Following the appointment of a fund manager to oversee equity investments, money will finally start flowing to 139 cash-strapped companies. But this is a transitional arrangement, not a full fix, and some MEPs remain sceptical
The European Commission has appointed AlterDomus, a Luxembourg-based fund manager, to run the European Innovation Council Fund, in a move it says signals an end to the months-long delays in distributing cash to start-ups which have won awards as part of the €7 billion Accelerator programme.
AlterDomus will be taking over the decision-making on high risk equity investments funded by the Accelerator. It will have to start by dealing with the backlog of 139 start-ups selected for funding since the beginning of 2021, but which have not received any money because of a disagreement within the Commission over how to manage the equity fund.
Commission officials say the EIC Accelerator will now be able to rapidly provide ‘blended finance’, a mix of grants and equity investment, a new type of financing under the Horizon Europe research programme, to promising European start-ups.
“It’s not the final step, but a good step,” a Commission official said. “Blended finance is a novelty for the Commission and most public institutions in the world. We are confident that with this new transition arrangement companies applying for the Accelerator will no longer face delays that they have been facing.”
Christian Ehler, member of the European Parliament, who has been investigating the issues plaguing the start-up fund since the beginning of the summer, said, “Better late than never. I welcome that the Commission finally, after a year of internal struggle, agreed on a transition arrangement for the EIC Fund.”
However, Ehler is concerned that the transition agreement, which sees the Commission continuing to manage the grants given out by the Accelerator, while equity decisions are made by AlterDomus, will undermine the EIC’s mission of investing in companies directly, “based on the European public interest.”
But Commission officials promise there will no rowing back on EIC’s approach to risk, as set out in the Horizon Europe legislation. The Accelerator was set up to fill the investment gap in the EU’s deep tech market by backing start-ups that are seen as too high-risk by private investors. “Many companies will fail, they will lose money,” one official acknowledged, adding, “We still want to go where the market doesn’t go.”
AlterDomus will dive into work straight away, with the first investment decisions expected in the second half of October. The Commission will continue to take the lead in deciding which companies are awarded EIC Accelerator funding, but the fund manager will now be responsible for taking the final investment decisions, following due diligence by the European Investment Bank (EIB).
The Commission will not be represented on AlterDomus’ investment committee but will be able to voice its concerns and opinions on a separate advisory committee composed of market experts. The Commission will have two observers there to ensure the EU vision for start-ups is not lost.
Start-ups applying for cash won’t spot the difference. “There will be no change in virtually any step of the process except for the final investment decision, compared to what is happening now,” a Commission official said.
In the case of grants, which remain under the Commission control, officials promise to be quicker. As of today, 150 grant agreements have been signed, of which 50 were completed over the past couple of weeks. From tomorrow, the Commission will also remove the requirements for EIC Accelerator funding decisions to go to the College of Commissioners for approval before being granted, a temporary solution that had been put in place to get some investments decisions through during the long delay period.
The goal is to reduce the total time between a company applying to payment of a grant to five months.
Form should follow function
But this isn’t the final step in reshaping oversight of the EIC Fund. Arrangements for the permanent management of the fund are expected to be in place by the end of the year. Under this so-called indirect management model, the Commission will confer the ownership to the EIB, ceding its title as ‘hot shot tech investor.’
Ehler is not sold on this idea and is calling on the Commission to sit down with the EIC board and legislators to find a long-term management model that ensures the Accelerator runs smoothly. “We need an open dialogue where form follows function. If this does not happen, I don't believe we will have a stable implementation of the EIC Accelerator because we have seen the last year what happens if the Commission sets up administrative structures for new instruments,” Ehler said.
Unless these doubts are addressed, Ehler said he will continue to push for the Accelerator’s proposed €811 million funding for 2023 to be frozen, an initiative set in train this summer after the Parliament lost patience with the persisting delays. MEPs are to vote on the decision at the Parliament’s industry, research and energy committee ITRE next week.
The Commission hopes with good communication Parliament can be convinced the new arrangements will work and that once funding starts to flow in a couple of weeks, it will approve next year’s budget. “We do hope that now the interim solution is in place investment decisions will start to be made and [ITRE] will realise that it is not in the interest of beneficiaries to freeze the funding,” one official said.