New €74 Million Fund Aims to Transform Canary Islands Investment
The Canary Islands has launched a new fund designed to streamline access to finance for innovative companies, startups, micro-SMEs, and local councils. The initiative also aims to accelerate the management of up to €74 million from the European Regional Development Fund (ERDF) for the 2021-2027 period. The deployment of these funds had been hampered in recent years by administrative complexity, which limited responses to market failures identified in prior studies.
A Shift in Model for European Funds
The instrument, named Canarias Financia 2, represents a change in the model for using European funds. Moving away from the traditional scheme where companies bore the bureaucratic burden directly, the new fund champions specialised financial intermediation and public-private co-investment as a core principle. The goal is for public money to act as a lever to attract private capital and multiply the investment available across the Archipelago.
The formal creation of the fund was approved by the Governing Council on 23 December last year, though its design stems from a deeper transformation driven by the Canary Islands Society for Economic Development (Sodecan) over the past two years, according to the Deputy Minister of Economy and Internationalisation and President of Sodecan, Gustavo González de Vega. In his view, startups and innovative companies should not be the focus of bureaucracy but the ultimate recipients of funding and, crucially, of public-private investment.
Funding Structure and Initial Injection
The fund has a total planned allocation of €74.1 million, with 85% co-financing from the ERDF, which will be incorporated progressively. As a first step, an initial contribution of nine million euros has already been authorised and transferred to Sodecan: six million from the Ministry of Economy, Industry, Trade and the Self-Employed and three million from the Ministry of Ecological Transition and Energy. This first injection allows the activation of the financial instruments that structure the new model.
“This is not about granting isolated grants, but about using ERDF funds to attract private investment and double the economic impact: for every public euro, another private one,” explained González de Vega. This principle applies generally and also in the field of venture capital, which now plays a central role in the fund’s deployment.
Core Innovation: A ‘Fund of Funds’ for Startups
The main novelty is the creation, for the first time in the Canaries, of a “fund of funds for innovation and entrepreneurship.” The deputy minister explains it is an instrument based on co-investment, where 49% of the capital comes from public funds and 51% from private capital.
“The fund does not go directly to companies, but channels resources through venture capital funds that will be selected by public tender and which, in addition to investing, assume the administrative management and justification of the European resources,” he said.
This “fund of funds” is aimed at tech startups, innovative companies, and projects with high growth potential that are already in their first funding rounds. An explicit objective is to prevent Canarian talent from having to leave the Archipelago to secure investment phases due to a lack of suitable local instruments. By requiring private capital to be the majority, the model ensures each deal involves investors risking their own money who therefore actively mentor the companies.
Direct Co-Investment and Updated Loan Schemes
Alongside the “fund of funds,” Canarias Financia 2 includes a business co-investment instrument managed directly by Sodecan. In this case, business angels – private investors who provide money and expertise to early-stage startups – identify a specific project and request to co-invest alongside the public sector. The investor is accredited for each operation and Sodecan evaluates the project before participating. In both cases, for venture capital and individual investments, the condition is the same: there is no public investment without private investment.
The new fund also updates traditional loan instruments by incorporating non-repayable portions. If companies meet certain investment, job creation, or technological development milestones, between 20% and 25% of the loan can be converted into a non-refundable grant. These loans are aimed at new companies, micro-SMEs, tech startups, projects linked to the RIS3 smart specialisation strategy, and energy efficiency and decarbonisation initiatives.
Funding for Green Transition in Municipalities
The part of the fund linked to the Ecological Transition, endowed with three million euros, is allocated to island councils (cabildos) and town halls for modernising public lighting. The financing covers up to 90% of the project, with 45% as a non-refundable grant and 45% repayable on favourable terms. This allows for reduced energy consumption, immediate budgetary savings, and progress in the green transition.
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