European Innovation Council Board joins call on the Commission to resolve EU start-up fund delays

17 Aug 2022 | News

A year and a half since its launch, Commission infighting is holding up EIC Accelerator funding from flowing to EU’s deep tech start-ups. The Board is urging action to unlock the funding, before the delays cause further reputational damage

Mark Ferguson speaking at a conference in Tallinn, Estonia.

The European Innovation Council Board wants the EIC Accelerator programme for deep-tech start-ups to be up and running as soon as possible to avoid further damage to the reputation of the fund.

“There’s no question that there’s been reputational damage. I deeply regret that,” Mark Ferguson, interim chair of the board and Ireland’s former chief scientific adviser, told Science|Business. “The focus has to be on getting it fixed. I remain an optimist. It’s not the world’s most difficult programme.”

The board, which advises the European Commission on the strategy of the EIC, released its official statement on the persisting deadlock on Tuesday, calling for a rapid resolution. Ferguson hopes the board’s intervention will feed into an upcoming European Parliament report on the fund and help get the ball rolling.

“The most important thing that we say in the statement is that the current situation is to be resolved quickly,” said Ferguson. “The consequence is that there are excellent companies that are still waiting to be funded. Frankly, it’s unacceptable.”

The EIC is a relatively new EU programme offering equity financing to start-ups under its Accelerator programme, in addition to more traditional grant funding. It promised to pump funding directly into deep tech companies and help the EU start-up scene catch up with the US and China. But most of the equity funding promised to the winners of last year’s competition has been held hostage by Commission infighting over the management of the fund for over a year.

The full-fledged EIC launched under the EU’s Horizon Europe research programme last year after a three-year pilot phase. But in the new programme, the Commission no longer wanted to take the risk that comes with investing directly in start-ups through its EIC Accelerator programme. It proposed moving the EIC equity fund to indirect management under the European Investment Bank. The move was first met with resistance but was later okayed by member states. In February, the Commission said the deadlock had been resolved. But with the summer now coming to an end, an operational solution is not yet in sight; and as of mid-July only one company from that round has actually received its equity financing.

Companies that have been awarded financing have been growing frustrated. After hearing their complaints, the European Parliament’s research heavyweight Christian Ehler took it upon itself to get things moving, announcing an upcoming Parliament report on the EIC’s woes back in June. Next up, the Parliament’s research, industry and energy committee is set to debate the report on 1 September – and the EIC Board hopes its statement will feed into the discussion.

How to manage an EU equity fund

First things first, the board wants to see the Commission immediately starting the transition phase for switching to indirect management of the EIC Fund by the EIB, to clear the backlog of companies awaiting financing.

The board supports the Commission but has its reservations about the new approach. To ensure it works, it hopes to see an assessment of the transition phase in time for the mid-term review of the Horizon Europe research programme, due sometime in 2024. “Get this transition solution in, see how this works and then assess if it’s fit for purpose,” Ferguson said, outlining the action plan.  

He added that the board does not have a preference, but wants the Commission to be careful with its decisions. “We are not advocating any particular solution but a data-driven approach as opposed to a knee-jerk reaction.”

It’s also not ruling out other management solutions. One option, proposed by the Parliament, is making the EIC an EU agency, which would give it more autonomy while remaining part of the Commission. Ferguson agrees the option must be carefully considered.

But first things first, the current deadlock must be broken. Last month, it was revealed the College of Commissioners now must rubber stamp each equity investment decision individually. It’s a temporary but highly bureaucratic solution to getting the funds flowing faster as the Commission continues to argue internally over the management of the fund. The board, similarly to the Parliament, wants the requirement removed “as it slows down the process and contradicts the rationale for indirect management.”

Don’t take away the budget

If the EIC Accelerator is not properly up and running by next year, the Parliament wants to see €811 million withheld from the programme budget next year. But the board cannot get behind a proposal that could leave cash-strapped start-ups without a significant source of funding for an entire year.

“I respect the ITRE committee, but solving the problem of the companies not receiving money by removing the budget is not what we need to do. What we need to do is get the money flowing properly,” said Ferguson.

In the end, he believes, the management issues are not as complicated as they appear to be. What matters is that the EIC is as fast as the market, entrepreneur-friendly and takes risks that the market won’t take. It should also promote women’s leadership and innovation in the EU’s less innovative regions. The Commission must get the instrument in order to let it deliver on these promises.

The earlier pilot programme, he notes, experienced hiccups in the very beginning but by the end of the three years was almost as fast and efficient as the private market. CEOs can attest to this. “Whilst I am really very sorry about the current delays, we don’t want to be too pessimistic. The track record is there,” said Ferguson. “I hope that the next few years can show we can be catalytic.”

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