company at once. There is a big difference in late-stage growth financing between Europe and the United States.”

At the same time, we must continue to support startups and the birth of new ones, says Falkstedt.

“There is a lot of innovation in Finland and Europe, but the innovations do not lead to the establishment of a company. Innovation is not enough, it has to be taken as far as a product.”

Falkstedt considers it important that EIF’s work continues, because otherwise national financiers will not have a partner.

Years of work have borne fruit

“When we started this ETCI program about 1.5-2 years ago, there were two billion euro funds in Europe. Now there are twice as many, says Falkstedt.

However, this does not mean that there is a lot of private money in Europe.

“We still need state budgets and investments. In addition, we need more pension and insurance financiers. We need to get these institutional investors involved, because now they don’t invest enough in risk capital.”

A huge amount of work needs to be done to develop a real European capital market.

“We are able to develop the capital market, but all states have to work for it, and not start scaling their own things.”

The problem of the European capital market has been, among other things, that the member countries are strict about their own national banking supervision and stock exchanges. In addition, bankruptcy legislation, for example, is strongly held in its own hands.

“Do we need more than 50 different exchanges in Europe?”

Falkstedt would also develop securitization, if not through legislation, but at least through uniform guidelines.

Money should not be distributed as subsidies

Billions are a sight to behold when talking about various European financial instruments. Shared money and its distribution is always a big topic of controversy.

How should money be distributed in order to increase Europe’s competitiveness?

“At least it shouldn’t be distributed as subsidies,” Falkstedt says to the unit.

According to Falkstedt, subsidies must be used very judiciously in business financing.

“If you invest in something, you invest with the idea that at some point you will get your money back. It’s not worth spoiling it with support.”

According to Falkstedt, the subsidies should be used for something more necessary, such as basic research, where the risks are high and there is no information about future returns.

“We get funding from the EU budget, but we always generate dividends back from our venture capital funding. When companies are supported, it can be done in a productive way. So not with subsidies, but with loans and venture capital.”

The best place to work

Falkstedt doesn’t mince words when asked about the European Investment Fund as a workplace.

“There are wonderful people here with lots of ideas and talents.”

According to Falkstedt, at EIF, it is possible to quickly advance new ideas and refine financial products.

“One such new product is an export guarantee. It is a completely new business for us, we have not worked with export guarantee institutions before. The issue here is that we give guarantees to institutions that finance European SMEs that export to Ukraine.”

An export financing instrument for Ukraine is about to enter the market.

“The aim of the guarantee programs is to bring companies within the scope of debt financing that would otherwise not have access to bank financing. Of course, that raises the risk level.”

Falkstedt is proud not only of innovation, but also of achieved results.

“We are extremely proud of the European unicorns that EIF has invested in, such as Skype, Wolt, Revolut this Klarna.”

There just isn’t enough money.

“There would be much more demand in Finland as well, but Finnish counter-financing is needed. The EIF’s budget is also not big enough.”

Money is one of the most important issues being considered in Europe and the new commission. Money is needed to support Ukraine, to develop defense as well as for the green transition and to promote the competitiveness of European companies.

The EU’s annual budget of around 170 billion euros is too small compared to all the new needs. The way to guarantee new funds, which are proposed to be financed with the common debt money of the EU countries, like the previous 2020 stimulus package, comes up in the discussion.

The issues divide the EU member states strongly. There are difficult discussions ahead, at the same time as Donald Trump The United States is driving home more and more, and the competition from China is getting tougher.

Falkstedt hopes that the gaze will be directed forward so that all the work that has already been done is not lost.

“We need a European plan on how to grow innovation companies, how to keep them in Europe and how to increase liquidity. A lot of good work has been done in Europe for startups, but now we need to develop the next phase. Startups are already starting to become adults.”

(Correction on November 25 at 3:14 p.m.: Contrary to what the story said in some places, it is about the European Investment Fund.)