Crowding-in or crowding-out? The mobilization effect of the European Investment Fund equity investments

This paper investigates whether the European Investment Fund (EIF)’s equity interventions act as a catalyst or a substitute for private financing in the European equity market, shaping the crowding-in or crowding-out dynamics of private capital flows to SMEs and mid-caps. Using a unique regional-level dataset covering the 2010–2020 period, we estimate the mobilization effect of EIF investments separately for the venture capital (VC) and private equity (PE) segments. Our econometric results indicate that regions where the EIF has invested are associated with statistically and economically significant increases in private capital inflows over the following three years. The relationship is particularly strong in the PE market, consistent with a crowding-in of private investors, whereas for VC we observe more heterogeneous patterns and no evidence of crowding-out. In both cases, socio-economic characteristics are significantly correlated with these developments. Overall, our findings highlight the EIF’s capacity to leverage public resources to attract private equity financing, offering new insights into how public financial institutions can complement market mechanisms in developing Europe’s risk-capital ecosystem.