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Funding scale-ups in the New Reality

Europe’s new reality: Go digital, go green

Funding scale-ups in the New Reality

Jonathan Lavender | Leadership,

Record-high unemployment rates and government support necessary for the survival of some of the largest companies across the globe: this is our new reality. We have reached a watershed, and how we respond to the current economic crisis will likely define Europe’s successful recovery and long-term competitiveness. I believe that tackling the challenges of climate change and digitalization will be two of the key factors in achieving a sustainable recovery and enduring prosperity.

Green technologies can create the sought-after products of tomorrow and transform entire industries. They will also be instrumental in achieving Europe’s ambition to become the first climate-neutral continent. However, many of the most promising new technologies are just coming out of the lab, and it may be difficult for growth companies to commercialize their innovations as they face our collective new reality.

Europe has a history of industrial excellence, but funding and scaling green technology companies remains a challenge due to market fragmentation and limited investor experience with the type of investments that are needed. The World Economic Forum’s Digital Leaders of Europe community, comprised of founders, investors, corporate executives and policymakers, identified innovation funding as one of the key issues for European companies in the “2019 Innovate Europe” report. Its most recent report “Bridging the Gap in European Scale-Up Funding: The Green Imperative in an Unprecedented Time”, produced in collaboration with KPMG Private Enterprise, notes that it has been necessary for high-potential European growth companies to seek out foreign investors to fill the gap left by European investors. However, the fundamentals are strong in Europe, and the report recommends four opportunities to support and sustain the scaling up of European technology in a new reality environment.

1. Streamline access to public funding for innovation

While public money is available for smart entrepreneurs, the process for accessing funds can be daunting. The amount of time and skill required to navigate the funding processes of multiple agencies takes entrepreneurs’ focus away from building their technology to navigating webs of bureaucracy. Creating a single platform for accessing the offerings of a variety of European public funding institutions is one possible solution for growth-stage startups that are ready to scale up.

2. Apply blended finance to scale Europe’s industrial transformation

European venture capital funds often do not have the size or scale to provide adequate funding for the time required to develop new technology. A blended financing approach uses a sophisticated mix of public and private funding, with public funds helping to ameliorate some of the risk that might be of concern to private investors. The ultimate goal is to create a funding environment in which private investors have become more confident in making new technology investments without public support.

3. Create public and private procurement opportunities

European procurement practices favor large corporations, making it difficult for emerging companies to compete. The length and complexity of the procurement processes, as well as the historically poor success rates for small companies, are major obstacles for most emerging technology companies that are ready to scale up. A new procurement framework that divides large contracts into smaller segments could provide new opportunities for these companies to participate on an equal footing with their larger counterparts.

4. Give European growth companies a voice on policy and standards

The green revolution is not only creating new businesses, entirely new industries are emerging as well. These new industries should have the opportunity to contribute to the evolution of regulations that continue to support sustainability goals. Industry associations for green technology scale-ups can build alliances among companies and help decisionmakers understand the potential of these groundbreaking technologies.

To implement recommendations such as these successfully, the public and private sectors have to work together to explore new ideas and change the way we think and operate in a transformative global economy. Helping Europe’s growth-stage startups to scale up is a worthy goal. Uncovering new ways to ensure that emerging companies can become sustainable, full-fledged corporations will be vital to Europe’s success in confronting the New Reality and securing the region’s long-term competitiveness.

KPMG Private Enterprise professionals understand the implications of COVID-19 for private companies, including new emerging growth companies and scale-ups. If you are interested in learning about its impact on deals and venture-backed funding during the first quarter of 2020, read our Q1 2020 Venture Pulse Report. The Q2 2020 Venture Pulse report will be released in July.

I encourage you to follow our regular KPMG Private Enterprise series of blog posts as we share insights from across our global network on the impact that COVID-19 may have on your business strategy and operations, and how to embrace the new reality of a post COVID-19 world.