Patient capital, bold founders, supportive ecosystem: how European start-ups can scale at speed

Europe's startups do not just need money. They need the right money at the right time, and a supportive community around them. That is the view of Iwona Biernat, an investment officer in growth capital and innovation finance at the European Investment Bank (EIB).

Her team invests in deep tech, biotech and climate tech, and has put €10bn into 400 companies since it began ten years ago, she says. Ms Biernat joined the EIB eight years ago after working in equity research at Morgan Stanley in London. She will speak at the Luxembourg Venture Days from 14-15 October.

We asked her how founders should think about funding, what would help European startups scale faster and how investors can better back women founders.

Building the funding ladder

Ms Biernat describes funding as a sequence that starts with equity, which she calls "the most risky capital". Early on, she says, start-ups need money that can tolerate a lot of risk, because the outcome is rarely in between. "It's very binary, zero or hero." A company either fails or takes off, so the people funding it must be ready for both, in the hope of higher returns.

But risky capital is not enough. Founders also need what she calls "experienced capital", from investors "who have done it over and over again, and who bring experience, connections and ideas with their money". Equity, she says, should be "wise money ". The first equity investors can be strategic industrial partners, VC funds, business angels, but it's very important that the founders themselves have an orchestra of different skills who can challenge and complement their vision The quality of the founding team needs to be matched by the quality of their funding team.

Once a company has demonstrated its product-market fit, repeat clients and a record of recurring growth, she says, it is "very healthy" to complement this expensive, risky capital with venture debt. Venture debt is less risk-tolerant than equity, she explains, but also less expensive and less dilutive, it suits companies that are still risky but no longer at the inception stage. That is where the EIB comes in. Traditional secured bank debt follows once the company is stable and has reached profitability.

She describes the EIB as "a very patient and anchoring source of capital", and says its hands-off approach is a strength. "We are passive, but our passivity is actually an asset, because we do not interfere in the daily operations, even though we offer very big tickets." This means that we invest only in high-quality companies where we trust the management and the investment board. 

Founders should know the entry bar. "Our minimum ticket is 20 million euro, and for this the company needs to spend at least 10 million euro annually on R&D." Companies can be nearing that level by the time the process ends, and they present a four-year investment plan showing how the funding will catalyse their growth. The EIB looks for technology-driven companies whose main value is proprietary IP. 

"There are multiple companies that are marketing driven and this is not our focus. We want businesses whose DNA, competitive advantage and growth come from proprietary technology. We want to catalyse long term technology investments. We want the ‘’mafia’’ effect. We want the bright technology brains to inspire other brains, and the founders and the engineers to train others and start more companies in Europe," she says.

How Europe can scale faster

Ms Biernat says European startups can move faster, and she sees three levers.

A single market. She wants "the EU Inc", so that innovators can "sell across the continent, not to do it all over again in every single jurisdiction". The EU Inc is a proposed EU-wide company framework that would let businesses operate and sell across all member states under one set of rules. A biotech selling hearing devices, she notes as an example, currently needs a different agreement in every EU country.

Simpler deals. She suggests aligning investment clauses with those used by the biggest US funds, "so that there is no arbitrage between very complex European contracts and very simple American contracts". Many European startups pick US investors, she says, because "their contracts are simpler and they invest quicker." This is also because the US pension funds allocate more money to venture capital as an asset class and the investing ‘’dry powder’’ is more abundant.

Hands-on investors. She says Europe has "many good VCs", but that it is "mainly the big UK VCs that match their US peers". The best funds, she says, "are like the shadow management of the company. They recruit the best talent, they open new doors, they brainstorm with you. It's not just investing and waiting for good things to happen."

Backing women founders

Ms Biernat believes women founders thrive when they can build on their own strengths. She sees room for women-led startups that embrace what she calls "female energy” and says they do not need to compete or become "exactly the same as men".

She highlights working mothers. "They are so good at emotional intelligence, so good at managing stakeholders, at managing their time." In her view, success is not about being seen at a desk from nine to five. "Visibility is not performance."

Community is where the change begins. "It will start by women connecting with each other," she says. At the EIB she created a "motherhood village", a network of working mothers and their friends. "Women founders need to feel like they are not a single tree swaying in the storm. They are a forest. Our real power comes when we hold each other."

For investors looking to support more women founders, she suggests two steps. The first is having balanced teams. "I very often see funds where there are only men, or boards where there are only men. So how can you ensure that there is a voice for women if there's no space?" The second is having a wider idea of who a founder or investor can be. "Maybe a startup founder could be a breastfeeding woman. It's very reductive to have the archetypes, because then you do not create products that capture the whole market and your vision is confined to your bias."

What Luxembourg can build on

Ms Biernat says she is "very happy that Luxembourg is also stepping up its game for founders and startups", as it reinvents itself "from the back-office centre to a more forward-looking, innovative hub".

Her first idea is a Luxembourg VC contract that is "very favourable to founders" and "very simple". Her second is tax breaks for experienced investors and for talent. She would like serial investors to be encouraged to incorporate their companies in the country, and people working at startups to be exempt from some taxes in their first few years. Her third is carried interest reform. Carried interest is the share of a fund's profits paid to its managers, and Luxembourg has now reformed its carried-interest regime so that qualifying investors can pay less tax on their personal gains.

Small changes can have a big effect, she argues, and she points to Sweden, where a tax break on reinvesting was enough to make backing new founders "a no-brainer" for business angels. "There are many tiny incentives that tilt the whole machine towards value creation."

How to stand out at Luxembourg Venture Days

Ms Biernat has two pieces of advice for startups hoping to catch an investor's eye at the Luxembourg Venture Days, one about preparation and one about the pitch.

The first is to plan who you want to meet. The event is large, and without a plan a founder can waste time on the wrong conversations. "Curate your meetings in advance, because you may really miss the diamonds by trying to dig the crystals," she says. She suggests mapping the event beforehand, so you know which investors are worth connecting with.

The second is to keep the pitch focused on what the company is worth. She recommends an elevator pitch that "doesn't use buzzwords" and instead "projects competence and vision". An investor, she says, "wants someone who is a solid pair of hands, and at the same time someone who sees more than their solid pair of hands". In practice, that means coming across as "someone who has a real sense of ownership, who has solid experience, who is not naive about the difficulties ahead". Humans are filled with water, she jokes, we resonate first – we reason later. Make sure you come to the event grounded, open minded and authentic. The best conversations may come as a surprise.