SME Instrument makes its mark with European start-ups

The EU’s SME Instrument (SMEi) has emerged as a popular hunting ground for funding – and it could go on to become one of the continent’s most successful start-up support schemes.

Following its launch two years ago, SMEi has invested in a diverse batch of companies.

Among them is the UK’s Hybrid Air Vehicles, developer of the world's longest aircraft; Holoxica, another British company, which turns product designs into 3D digital holograms that can be used to view and verify the design without the expense of making a physical models; Spain’s Ecoalf, which makes clothes from marine waste; and DoReMIR, a Swedish start-up which can convert a song into sheet music.

All were on show at the SME instrument Innovator's Summit in Brussels this week, an event full of industry heads and researchers and a display of the programme’s progress to date.

With €3 billion to invest over seven years, the programme offers fast and simple grants for business innovation feasibility studies (Phase 1) and demonstration projects (Phase 2). An expected 7,500 companies will receive funding from the programme before 2020.

Bernd Reichert, head of unit at the EU’s Executive Agency for Small and Medium-sized Enterprises, which runs SMEi, said it is targeting a gap in Europe. “It’s for those companies just coming out of the lab with great ideas, looking for customers,” he said.

SMEi has received more than 20,000 applications, of which it has accepted around 8 per cent for phase 1 and 6 per cent for phase 2.

The programme attracts a more diverse group of companies than would typically look to the EU for seed money – 88 per cent of applicants are completely new to EU funding – and has helped popularise the idea that the European Commission should take riskier bets with its research grant money.

The programme boasts the lightest application procedure of any EU research grant programme, at 10-30 pages, and the fastest time to grant.

Italian and Spanish companies have fared best in SMEi, mainly because they send in the most applications.

SMEi’s success has attracted several admirers, chief among them EU Research Commissioner Carlos Moedas, who is keen to replicate the programme’s investment and coaching philosophy, with the proposed European Innovation Council, which will be piloted next year. 

SMEi seeds

Some SMEi-backed technologies are already making their way into the market.

Ultrahaptics, which grew out of research from Bristol University, is getting a lot of interest from the automotive industry. The company has created ultrasound technology which lets you touch and manipulate virtual objects. One of its demos, on display at the conference, allowed users to feel tiny invisible bubbles bursting on their fingertips.

“You could flick radio channel while driving, or change the volume, all with a simple gesture,” said Bastien Beauvois, the company’s product marketing engineer. 

For Portuguese start-up Swordhealth, SMEi funding was a stamp of approval that helped attract private investment, said Mariana Costa, quality control and research manager.

The company has developed a virtual physiotherapist to help stroke victims recover everyday movements, like drinking from a cup.

Sven Ahlbäck, a professor at Stockholm Music University, was showing off ScoreCloud, software which can listen to a piece of music, or just simply someone singing, and write out a musical score. The app, which already has one million users, is being sold by a company called DoReMIR and is based on research from KTH Royal Institute of Technology.

Ahlbäck is using EU money to create new apps, one of which will be able to listen to a song and untangle all its elements. “You will be able to isolate just the singing, or just the guitar playing, or just the drums – whatever you’re interested in,” he said.

EU funding was a “game-changer” for iFoodbag, a Swedish company which has developed a bag made from a composite material that can protect chilled and frozen food for up to 24 hours. “It took us to another level,” said Hanna Granebring, the company’s marketing manager.

Tough nut to crack

One of the early conclusions from applicants, and borne out by numbers, is that it is relatively easier to get phase 1 financing from SMEi.

For this reason, Swordhealth trades on its phase 2 success. “We get invited to speak at all the conferences in Portugal because we’re the only company in the country that has won phase 2 funding,” said Costa.

Paloma Pacheco Mateo-Sagasta, an environmental consultant, received phase 1 funding for Ecoalf, which processes sea-trawled rubbish into clothes. Discarded fishing nets, plastic bottles, worn-out tyres, cotton, and even used coffee grinds are transformed into jackets, swimsuits and runners.

The company is yet to attract phase 2 funding. “We received all positive feedback from the programme on our phase 2 attempt but didn’t get it – negative feedback would have actually been more helpful,” said Mateo-Sagasta.

The advice from Rikard Berthilsson, head of Winfoor, a Norwegian carbon fibre design specialist that aims to halve the price of the most expensive part of a wind turbine, the rotor blade, is to keep trying.

Berthilsson failed on his first attempt but, with the help of a private consultant, won funding on the second go.

A similar tale is told by Hugh Williamson, chief operating officer with SmartKem, a British company specialising in organic thin film transistors for use in flexible electronic displays, which will one day allow people to bend, fold or scrunch up their computers and televisions.

The Manchester-based company had to persist with SMEi. “We won funding on our fifth try,” Williamson said. “We hired a consultant; it’s so competitive that I don’t think we’d have been able to do it without one.”

Making good on potential

Inevitably, some SMEi-backed firms are likely to implode in two to five years, and it may be a while before the bigger successes go public or are acquired.

Some SMEi ventures have lost money. One case in point is Save, a simple smartphone repair shop that mushroomed into a company with hundreds of employees and almost €3 million in monthly turnover. 

Customers can leave their broken phones with Save and come back 20 minutes later to pick them up fully-repaired. “We clear 100,000 phones a day and for a while we were opening one new shop a day,” said Daniel Morin, the company’s fast-talking 25 year-old CEO.

The biggest struggle was the same as that for many start-ups: reaching critical mass. “We raised around €20 million, all of that is gone – we’ve been burning through more than two times what we should be,” said Morin. “As a result, we’re in a bankruptcy procedure now in France. I had to fire over 80 per cent of my top management.”

Despite this considerable setback, Morin shares the same optimistic trait all SMEi alumni have and need. “We want to restructure as quick as hell. In two or three months, our goal is to be profitable again,” he said.