The COVID-19 Pandemic, together with the general interest in funding for EU innovation projects, is creating unsustainable pressure on resources, deadlines and applicants. An unprecedented number of applications was submitted to the most recent cut-off: approximately 4,000 in March 2020 vs 1800 for previous cut-offs. With a budget of € 164 million and an average funding ticket of € 4 million, the EIC has only been able to fund around 40 companies in March, i.e. 1% of the applicants.
Brussels: 7 April 2020
The European Working Group of Innovation Consultants (EWGIC) is an association of leading consultancies and research organisations focusing on innovation in Europe. The Group was founded in 2019 by a group of leading consultancies, including Navigator Consulting Group.
Given the rapid increase in funding proposals due to COVID-19, EWGIC calls upon the EU Parliament and European Commission to take immediate action. A key priority is to implement an EIC Accelerator “airdrop” to offer liquidity to start-ups and innovative SMEs affected by the current crisis.
This is based on the following challenges which have a strong impact on the future of European SMEs:
Challenge 1. Oversubscription will have serious adverse effects on the programme unless the effort is made to increase budgets or curb the number of submissions
An unprecedented number of applications (approximately 4,000 in March 2020 vs 1800 for previous cut-offs) was submitted to the most recent cut-off. With the budget of € 164 mln and average funding ticket of € 4 mln, the EIC has only been able to fund around 40 companies in March, or 1% of applicants.
The EIC Programme has always suffered from a “snowball” effect and this has led the success rate to drop over time, from 4% in October 2019 to 2.4% in January 2020.
Challenge 2. Evaluation criteria must be clarified to ensure fair treatment of all proposals
The introduction of new criteria has resulted in a drop in average scores. The interview threshold went from 13.8-13.9 in 2019 to 13.65 in 2020 (out of 15), despite the fact the number of applications was stable and increasing.
Introducing the new criteria apparently leads to 3 major biases:
1. Some evaluators believe that companies that have not been able to raise any funding are non-bankable.
2. Some evaluators evaluate companies that are in D or E rounds as non-bankable just because it is difficult to raise such large rounds.
3. Some evaluators evaluate bankability in terms of funding raised.
EWGIC recommends that all evaluators should receive detailed guidelines to evaluate the non-bankability criterion based on the same rules. It also suggests the criterion should be renamed “risk” and not “bankability”, and that evaluators should be evaluated.
Challenge 3. Running EIC projects must be protected, with additional pre-financing and simplified periodic reporting
All European companies are experiencing the economic trauma generated by the current crisis. This leads to start-ups struggling to raise funding. The worst hit are companies that were about to close a private funding round, but have now seen the investor interest disappear overnight.
Many high-profile EIC grant recipients are in this category. In fact, high-growth companies are the most at risk in the current situation. In contrast with early stage start-ups that can afford to continue bootstrapping their operations, high-growth, high-risk start-ups – the focus of the EIC Accelerator – must raise significant funding as they have started to expand their team and prepare their market entry, or lay off most of their team members.
EBAN recently called on the EU Parliament and Commission to take immediate action and work with Member States and local institutions to set up and implement a pan-European program that can offer liquidity to start-ups, innovative SMEs and small research and innovation projects affected by the current crisis.
EWGIC therefore recommends that REA to fast-track all SME validation activities, that the EIB fast-track all blended finance cases, relax the periodic reporting requirements and grant additional pre-financing.
The position paper concludes that it’s time for an EIC Accelerator Airdrop.
Given the fact that the May 2020 cut-off is restricted to the Green Deal, this leaves only the October 2020 cut-off for other high-growth high-risk start-ups looking for funding. In many cases, these companies have now to rely entirely on public funding, as the private markets have shut themselves down and are unlikely to restart until late 2020, even in the most optimistic crisis recovery scenario.
One option currently discussed internally at EASME is an additional budget of ~€140M for the October cut-off, but this will be too late for many high-growth high-risk companies as the funding will not reach them until Q1 2021. The European Commission already has the perfect tool to help European SME champions in distress: the EIC Accelerator.
EWGIC suggests allocating new line of emergency funding to implement an additional call deadline between May 2020 and October 2020. If the call is re-opened to COVID-19 proposals, ring-fenced budget for other innovation categories should be provided so that these innovations are not crowded out.
Access the complete EWGIC Working Paper here
Sources:
EWGIC European Working Group of Innovation Consultants
7 April 2020