Small is beautiful, according to Horizon 2020

Wanted:  Young, technically educated entrepreneur, with a yen to start a cutting-edge technology-based business that could one day grow into a multinational Google or Facebook. A plus: A passion for using the business to solve society’s grandest environmental or social challenges. A necessity: Patience with bureaucracy.

If you fit that job description, you may be in luck. The European Commission’s new, €80 billion, seven-year plan for research and innovation is stuffed with new initiatives for research, finance, and networking at small and medium-sized enterprises (SMEs.) Indeed, support for SMEs is supposed to hit at least €6.8 billion - and it underpins a dominant theme of the plan, called Horizon 2020: Using research and innovation funding to create economic growth and jobs.

Horizon 2020 aims to make Europe “a better place to do business and create jobs,” said Máire Geoghegan-Quinn, EU Commissioner for Research, Innovation and Science. And “SMEs are the backbone of the European economy.”

According to the Commission, SMEs number about 99 per cent of all companies in Europe, provide 67 per cent of jobs, and generate 58 per cent of total company turnover in the European Union. They are also politically popular: In contrast to the early days of EU research programmes, when mammoth ‘national champions’  like Philips, Siemens and Alcatel were viewed as the most important beneficiaries, today most European politicians would rather be photographed visiting a scrappy garage start-up that hopes to be the next Apple.

In truth, big companies will still get a big share of the EU research and innovation budget under Horizon 2020. The Commission said €17.9 billion of the total €80 billion budget would go to ‘industrial leadership’ - a phrase covering all kinds of participants, but likely to be disproportionately important to Europe’s leading technology, pharmaceutical, energy and transport companies. Of that category, €13.78 billion goes to a new set of ‘key enabling technologies’ such as microelectronics, nanotechnology, photonics, advanced materials, advanced manufacturing, biotechnology and aerospace. The Commission also plans many ‘demonstration’ projects, which usually involve big budgets and big corporate co-investors. And as in past years, the main beneficiaries from the programme overall will be universities and government labs, which in 2009 received 76 per cent of the Commission’s R&D spending.

But SMEs are in. The R&D plan follows passage in 2008 of the first EU Small Business Act. And the Commission likens some of its Horizon 2020 proposals to the Small Business Innovation Research programmes in the UK and US - though when you read the fine print in the approximately 600 pages of documentation released by the Commission, you find the main similarity appears to be in the kind of companies targeted, rather than in the programme details of how they get the money.

Among the initiatives announced by the Commission 30 November:

• A new ‘SME instrument’ to finance innovative companies. The idea is to let SMEs in all fields of science, technology and innovation apply for funding singly, or in groups. The support is to “cover the whole innovation cycle” from research to market. It begins with funding for technical feasibility and proof of concept studies, and continues to a second phase of funding for development, prototyping and other demonstration work. In the final, commercialisation, phase the Commission won’t directly fund work, but will help connect the SMEs to other programmes that might.
• New equity and loans for innovation at the European Investment Bank. While not exclusively for SMEs, these finance mechanisms are intended to help remedy the lack of venture and growth capital from private investors in Europe. The bank and its European Investment Fund will have two programmes for investing indirectly in companies, funding early-stage VCs and mezzanine capital that would, in turn, go to individual SMEs. Also, the bank is to set up an ‘SME window’ to loan money directly to research-driven SMEs and small mid-cap companies. And it will also continue a loan-guarantee programme that has been widely praised among EU policy makers.
• A collection of initiatives, totalling €2.5 billion, to help SMEs find finding, network, and grow. The Programme for Competitiveness of Enterprises and SMEs, or COSME in Euro-speak, will have a €2.5 billion budget and complement the new bank facilities, continue operating a network of offices throughout Europe that are intended to be one-stop-shops for assistance, and promote entrepreneurship training and entrepreneurial attitudes. A major problem, the Commission says, is that EU surveys show just 45 per cent of Europeans want to be self-employed, compared to 55 per cent in the US. The COSME programme will also include service industries, such as tourism.