Rudy Aernoudt Senior Economist at the European Commission talks about the ingredients for internationalization and focuses on financing the scale-up gap. In this regard, the presents the European Commission's later project: Escalar

1. EKONOMIAZ I-2019
Unleashing firms’
growth potential
Prof. Rudy Aernoudt
Senior Economist
European commission

2. Unleashing firms’ growth potential
Five ingredients for
internationalization:
1.1. Respect industry: end of taboo
2.2. Investment readiness
3.3. Reshoring
4.4. Entrepreneurship-friendly policy
5.5. Financing: the scale-up gap
rudy.aernoudt@ec.europa.eu 2

3. Capital Needs
Time
Seed Start-up Early Growth Scale-up
High
Risk
Low
Risk
Friends,
Family &
Founders
Business
Angels
Formal
Venture
Capital
EXIT
1
0
Who fill the
‘Equity
Gaps’
Business
Angels
syndicates
Scale-
up gap
The 2 equity gaps

4. #Challenge 1:The first equity gap
4

5. #Challenge 2: Scale-up mentality
rudy.aernoudt@ec.europa.eu 5

6. # Challenge 3: VC- EU:
limited amount & small deals
6
129
113
13,7
8,3
9
22
20
6
10
11
0 20 40 60 80 100 120 140
ASIA
US
EU (excl UK)
UK
LATAM +AFR
Data 2018 – Preqin
Mean($Mio) Amount ($bn)

7. Facts & figures: stage of investment
In Bi-euro US EU Comments
(2019 – NVCA &
Invest-europe)
Seed stage 7,5 0,7 10 x
Early stage 32 4,9 7x
Later stage 90 2,6 34 x
Total annual VC-
investments
130 8,2 15 x
7

8. The scale-up gap: Unicorns leave Europe

9. Conclusion: the scale-up gap
• Facts & figures
- 44% of EU-financed
scale-ups left EU
- VC Later stage US
exceeds 34 times EU
- Average VC fund US:
135 M$ -EU: 65 M$
- Public co-investment
from 9 to 39% in ten
years (EU VC = public)
• Surveys
• - For 65% of scale-ups,
financing is biggest
obstacle for growth (EC- PC
on scale-up, 2016)
• - 90% of EU cies struggle
to raise financing for
growth (Roland Berger)
• - Hard to find 15 to 25 M€
• - Closing scale-up gap
would create 1 mio EU-jobs

10. II. The EU answer: ESCALAR
(European Scale-up Action for Risk Capital)
• Why now??
• 1.Scale-up & equity gap
• 2. Banking sector fragilized (post crisis)
• 3. Very liquid market – patient investors
looking for AAA investments (Basle III)
• 4. Pan-European FoF operational
• 5. Already very public market (40% of EU
VC is public); crowding-out danger

11. ESCALAR: the mechanism
VC Funds EU institutions investors
ESCALAR 1
€1 equity -> max €1 debt
ESCALAR 2
€1 equity -> max € 1 debt
ESCALAR 3
€1 equity -> max €1 debt
EIF
(due diligence)
EFSI
guarantee
EIB
Bond issuing
Risk-averting
Investor:
Pension fund 1
Risk-averting
Pension fund 2
Risk-averting investor
Insurance company
(1) Funds ask agreement for recognition (2) EIF preselects (3) Funds drawn private money (4) EFSI asks
EIB to issue a bond; after pilot phase (5) EIB collects money through risk-averting investors
(1)
(3)
(4)
(5)
(2)

12. 12
ESCALAR
Balance sheet
Venture capital fund FUNDING
MECHANISM
Assets Liabilities
1.
INVESTEES
(scale-up
companies)
2.
EQUITY
Including
Public money
3.
Quasi-equity
(leverage on
return)
ESCALAR
(e.g. pension
funds
with EFSI gar.)

13. Blending of financial instruments
rudy.aernoudt@ec.europa.eu 13
30%
10%
10%
50%
ESCALAR FUND
Private
equity
NPB (eg
KfW)
EIF
Patient
guaranteed
investors
• 1st step:
• Private equity or BA:
30M€
• 2nd step:
• Fof
- EIF: 10 M€
- NPB: 10 M€
- 3rd step
- ESCALAR
- Raising 50 M € from
capital market trhough
EFSI guarantee

14. Two ways of implementation
MAIN FUND
Equity Quasi-equity
SIDE FUND
equity ESCALAR
rudy.aernoudt@ec.europa.eu 14

15. ESCALAR: IMPLEMENTION
• Pilot phase 2019
• - first projects
• - calibration
• - through call
• - closed-end call
• - 300 Million euro
• - one-legged
• Part of INVEST
EU
• - 2021 – 2027
• - open call
• - two-legged:
• VC quasi-fund
• Private funding
rudy.aernoudt@ec.europa.eu 15

16. InvestEU
EU financial instruments 2014-2020 2021-2027

17. InvestEU Fund
17
▪ Budget for InvestEU Advisory Hub, InvestEU Portal and
accompanying measures is proposed to be EUR 525 million.
▪ InvestEU is expected to mobilise more than EUR 650 billion of
additional investment across Europe
Window
Budgetary
guarantee
Mobilised investment
(estimate)
Sustainable infrastructure 11 500 185 000
Research, Innovation and
Digitisation
11 250 200 000
SMEs 11 250 215 000
Social investment and skills 4 000 50 000
TOTAL (EUR Million, in current prices) 38 000 650 000
Indicative proposed budget allocation:

18. Why wasn’t ESCALAR done before?
18