European Innovation Council fund is yet to start giving out money

11 Jan 2022 | News

The EIC’s investment arm is caught up in legal difficulties and infighting at the Commission. Start-ups and SMEs promised equity funding face ‘massive uncertainty’ and will have to wait months into 2022 to get the cash

Start-ups and SMEs promised equity funding by the European Innovation Council (EIC) will have to wait “a number of months into 2022” for the financing, as the European Commission struggles with setting up the fund under Horizon Europe.

“It is correct that it is taking us longer than expected to set up the implementation arrangements for equity financing under the Horizon Europe legal base,” said a spokesman for the Commission. “These delays are a consequence of the transition from the Horizon 2020 to the Horizon Europe.”

The delay is affecting companies that won EIC Accelerator financing in the first year of the EU’s Horizon Europe research programme. Sixty start-ups and SMEs were selected to receive equity financing following the June 2021 cut-off date for proposals, another 88 were picked in October.

The stalled equity financing means companies are not getting all the money they were expecting, even though some of them have already launched the projects approved for EIC backing. For high-risk enterprises that the EIC aims to fund, the lack of funding could mean life or death.

Would-be future applicants will also have to wait longer to hear back from the EIC, after the Commission decided to delay the next cut-off date for funding from January 2022 to spring. The exact date should be confirmed in the coming weeks, when the EIC work programme detailing the calls and budgets for 2022 comes out.

Xavier Aubry, board member of the European Association of Innovation Consultants, an industry association whose members advise grant applicants, says the delays have been causing troubles for the start-ups and SMEs that have been promised significant equity funding.

“This created massive uncertainty,” said Aubry. “These people have gone through a year-long application process. The people who got notifications [of success] in October, we started working with them in January, and even after 12 months they don’t have the funding.”

But Aubry is not blaming the EIC. The fund had been running fine under EIC Pilot. Since then, the scheme has caught the eye of the Commission’s directorate responsible for the budget, which now wants to restrict the fund’s powers, but which the research directorate of the Commission does not want to relinquish.

“The EIC Accelerator is the most impactful funding instrument that the EC has at its disposal to fund high-risk deeptech innovation,” said Aubry. “It is therefore deeply worrying to see that internal political issues between DG Budget and DG RTD are currently preventing the EIC from proceeding with their funding commitments to the 164 companies selected in 2021 among the best of European deeptech.”

One solution to end the in-fighting would be moving the EIC from the Commission’s clutch and making it an independent agency, Aubry suggested.

“This demonstrates that the EIC should be an independent deeptech funding agency, as initially envisioned by President Macron of France, so it can be insulated from political manoeuvring and bureaucracy, in order to focus on its mission: funding future European deeptech champions quickly and efficiently,” Aubry said.

Big shot tech investor

The EIC, the EU’s newest innovation fund, launched back in 2018 for a three-year Horizon 2020 pilot phase. Its crown jewel is the Accelerator programme which offers grant and equity financing to promising high-risk start-ups and SMEs. It’s the first EU programme ever to see the Commission buying shares in companies in the hopes to de-risk the investment and help attract more private investors. With a total seven-year budget of €7 billion, the EIC Accelerator makes the Commission a bigshot tech investor in Europe.  

The three-year pilot which tested out the new type of funding was a success and in 2021, under Horizon Europe, the EIC became a fully-fledged programme. There are a few different types of funding for start-ups and breakthrough innovation projects. The Accelerator, which holds the biggest slice of the €10 billion budget, offers start-ups and SMEs grants of up to €2.5 million and equity investments ranging from €0.5 to €15 million.

Companies can submit their pitches for funding any time. The successful candidates are then invited to prepare full applications, with the help of business coaching services, by one of the cut off dates. Since March 2021, over 4,000 start-ups and SMEs have sent in their ideas. Only 164 of them have managed to secure any kind of financing from the stretched Accelerator budget.

While the Commission claims the grant funding is flowing fine, Aubry notes the money for the June 2021 grantees only started moving this month and is not expected to land in their bank accounts until March.

The Commission is reportedly looking for ways to resolve the issues around equity funding as soon as possible.

“The Commission is making every effort to put in place the new arrangements as quickly as possible in order to minimise this delay,” the spokesman said. “Meanwhile, we will do everything we can to support these companies: by providing the grant finance and undertaking all the preparatory work for the investments; and by proceeding with the due diligence work which is a necessary pre-requisite for the investment decisions.”

Aubry says he expects the problems could be resolved soon if EU member states get involved. “I think it’s a temporary problem. Once the member states step in, I expect the problem to be fixed.”

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