British comedy team Monty Python once broadcast a sketch in which an inept highwayman robs his victims with the ridiculous demand, “Your lupins or your life!” The joke was that lupins weren’t worth anything, because they were just purple flowers. Germany’s Prolupin knows better. The company has developed milk-free vegan ice-cream, as well as a range of other food products, all from lupin seeds
Proplupin, based near Rostock, sells its products in Germany. But expanding to other European countries requires additional investment, which is difficult for relatively new companies in the bioeconomy to find, because they don’t have the track record to attract bank loans and venture capitalists tend to focus on other sectors.
That’s where the European Circular Bioeconomy Fund steps in. On its way to raising €250 million for the bioeconomy and circular bioeconomy, the Fund invests in early stage companies with proven technologies that need financing to scale up their operations and to expand into bigger markets. “We’re here to build pan-European companies out of firms that haven’t before been able to scale up,” says Michael Brandkamp, the Fund’s general partner and a long-time technology investor. “That’s the market gap that we’re addressing.”
Bioeconomy investment fund aims at large financing gap
The bioeconomy and circular bioeconomy is a key element in making the economy more sustainable and protecting the environment. It reduces our dependence on natural resources by promoting sustainable products that use renewable biological resources (such as lupins) to produce food, materials and energy. It provides €1.5 trillion of value added, which is 11% of EU gross domestic product, according to the European Commission’s EU Science Hub. With 8% of the EU workforce employed in the bioeconomy, the European Investment Bank finances between €6 billion and €9 billion to the sector each year.
The origin of the European Circular Bioeconomy Fund is a 2017 study by the EIB’s InnovFin Advisory prepared with the backing of the European Commission. The study identified a significant gap in financing for bioeconomy companies that needed to expand their production and distribution. “There’s much need and huge potential for growth in innovative solutions to capture more value from sustainable biomass value chains,” says Felipe Ortega Schlingmann, head of agribusiness and rural development in the EIB’s Projects directorate. “There are just not many dedicated venture capital funds or business angels in this area.”
EU reports recommended bioeconomy investment fund set up
The report recommended setting up an equity fund to support growth-stage companies backed by a guarantee from the European Commission under its Horizon 2020 programme with the involvement of the InnovFin facility. So the European Investment Bank and the European Commission directorate-generals for agriculture and for research and innovation developed eligibility criteria and key terms of reference for an equity and mezzanine debt fund. That lead to the selection of an investment advisor, which set up the European Circular Bioeconomy Fund.
“The bioeconomy and circular bioeconomy is still perceived as a nascent sector,” says Yicui Sun, the investment officer in charge of the EIB’s investment in the fund. “The guarantee from the European Commission is instrumental in mobilizing private investors to fill this gap.”
Since the Fund reached a first close in October with €82 million, it is attracting a lot of interest from both private and public investors and is well on its way to subsequent closings.
“This will kick-start more activity in Europe from this sector,” says Ortega Schlingmann. “There’s huge potential for growth.”
Bioeconomy is the next big thing
The fund targets investments in:
- Circular and bio-economy technologies
- Biomass/feedstock production that increases agricultural output or decreases its environmental footprint
- Technologies that enable biomass/feedstock conversion into higher value, renewable products
- Bio-based chemicals and materials
- Biological solutions in fields such as cosmetics.
“It’s a very exciting area,” says the Fund’s Brandkamp. “We used to talk about digitalization making great changes in our lives, so venture capitalists invested a lot in that area. You will see a similar wave of innovation in the transformation from the linear value chain to a more circular bio-based economy. It’s the next big thing.”
Alongside Prolupin, the Fund already invested in Peel Pioneers, a Dutch company that takes the parts of an orange discarded by juicers in restaurants, hotels and supermarkets and converts them to other food ingredients. The Fund’s investment will help Peel Pioneers set up a larger factory in the Netherlands, with the ultimate goal of scaling up to operate in other countries.
EU bank key to profile of bioeconomy investment fund
The involvement of the Fund—and its backing by the EU bank and the European Commission—is vital in drawing other investors to a company. Brandkamp says the Fund’s investment attracted other private money to back Peel Pioneers’s latest expansion. That’s in addition to the draw provided by the European Investment Bank’s imprimatur on the Fund itself, which is important to private investors considering putting their money into the European Circular Bioeconomy Fund in the first place.
When that kind of impact is replicated across the Fund’s €250 million portfolio, the potential boost to the bioeconomy is significant. “Long term,” says the EIB’s Sun, “we are mainstreaming a nascent sector and creating a new asset class in which the private sector will seek to invest on a commercial basis.