It was reported recently that the EU has launched a capital “fund of funds” targeting innovative start ups in an attempt to turn small companies into “unicorns” by boosting investment. The aim is to narrow the gap between Europe and the USA and China.EU countries have lagged behind international competitors for some time in the way it props up its promising start ups. This is due to an excessive reliance on risk-averse banks and a weaker market for investment funds.

In 2016. venture capital investment in the US amounted to nearly 40 billion euros, whilst in comparison, in the whole of the 28 countries that make up the EU, only 6.5 billion euros ($8 billions), was invested in the same year, a gap that partly explains why successful unicorns like ride-hailing app Uber UBER.UL or accommodation service Airbnb have flourished in the United States, and not in the EU.

The EU has now agreed a new plan.  To attract more investors, the aim is to double the amount of venture investment, raising an extra 6.5 billion euros from an initial funding of 410 million euros of public money.

The European venture capital and private equity trade association, Invest Europe, has welcomed the move, saying it is “a great step forward for investment in innovation”.

Six private investment funds have been selected by EU officials to raise up to 2.1 billion euros by increasing by a factor of five the original public investment. They are Aberdeen Standard Investments, Axon Partners Group, Isomer Capital, LGT, Lombard Odier Asset Management and Schroder Adveq.

They are committed to invest the raised capital in smaller venture funds. In doing so, the EU Commission expects that they could generate a total of 6.5 billion euros of additional investment attracting private and public investors.

The small size of European venture funds has often prevented large investors, like insurers and pension funds, from investing in them.

As a result, emerging companies have fewer financial resources in Europe to tap into and fewer chances to expand. “In venture capital, size matters”, the EU Commission Vice President Jyrki Katainen said.

By making funds bigger, the EU hopes to increase the number of start-ups reaching the “unicorn” status of more than $1 billion market valuation, which at the end of 2017 were only 26 in the EU compared to 109 in the U.S. and 59 in China, EU figures show.

To reduce the fragmentation of funding and establish a genuine border-free market for venture capital, the EU foresees that only projects that cover at least four EU countries are eligible for investment under the new venture capital scheme. Funding will concentrate in companies operating in sectors like information and communication technologies, energy efficiency, life sciences, and medical technologies.