How Incentive-Based Legislation Has Reshaped Tech Investments in Europe

Often painted as innovation-suffocating entities, legislation and legal frameworks can sometimes play the role of enablers, shaping industries in unanticipated ways. A stellar instance of this was the 1974 Employee Retirement Income Security Act (ERISA) in the US, a law that was instrumental in creating the American venture capital industry, fuelling giants like Apple, Google, and Facebook. ERISA helped redefine the funding ecosystem by allowing institutional investors to infuse money into ‘alternative’ investment options such as venture capital, private equity, and hedge funds.

Notable among these initiatives are France’s Tibi initiative and Germany’s Future Fund. Both programs have been aimed at redirecting public and private capital towards startup growth. Yet, such efforts have been met with resistance by institutions wary of being dictated where to place their funds. Predictably, several founders are indifferent to the source of investments, as long as they come. There is a peculiar situation where foreign investors are keener on injecting funds into Europe’s startup scene than their regional counterparts.

In such a scenario, the proactive steps taken by British institutional funds like Legal & General and Baillie Gifford to raise their private market investments are refreshing. With Schroders having recently closed a $600m fund geared towards venture capital, startups, and secondaries, it’s clear that a wind of change is sweeping across the investment landscape. This underlines the power of legislative nudging in fostering an environment conducive for startup growth and venture capitalism, proving that sometimes, it’s not just the sticks, the carrots work too.