When it comes to funding innovation, the European Commission (EC) believes in continuous seeking for improvement. Programmes are always changing. It is an evolution, not a revolution… and it is probably better this way.
After seven years of Horizon 2020 we are at this weird moment between programmes. H2020 is almost finished and Horizon Europe has not yet started. As in every limbo, there are ups and downs, mixed policies and often contradictory expectations. Not the best mix for consulting companies and start-ups, but at Zafiro we are set to help you navigate these muddy waters to new horizons.
The EIC – a new ecosystem
The SME-funding programme is now more of an ecosystem, called the European Innovation Council (EIC) and presented last year as a beta pilot. The replacement of the SME Instrument Phase 2 is now the EIC Accelerator Pilot, which functions as an accelerator that can provide innovative companies with both grants (up to 2.5m) and equity funding (up to 15m). It is currently in pilot, being tested before committing to specific requirements in Horizon Europe.
The programme still focuses on high-risk, high-potential SMEs established in the EU or partnering countries, with ground-breaking concepts that could create or disrupt markets in any sector.
What has changed?
- The one and only
Companies must apply as a single participant. Consortiums are not allowed but subcontracting still is.
- TRL restrictions
Projects still need to be in pre-commercial phase, but now funded activities can fit anywhere between TRL 6 and 8 on the Technology Readiness Level scale.
- More money, but in form of equity
The EIC has new tools reinforce the financial feasibility of the projects, in the form of blended financing (grant + equity). It offers grants up to €2.5 million (70% of project costs) and post-project equity funding of up to €15 million. Final agreements regarding equity are agreed after signing the grant agreement and completing a due diligence process of between 6-12 months.
The blended finance option aims to help “de-risk” companies and attract private investment. Applicants can choose whether or not to apply for blended finance, however the EC can offer it when they consider appropriate. Rejection of the equity funds in such cases may lead to loss of the associated grant offer.
The issue of ‘non-bankability’ is an important evaluation criterion for EIC projects. The accelerator is looking for ideas that are too risky for the private sector, so applicants must demonstrate that private venture capital refused the project due to the risk factor. By assuming the risk with public equity funding, the EIC aims to help ‘de-risk’ projects to the point that they become attractive to private funding.
Obviously this does not mean throwing money at bad ideas. The EIC offers equity only after very thorough evaluation of the project and the applying company, including full due diligence proceedings. Said otherwise, projects must be risky but not so much that successful commercial rollout appears unfeasible.
- Brussels interviews
The pitch meeting and Q&A session is still the decisive stage of evaluation, regardless of the proposal score. The highest-scoring companies are invited to Brussels to pitch their projects to a group of venture capital experts. Applying companies need to have a solid pitch and two or three representatives who can handle tough questioning under pressure.
Recently, the pitch meetings extended the duration of the Q&A session from 20 to 30 minutes, and all jury members now read the proposal and prepare questions before the pitch. In the current global disruption caused by COVID-19 we could see one major change – for the first time the interviews were held online.
EIC statistics to date
The numbers from the first year of the beta pilot reveal a highly competitive arena with a success rate of around 4 percent. Some 2000 projects applied per call and about 200 were invited to pitch in Brussels, with 80 finally being funded.
However, in the January 2020 call only 44 projects were funded, and in the March call the number of applications doubled, so the final success rate going forward may be even smaller.