Leaked draft gives first glimpse of the Commission plan to turn the EU into an ‘innovation powerhouse’

The European Commission is set to launch five major initiatives in a bid to make the EU a global innovation leader, according to a leaked draft of the upcoming European Innovation Agenda, seen by Science|Business.

The strategy is the Commission’s bid to address Europe’s shortcomings when it comes to fostering a supportive environment for start-ups. It has been drawn up in recognition of the fact that the EU forms as many start-ups as the US, but far fewer of them manage to scale up. A key element of this is Europe’s shortage of venture capital, at €10.2 billion, compared to €70 billion in the US, in 2020.  

The plan has been brewing for a while and is one of the EU research and innovation commissioner Mariya Gabriel’s flagship projects. The Commission spent last year laying the groundwork for the strategy, consulting leading entrepreneurs and venture capitals groups, among others. It was initially due to be published early in the year but has been postponed. The new date for adoption is 5 July, according to the draft.

The aims of the draft strategy are two-fold, Gabriel told an event on Tuesday launching one of the key initiatives under the upcoming agenda, Partnerships for Regional Innovation. One is to make Europe a power house for deep tech start-ups. The second one is to create a pan-European innovation ecosystem where businesses can easily expanded operations across borders.

This is not the first time the Commission has set out to help small businesses, which make up 95% of companies in the EU, grow. In the past two decades, it has proposed revamped rules for public procurement and tax breaks to make the lives of small companies easier, but with limited success, as much of it depends on member states’ willingness to make changes. The success of the new strategy will also require support from national governments.

The draft seen by Science|Business is not final and will be updated in coming weeks, before its final version is approved by the College of Commissioners in early July. Below are the outlines of the current plans for the five flagships.

1. Enabling experimentation

The Commission hopes to create space for innovators to experiment with unorthodox ideas and technologies, by developing a European framework for sandboxes, where new products can be tested in isolated but realistic settings.

According to the draft, the Commission hopes to produce an overview of the main experimental and regulatory sandboxes by the end of the year, followed by a guidance document in the first half of 2023 outlining to innovators how to take advantage of them.

Test beds for technologies will include an open innovation test bed for hydrogen, providing the facilities, capabilities and services to develop an EU hydrogen economy. A policy report looking into the potential of open innovation test beds in nanotechnology and advanced materials will follow next.

2. Ecosystems

Start-ups need supporting services and infrastructure to enable their success. The Commission has been working on creating these ecosystems for some time, through various programmes and the European Institute of Innovation and Technology (EIT).

The foundation for the ecosystems will be the Partnerships for Regional Innovation, an EU programme whose pilot launched earlier this week. This gives regions the tools to enhance their innovation capacities by linking local investment plans and policies, to EU, national and regional programmes.

There is reportedly €400 million to be dedicated to connecting up regions to form innovation ecosystems across the bloc.

3. The scale up gap

To help start-ups become better capitalised, the Commission is aiming to make more equity financing available through a new listings act and tax benefits for equity.

The first item on the agenda is reducing the cost of new equity across the EU through “a debt-equity bias reduction allowance (DEBRA) on corporate income tax.”

A new listings act will make it easier for start-ups to join a public market, thus enabling them to grow. Scale-ups that go public through an Initial Public Offering on average raise 5.5 times more capital than those that remain private, according to the draft. The Commission thus plans “to simplify initial and on-going listing requirements to reduce costs and increase legal certainty for issuers” in the third quarter of 2022.

The European Innovation Council (EIC), the EU’s start-up fund, will also contribute by identifying 100 deep tech start-ups that are judged to have the largest potential to grow, and providing them with enhanced support to develop a strategy, secure intellectual property rights and find investors. Earlier this week, EIC launched a call to find organisations that can help it deliver this.

4. Talent

No innovation happens without people, and thus training, attracting and retaining talent is one of the five flagship areas.

The aim is to train one million Europeans in deep-tech skills, such as synthetic cells, nanotechnology, hydrospace and other technologies. EIT, which runs innovation ecosystems across Europe, will be in charge of the project.

The Commission will also fund internships at companies supported by the EIT and the European Innovation Council, and enhance the WomenTechEU support programme for female entrepreneurs.

To get member states engaged, the Commission plans to put forward a proposal establishing a framework to attract and retain research, innovation and entrepreneurial talent, to be adopted by ministers at the EU Council.

5. Innovation policy

The last bit of the puzzle is setting definitions and benchmarks everyone can agree on.

Here, the Commission will propose definitions for start-ups and deep tech in the first quarter of 2023, and establish a set of indicators to track, analyse and model innovation policies at EU, national and regional level in the first quarter of 2024.

Part of this will involve updating the EU Innovation Scoreboard that tracks countries’ innovation performance, by adding deep tech start-up specific language and indicators.

To better coordinate policies across the EU, the Commission foresees a bigger role for the European Innovation Council Forum, which brings together member states to discuss innovation.

The draft also gives a glimpse into the Commission’s latest bid to harness public procurement to drive innovation. According to the document, EU public authorities spend €2 trillion a year on products and services, amounting to 14% of GDP. The plan is to leverage the public sector’s role in the market, as customers for start-ups.