* Fund of funds launched to double investment in EU start-ups
* EU plans to grow more unicorns like Uber, Airbnb
* U.S. and China dwarf EU venture capital market
By Francesco Guarascio
BRUSSELS, April 10 (Reuters) - The European Union launched on Tuesday a venture capital "fund of funds" aimed at boosting investment in innovative start-ups and narrow Europe's gap with the United States and China in turning small firms into "unicorns" with high market valuation.
The 28-country bloc has long lagged behind international competitors in propping up promising start-ups because of an excessive reliance on risk-averse banks and a weaker market for investment funds.
In 2016 venture capital investment in the EU amounted to 6.5 billion euros ($8 billions), a fraction of the nearly 40 billion euros invested in the U.S. the same year, a gap that partly explains why successful unicorns like ride-hailing app Uber or accommodation service Airbnb have flourished in the United States, and not in the EU.
To attract more investors, the European Union has now agreed a new plan that aims to double the amount of venture investment and raise an additional 6.5 billion euros from an initial funding of 410 million euros of public money.
The move has been welcomed by the European venture capital and private equity trade association, Invest Europe, as "a great step forward for investment in innovation".
Six private investment funds have been selected by EU officials to raise up to 2.1 billion euros by increasing by a factor of five the original public investment.
They are Aberdeen Standard Investments, Axon Partners Group, Isomer Capital, LGT, Lombard Odier Asset Management and Schroder Adveq.
They are committed to invest the raised capital in smaller venture funds. In doing so, the EU Commission expects that they could generate a total of 6.5 billion euros of additional investment attracting private and public investors.
The plan mimics the strategy used for a wider investment plan for Europe that has spurred in about three years funding of 274 billion euros from an initial guarantee of 33.5 billion euros of EU public money, according to EU data.
The venture capital plan is also aimed at increasing the size of European venture funds that on average raise 56 million euros, one third of their U.S. counterparts, EU Commission data showed.
The small size of European venture funds has often prevented large investors, like insurers and pension funds, from investing in them.
As a result, emerging companies have fewer financial resources in Europe to tap into and fewer chances to expand. "In venture capital, size matters", the EU Commission Vice President Jyrki Katainen said.
By making funds bigger, the EU hopes to increase the number of start-ups reaching the "unicorn" status of more than $1 billion market valuation, which at the end of 2017 were only 26 in the EU compared to 109 in the U.S. and 59 in China, EU figures show.
Funding will concentrate in companies operating in sectors like information and communication technologies, energy efficiency, life sciences, and medical technologies.
To reduce the fragmentation of funding and establish a genuine border-free market for venture capital, the EU foresees that only projects that cover at least four EU countries are eligible for investment under the new venture capital scheme. ($1 = 0.8118 euros) (Reporting by Francesco Guarascio; editing by Robert-Jan Bartunek)