Europe is underinvesting in blockchain and artificial intelligence
If it wants to catch up with the US and China in new technologies, Europe will have to get investors on its side. according to the European Investment Bank (EIB), the European Union needs €5bn to €10bn more in annual financing of blockchain and artificial intelligence companies to match up with the two other large blocks.
The EIB, which has just released a report on this issue, blaming the lack of private equity money in latter fundraising stages (Series A, B, C, etc.) . Small and mid-sized companies working in artificial intelligence need another €3bn to €6bn in annual equity investments, and blockchain companies, €1bn to €2bn. Currently, EU's 27 countries make only €1.75bn in equity investments annually, vs. €20bn by the US and China combined. By way of comparison, the lack of debt financing amounts to no more than €2bn in artificial intelligence, and is almost sufficient in blockchain.
One reason for this reluctance, the report said, is the low number of institutional investors within the EU’s venture capital funds. According to EIB figures, VC is mostly funded by government agencies (24%), family offices and high-net-worth individuals (19%), and companies (17%). Pension funds account for just 8% of VC financing in Europe, whereas they are the main provider of new money in the US (20%). Likewise, endowments are underrepresented, at 6%, vs. their US peers (13%). The EIB believes this is driven by a weaker risk-return profile of European VC funds than their US peers, as well as regulatory restrictions that keep institutionals from investing in small deals.
Among the other shortcomings found by the EIB is the low number of funds specialising in these sectors compared to the US and China, as well as a market infrastructure that is inefficient and poorly integrated in bringing investors and projects together. The fragmentation of the EU’s 27 markets is another hurdle to interconnecting the databases of each country, which are decisive in developing new blockchain and artificial intelligence solutions.