EU Investment Fund launches €175 million risk investment programmes in defence start-ups, SMEs

The European Investment Fund (EIF) launched a €175 million fund, dubbed Defence Equity Facility (DEF), on Friday (12 January) to boost defence innovation around the bloc’s small and medium-sized industries.

“The European Commission and the European Investment Bank Group are stepping up cooperation to support investments in innovative defence technologies by launching a €175 million Defence Equity Facility that aims to support private equity and venture capital funds investing in innovative defence technologies having dual-use potential,” the European Investment Fund (EIF) said.

“This instrument aims to stimulate the development of an ecosystem of private funds investing in defence innovation and improve access to finance for small and medium enterprises (SMEs) active in this sector,” it added in the press release.

EU-based defence industries have argued they are discriminated against when accessing private and public funds, as banks’ willingness to lend decreases, hindering their investment opportunities. Defence ministers took the industry’s side in a declaration last November.

The announcement also follows the EU leaders reiterated calls “for an enhanced role of the European Investment Bank Group in support of European security and defence, building on the bank’s Strategic European Security Initiative’.

The European Investment Fund (EIF) is part of the European Investment Bank group and is majority-owned by the European Investment Bank (EIB). Its goal is to invest in small and medium enterprises (SMEs), start-ups and mi-capitalisation companies (mid-caps).

It does so via venture capital and risk finance instruments, which are private investors investing in companies despite high risks of failure in a way to promote innovation.

With the Facility, the EIB Group and the European Commission “will have a new financial tool to invest in SMEs and mid-caps in defence innovation and support European competitiveness,” an EIF spokesperson told Euractiv.

Internal Market Commissioner Thierry Breton said on Thursday (11 January) that the new scheme is “very important”. “The EIB is too cautious on the matter [of financing defence], and I continue to say that since its goal is to fund the Union’s policies, it should also fund the [defence] industry,” Breton, who’s also in charge of defence, said.

Breton pitched his idea for the EU to share the financial risks in industries investing in production capacity boosts before contracts are even placed.

Dual-use only

According to the EIB Strategic European Security Initiative (SESI), investing €14 million into innovation, security infrastructure, and technology, the facility will only fund dual-use projects, meaning they have both civilian and military uses.

When it comes to the selection process of which industry the investment will be going into, funds will be assessed “both for policy fit and from a commercial perspective”, the EIF spokesperson said.

The venture capital or the private equity investing into smaller defence industries “will focus on solutions and technologies for the defence sector that accelerate the evolution of the European defence technological and industrial base”, they said.

Such activities include, they added, research and development, manufacturing, maintenance of both already existing defence products, and “critical future and emerging defence technologies with a dual-use potential”.

Projects can concern all domains (cyber, space, air, land, naval), specifically underwater systems, medical response, sensors, digital transformation,  energy resilience and environmental transition.

[Edited by Alexandra Brzozowski/Alice Taylor]

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