Should the EU block the UK from its €5bn superfund?

0:01Hello and welcome to the Sifted podcast. I'm your host Freya Prattie, Associate Editor here at Sifted. And joining me today is our news editor, Martin Coulter, who has become somewhat of a regular on the pod lately. Martin, where are you calling us from today? I'm calling from my flat here in Southwark, in London, south of the river. Great. I'm in Camberwell, which is, I was going to say sunny South London. It's not today, it's cloudy South London. So we're going to be chatting about a topic that has kept the Sifted Newsroom busy across the last couple of months. We've done a couple of pods on it as well.

0:36This is the EU's 5 billion euro scale-up fund. It's a fund that's yet to deploy a single penny or a cent of capital, but it still managed to stay at the top of our agenda and the agenda of European tech over and over. First, there was this really hotly contested competition to run the fund, which was won by EQT. And now there are these political wranglings over whether the UK, which left the EU famously in 2016, will manage to get involved. Martin, before we get into all the politics, in case anyone listening hasn't been following the fund as closely as the Sifted Newsroom has, give us the background on it.

1:13Yeah, so the Scale Up Europe Fund is a€5 billion late stage growth fund, which has been backed by EU member states. it's going to be managed by eqt the investment firm and it's aimed at addressing europe's long-standing scale-up gap basically this idea that we're very familiar with that europe can only really incubate or has access to the capital to grow and support startups up until a certain point usually when they get to the later kind of series a series b series c in particular they have to start looking abroad for money, usually from America. And in these turbulent geopolitical times that we live in, there is an emphasis on sovereignty and kind of supporting homegrown startups with money at home to maintain Europe's integrity and keep the ecosystem in one piece, keep startups from moving abroad.

2:18We should nod to the competition that you mentioned that EQT won. It was very fun to follow as reporters. So there were firms like Atomico, Eurasio, Northzone, all trying to win this mandate. And it was a very well-read topic for sifted output. I think everyone in European tech was watching this competition between the continent's largest capital allocators. as it stands at the moment, as you said, it can only go to EU companies and the money comes from EU LPs. But there have been murmurs for quite a while that the UK wants to get involved. What do we know about their wish to do that? So Britain is home to the largest and most mature tech ecosystem in Europe, the continent, rather than the European Union.

3:07As you say, famously, we voted to leave 10 years ago and it's all been going swimmingly over here ever since but for various different reasons you have one side which thinks it would be fantastic and a no-brainer for the UK to be involved and you have another side which effectively says you voted to leave you don't have a right to a seat at the table what we now know there was a very interesting LinkedIn post from Dom Hallis, the executive director of Startup Coalition, an advocacy group for the British ecosystem based here in London. As he tells it, the idea for Britain to join the Scale-Up Fund actually came from Ekaterina Zereva, the EU's startup commissioner, and her team, who apparently proposed the idea last year when they were in town for London Tech week.

3:57Startup Coalition then worked with the UK government to try and work out how the British could contribute, whether the money would come from the Treasury, the Department of Business and Trade, the British Business Bank, and they were effectively playing pass the parcel for the best part of a year. As we understand it, the British Business Bank was close to signing on the dotted line with the European Commission's approval. They just needed sign off from the EU, from the 27 member states but that was when France kind of threw a grenade into proceedings and basically moved to introduce these new geographical restrictions which would have blocked any of the money going to UK startups.

4:42We understand as well that EQT really want to be able to invest in the UK with this fund. Per Franzen who's the kind of top boss at EQT told Sifted a couple of weeks ago that it's where the deepest pool of opportunities are so for them I don't think they're involved in the political side, but they really want to be able to deploy that money in the UK. As you said, the opposition comes from France. Why do we think that France hate this so much? And where do we understand negotiations to be now following them, opposing it? Yeah, so there was a lot of backlash online on LinkedIn when we first reported France's maneuvering here.

5:23People were really split. I think the motivation from France comes from a few different places. As I said before, the UK voted to leave the EU. It has been pursuing its own path politically for the last 10 years. It has sought to diverge from the rest of Europe where possible with notoriously mixed results. And therefore there's an argument that we don't necessarily deserve or have a right to be involved or cherry pick the initiatives that we want to be involved in because there's some sort of benefit that we could derive from it. There is some concern, I think, that if we were to contribute something to this pot, that then there may float outwards a disproportionate allocation of capital to British startups because we are home to some of the fastest growing, some of the most successful.

