Franz Fayot: “Luxembourg Has Proven To Be A Favourable Environment For Venture Capital”

Franz Fayot, the minister of economy, shares his views on the state of Luxembourg’s VC ecosystem, the ministry’s active involvement in it and why foreign VCs should consider moving to the Grand Duchy.

What role does the Ministry of Economy play in ensuring that there is a healthy VC ecosystem in Luxembourg?

The Luxembourg startup ecosystem has evolved substantially over the course of the last 10 years, and so has early-stage funding. Many startups were able to close financing rounds with business angels and family offices and initiatives such as the Luxembourg Business Angels Network have helped in achieving this. Later-stage capital still needs to be developed in Europe. 

This is why EU member states are partnering with the pan-European Scale-up Initiative, which aims to provide funding to high-tech companies to enable them to scale up from a startup to a more mature business. Luxembourg is supporting this initiative, which has already secured EUR 500 million from the European Investment Bank Group, including the European Investment Fund (EIF).

What incentives exist for VCs wanting to set up shop in Luxembourg? 

As a leading European Hub for private equity, Luxembourg has proven to be a favourable environment for Venture Capital, attracting leading international players. Building on this success, the aim is also to develop access to investment decision-makers for local startups, by relocating “front-office” activities to Luxembourg. 

The Luxembourg Future Fund is a EUR 150 million investment fund, created by Luxembourg’s national credit and investment institution (SNCI) and the EIF, which aims to invest in VC funds and in technology companies, in order to attract more managers to Luxembourg and have a positive impact on the development of a sustainable and diversified digital economy in our country.

The Luxembourg government has a stake in a space VC fund (Orbital Ventures). Is this something the government is considering for other verticals (fintech, greentech, mobility, etc) too? 

Orbital Ventures is in fact a good example of a VC company active in a priority sector, namely space. Among the investors of Orbital Ventures are the Ministry of the Economy and SNCI. Another example is Middlegame Ventures, which covers investments in financial technologies. The Luxembourg government is focusing in particular on digitalization for the benefit of all, the circular economy through digital technologies, resilient strategic value chains and a secure and trusted data economy. As mentioned, the Luxembourg Future Fund contributes to this goal. 

Another initiative worth mentioning is the Digital Tech Fund (DTF), in which the government has invested along with a number of private sector companies in a dedicated EUR 20.33 million seed fund focusing on early-stage startups. The DTF has already invested in 13 promising startups, some of which have entered into subsequent investment rounds with international investors. 

The government also has, through the SNCI, other tools to support the medium and long-term financing of Luxembourg companies. In addition to granting investment loans, innovation loans and startup loans. The SNCI also carries out equity operations, either directly through equity investments or through financing companies in which it has a stake. I am confident that we will be able to continue these and similar initiatives in the years to come.

What other funding opportunities does the Ministry of Economy provide for startups hoping to expand abroad? 

Luxembourg startups generally serve customers outside the country already in the early stages of their development. Various instruments, such as the “Aid for Young Innovative Enterprise”, the financial support by the Luxembourg Export Credit Agency (ODL), as well as SNCI instruments, support startups in their internationalisation efforts.

This article was first published in the VC Guide 2022

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