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Why the Announced Multi-Billion Euro Tech Fund is a Bad Idea

Public funding is not suitable for playing the venture capital game

- Expert opinion -

Dries Faems - February 25, 2022

Tips for practitioners

On February 7,2022, Bruno Le Maire, the Minister of Economy and Finance of France, announced the creation of a publicly funded, multi-billion-euro fund, to which the Federal Ministry of Finance in Germany has already pledged one billion euros. According to Le Maire, the core objective of this fund is to “have ten technology companies worth more than 100 billion euros each by 2030.” In my opinion, this new fund is a bad idea for multiple reasons.

The market already provides sufficient funding

Let’s go back to the basics and ask ourselves a simple question: When should public institutions intervene in the market? The answer that scholars typically provide is that governments should intervene when there is a market failure, i.e., a situation defined by an inefficient distribution of goods and services in the free market that creates an imbalance between demand and supply. So, how does this look in practice? Looking at the domain of tech financing, for example, it is difficult to see what the current market failure is. The tech market is flooded with money from private investors. In such a setting of abundant private financing opportunities, we must ask ourselves whether we should pump additional taxpayer money into this system.

Public investors are drawn to comparatively safe investments

Venture capital is a high-risk game. You need to carefully select a wide variety of investments and accept that most of them will fail. In the end, only a limited number of hits will generate a positive return on investments. This implies that failure is an inherent part of the venture capital game. Governments and their tax-paying citizens, however, tend to dislike failure. If an initial set of companies fails despite support of the fund, we can expect that public decision-makers will get cold feet and will go with the safer options, which will only decrease the likelihood of ultimately hitting the jackpot.

Public funding is a political instrument that doesn’t necessarily favor the best candidate

When tech funds are created by politicians, they are likely to be (ab)used for political gain. It is no coincidence that Le Maire, who will face national elections in April, had the honor of announcing this plan. Moreover, it is unavoidable that there will be many political considerations in the process of deciding who will actually receive the money. For instance, the German finance ministry will likely strive to secure a fair share of the funding for German companies, even when companies based in other countries look more promising. Following this approach, funding is less likely to be allocated to the best candidates, which pushes us even further away from the jackpot.

For these reasons, I believe it is quite unlikely that this new fund will manage to realize its ambition of generating ten companies with a 100 billion euros valuation. Instead, the fund is likely to become a battlefield for political infighting, which will only lead to mediocracy. Rather than entering the venture capital game, I would recommend that the European Commission focuses on its actual tasks as a public institution: First, it should ensure that Europe functions as a true, digitally integrated market where European tech companies can easily expand. Second, it should provide those tech companies a regulatory framework that stimulates—and does not discourage—risk-taking. Although this may be less sexy and flashy than playing the venture capital game, focusing on the aforementioned areas could help European tech companies achieve their ambitious growth objectives in a more suitable way.

Tips for practitioners

  • European public institutions should focus on solving market failures instead of funding companies.
  • As a political decision-maker, strive for Europe to become a true, digitally integrated market where tech companies can easily expand. Ensure a regulatory framework for young companies that encourages them to take risks.


Professor Dries Faems

Professor Dries Faems holds the Chair of Entrepreneurship, Innovation, and Technological Transformation at WHU – Otto Beisheim School of Management. He is an expert on the topic of collaboration for innovation. In his teaching and research, he focuses on various phenomena, including R&D alliances, collaboration for digital transformation, and innovation ecosystems. Professor Faems is also the coordinator for the WHU Innovation Ecosystem Hub, which aims to connect academics and practitioners in further exploring collaboration for innovation.

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