6:13At the same time, I think second to us is probably France, is probably Paris right behind London as another smaller but really fast growing tech hub home to Mistral famously, which has been held up as the kind of European AI champion. the only company in Europe that you can quibble about how realistic it is, but has any chance of in the future maybe posing some sort of challenge to the giants like Anthropik or OpenAI, etc. So competing demands. And then yesterday we got wind from sources on both sides of the negotiations that there might be some kind of breakthrough possible. Talk us through what we learned yesterday.

6:58So after France seemed to almost blow everything up, from what we know, people have been getting around the table over the last 48 hours. On the UK side, people have been extremely frustrated. They talk about having worked on this for the best part of the year, having canvassed various different departments of bodies to try and find the money so that they could contribute to the fund. Thinking about all the various regulations, the hurdles, the kind of compromises that might need to be considered so that they might be able to participate from their point of view in this broader European initiative.

7:34and with France's action they were very upset but as we understand it the commission so the kind of executive arm of the EU has been very supportive of the UK joining from the start so people have been getting around the table for the last couple of days there has been talk potentially of a quota system we don't know the exact details of how that might look but our broad understanding is maybe there would be some sort of cap in place or some sort of agreement, which is not uncommon in similar kind of European investment vehicles, where they would try and avoid a disproportionate amount of capital going to the UK.

8:15I think they just want to ensure that this is truly a pan-European fund. And from some people's point of view, on the other side, maybe Britain's involvement would skew that too heavily in their favour. Yeah. The other thing, obviously, in the mix is that the UK is about to get a new Prime Minister and presumably he could come in and shake things up with regard to our general relationship to Europe but also this could get caught within that. Yeah definitely. I think everyone's watching Andy Burnham, the former mayor of Manchester who is widely expected to replace Keir Starmer as Prime Minister very shortly.

8:49We've written recently there were lots of questions over what his broader approach to tech policy is going to be. we understand that he wants closer relations with Europe in general but how he'll tackle this question in particular is unclear at the moment. As soon as we put the story about France's opposition online people started to chip in with their thoughts and it got quite spicy at points. Commentator Seb Johnson called it the most French move imaginable, said it was ridiculous. What were your thoughts on how the ecosystem reacted? I'm not going to say anything to that effect for fear of waking up with baguettes and brioches smeared all over my windows in the morning.

9:31But yeah, it was, I think it sparked some pretty fierce debate online. Lots of people weighing in in the comments, you know, as I said, longstanding issue between the UK and the EU now about how close we are. They are geographically right next door to us. And yet we have removed ourselves from so many of their processes. Do we have a right to have any role in this? It's not entirely. A few people also pointed out that 5 billion, while it is a nice round number, it does completely pale in comparison to like something like the$65 billion that Anthropic raised recently. So we are seemingly all sort of getting at each other's throats over something that some people think may not ultimately move the dial.

10:19Yeah, you're right. I can, I can see the annoyance. We very loudly as a country decided we didn't want to be part of anything to do with the EU. So I get the annoyance from people saying, oh, now you want back, you want in again. But also, as you said, in comparison, something like Anthropics funding, it feels like we should just all pull together probably. That's all we've got time for on the scale up fund. But Martin, what else are you looking at this week? What can we expect from the newsroom? I've just had an interview with Common Ventures, previously known as Social Mobility Ventures Go Live.

10:52I really enjoyed chatting with the founders, Ryan Proctor and David Houghton, who have just launched their own scheme called Common Path, which is a program that aims to get working class graduates in the UK jobs at startups. So I encourage everyone to go and read that. And I also have an interview in the works with Luca Ferrari, the CEO of Bending Spoons, which is just IPO'd. Great. And on the Bending Spoons topic, I spoke to Bailey Gifford, which is one of their biggest investors. I interviewed them yesterday on their hopes for the IPO, which is obviously that they hope they make a lot of money.

11:26But they had some more nuanced thoughts, which we'll be putting within the interview with Luca. Martin, thank you so much for joining us. Thank you very much. Listeners, if you want to hear more about the Scale Up Fund, which we'll continue to report extensively on, we'll drop links to reporting discussed in today's episode in the show notes and you can subscribe to Sifted's daily newsletter where we'll continue to follow the twists and turns in the saga. As always, please rate, review and share the podcast. And this episode was expertly produced by Maya Durampal-Hornby.