Scaleup Europe Fund: “Capital Alone Won’t Solve Europe’s Innovation Problem”
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The Scaleup Europe Fund is currently the EU’s most prominent instrument against Europe’s growth financing gap – and it has just written its first big cheques. For Manoj Mehta, President EMEA at IT services provider Cognizant, that is an “important signal”, but only half the job. “Looking at the funding gap European companies face on the way from startup to global player, this is an important step – but capital alone will not be able to solve Europe’s growing innovation problem,” Mehta writes in a commentary.
The fund: five billion euros, managed by EQT
The Scaleup Europe Fund is endowed with up to five billion euros and goes back to the European Commission’s Startup and Scaleup Strategy announced by Commission President Ursula von der Leyen. It sits under the umbrella of the EIC Fund, but is run by a private, market-based fund manager: Swedish investor EQT won the mandate. Potential anchor investors include Novo Holdings, Denmark’s EIFO, CriteriaCaixa, Santander/Mouro Capital, APG (on behalf of Dutch pension fund ABP), Wallenberg Investments and Poland’s BGK.
The money is meant to go into growth-stage companies in strategically important fields – from artificial intelligence to quantum computing and dual-use technologies, through to cleantech, spacetech, biotech and medical innovation. The first investment went to Finnish satellite company ICEYE, whose billion-euro round the fund co-led.
The most closely watched ticket followed shortly after: together with Menlo Ventures, the fund co-led the 400 million dollar Series C of Lovable. The Swedish vibe-coding startup now carries a valuation of 13.3 billion dollars; other investors in the round include Balderton Capital and Chinese group Tencent. Victor Englesson, Partner at EQT and Co-Head of the fund, framed the investment around the goal of turning Europe’s most ambitious tech companies into global leaders – precisely the mandate the fund was set up for.
The biggest deal is still pending: according to reporting by Sifted, EQT is in talks to lead or co-lead the next funding round of French AI champion Mistral through the Scaleup Europe Fund. The figures circulating are around three billion euros at a valuation of roughly 20 billion euros. The fund is also named as an investor in Bavarian space startup The Exploration Company.
Mehta’s argument: scaling doesn’t fail on money alone
Mehta focuses on what happens after the wire transfer. Europe has excellent research, strong industrial infrastructure and a large number of startups, he argues – what is missing is “the ability to translate these strengths into scalable business models”. New technologies must not get stuck in pilot projects or isolated innovation units, but need to be tied to business strategy, data, processes and governance. The prerequisites for that are modern IT infrastructures and regulation that accelerates the deployment of new technologies rather than slowing it down.
His second point is aimed at the established economy: Europe’s innovative capacity should not be measured by the number of new startups alone. Just as decisive is whether traditional sectors such as automotive, energy and telecommunications can evolve their business models at the same speed as American or Chinese tech companies. The Scaleup Europe Fund should therefore be “more than a financing instrument” and act as a catalyst for an innovation culture in which capital, technology and industrial strength come together. Mehta’s conclusion: Europe’s innovative capacity shows not in how much money the EU invests, but in what actually scales with that money in practice.
Cognizant’s business with transformation
That this argument comes from Cognizant is no coincidence – it also describes the market in which the company makes its money. Cognizant (Nasdaq: CTSH), headquartered in Teaneck, New Jersey, is one of the world’s largest IT and professional services providers. The business model: large enterprises outsource IT operations, application development, data platforms and entire business processes to Cognizant, or bring the group in for digitalisation and AI projects. Billing usually runs via multi-year contracts, with delivery largely handled through centres in India.
In the past financial year, Cognizant generated around 21.1 billion dollars in revenue and employed more than 350,000 people. The central growth strategy under CEO Ravi Kumar S is so-called large deals worth more than 100 million dollars – the company booked 28 such contracts in its most recent year, with total contract value in that segment up by almost 50 percent. The largest revenue blocks come from Financial Services, Health Sciences, Products & Resources and Communications, Media & Technology. After North America, Europe is Cognizant’s second most important market – the region Mehta is responsible for.
The client base consists accordingly of large corporations. In Europe, Cognizant works with Lufthansa Group, among others: for the airline group’s Digital Hangar, Cognizant (through its Netcentric subsidiary) helped build the data foundation for data-driven decisions and personalised travel experiences. In the US, health insurer Centene, pharma group Gilead Sciences and data provider CoreLogic are among the major clients.
That makes Cognizant precisely the kind of service provider that stands to benefit from the modernisation of established industries Mehta is calling for – a conflict of interest worth keeping in mind when reading the commentary. Substantively, however, his diagnosis matches the debate the European Commission itself is having: the Scaleup Europe Fund addresses the capital gap, but not the question of how quickly Europe’s incumbent industry actually puts new technology into operation.
