Commission says European Innovation Council grant logjam to end in June

The European Commission says grant contracts with start-ups selected for European Innovation Council’s (EIC) funding last year are to be concluded by the beginning of next month, in reply to a Science|Business inquiry following complaints over multiple delays to the financing.

The signing of the grant agreements with the companies selected for funding under the EIC’s Accelerator scheme has been delayed three times due to “internal discussions in the European Commission on the appropriate procedural authorisation of the contracts.”

Earlier this week Christian Ehler MEP told Science|Business that the delays are “devastating” to the start-ups involved and the Commission is “gambling away its credibility” in the European start-up scene.

Ehler said he would push in the annual budgetary procedure to defund the EIC Accelerator to prevent start-ups spending time on counterproductive applications, if the problem is not sorted out “right now”.

The Commission spokesman confirmed that of 65 companies selected for EU start-up funding in October following the June 2021 cut-off round, 22 have received their grant money since April. Eight more will receive their grants by the end of May.

Another 30 that requested blended finance – a mix of grant and equity funding – are still affected by the delays, and will have to wait until the end of May or early June “to ensure that all legal requirements concerning granting this kind of financial support are met.”

The financing was meant to be given out within two to four months of the announcement of the winners in October, but as a new fund for start-ups EIC has had a rocky start, with the Commission’s directorates raising concerns about the risks attached to making equity investments in high-risk start-ups and dithering over who should manage the equity fund.

Innovators want to get the funds flowing to cash-strapped start-ups, some of which have already started projects and are relying on funding from the EIC to keep up momentum.

"It is very good to see that the EIC has understood the severity of the situation for the EIC winners and is trying to unlock the grant agreement process,” said Xavier Aubry, board member at the European Association of Innovation Consultants (EAIC).

Grants are only a small part of blended finance

Aubry noted the association is aware of grant agreements being signed, indicating the EIC has found a way to circumvent the issue holding back the rest of the agreements.

However, he highlighted, in the case of blended finance, the grant is only a small part of the financing promised to companies, representing less than 30% of total funding the winners are due.

“The equity part of the funding is therefore crucial, and it will be essential to fast-track the negotiation process once it is allowed to start,” Aubry said. “Currently the process takes around 12 months from first contact to investment agreement, which is too long to match the fundraising cycles of the funding recipients, especially when the EIC is supposed to be a follower-investor [a passive investor].”

The signing of equity investment agreements, the Commission spokesman indicated, “is likely to happen after June.”

This is because no agreements can be signed – barring exceptional cases – until the EIC agrees on how the EIC equity fund is managed. EIC itself will not be responsible and after some reluctance on the part of member states, leading to subsequent delay, management of the fund is to be handed to the European Investment Bank (EIB). Now however, the Commission is negotiating the details of the move with the EIB, with talks not due to conclude until 30 June.

The Commission spokesman told Science|Business the aim is to get the funding to companies faster in coming rounds. “First, as a general remark, let me recall that blended risk finance is a novelty for the Commission and the EIC and we are confident that once the necessary steps are established, things will go much quicker in the next rounds,” he said.

In the October 2021 cut-off, 99 companies were selected for support, of which 34 asked only for grants and 65 requested blended finance. The signature of their grant component is planned for July 2022. The signature of the agreement for the equity component for these companies is likely to happen after September.

Another batch of winners of EIC Accelerator funding is due to be announced next month.

The spokesman underlined that the indirect management rules will not make the EIC less likely to invest in high-risk companies, as many fear.

“The outcome will remain support for high-risk projects that are not yet sufficiently attractive for private investors, also considering the scale of investment required, with the aim to de-risk such projects through the EIC grant component and catalyse private investment thanks to the leverage provided by the investment component of the EIC blended finance,” he said.