European venture capital
Innovation by fiat
Well-meaning governments are killing the continent’s startups with
kindness
May 17th 2014 | From the print edition
IN A suburban office on the road to Luxembourg airport, a small group of civil
servants is busy picking the next generation of European venture capitalists. Every
year, hundreds of would-be financiers set out their stalls at the European
Investment Fund (EIF), a body financed by the European Union, hoping they will
be given money to create the next Facebook.
Europe has never been able to muster nearly the same quantity or quality of
venture capital (VC) as Silicon Valley. That is frustrating to its politicians, who see
venture capitalists as job-creating innovation machines, and love them nearly as
much as they loathe other financial types. But investors who put up such capital in
other parts of the world, such as pension funds, banks and billionaires, are not
especially eager to funnel money to startups battling to thrive in Europe’s often
hostile business environment. By and large, the politicians’ solution has not been to
make the environment friendlier to business, thus increasing entrepreneurs’
chances of luring private-sector backing. Instead, they have replaced the reticent
financiers with state-funded bureaucrats.