A New Strategy for funding the SME innovation – The EIC accelerator blended finance

March, 29, 2021

Last 18th March the European Innovation Council (EIC) programme has been launched by the European Commission, as anticipated in the last INSME Newsletter. Now it is important to understand how the funding mechanism will work in favour of SMEs applying. A changing functioning approach which will provide blended finance for those interested in the EIC accelerator, in order to tackle more effectively and encouragingly the challenges of innovation.
The new EIC accelerator introduces a new method, with the EIC Fund providing equity from €0.5m to €15mto companies selected for their disruptive innovation, in a framework of a grant and equity support.
This is a valuable novelty given that the EIC Fund is a unique entity owned by the European Commission and established to make direct equity investments in companies.

The EIC Fund:

  • provides patient capital in the form of equity or quasi-equity (which may also be blended with a grant component to SMEs and start-ups selected through the highly competitive and rigorous EIC Accelerator);  
  • bridges the funding gap for start-ups with seed capital to series B financing, where market entry is at most in a pilot phase to prepare the scaling up of breakthrough European innovations;
  • aims to crowd in other investors, further sharing risks by building a large network of capital providers and strategic partners suitable for co-investments and follow-on funding;
  • has an investment strategy that covers all areas of technology including in particular health, green and digital. It aims at achieving “impact” and crowding in other investors.

The decision to invest is amongst the function of the EIC Fund Board of Directors after an evaluation process carried out by external experts and a due diligence process.
An investment component is devoted to fund market deployment and scale up. The terms of investment will be negotiated on a case-by-case basis by the EIC Fund. In the case of equity, investments will not exceed 25% of the voting shares of the company, with a long average perspective (7-10 years) with a maximum of 15 years. The EIC fund guidelines provide us all the relevant information about the principles of functioning (The EIC Fund Investment Guidelines will be published in spring 2021). The investment component has the strategic role to fill the funding gap for high-risk innovation, paving the path to the market, lowering the possibility to run out of funding when is needed and when innovations lay on a stage where they can be co-financed or financed under the InvestEU program or by private investors.
A grant component to reimburse eligible costs incurred for innovation activities will basically follow the path tracked in H2020, covering at least a Technology Readiness Levels from 5/6 to 8. Eligible costs are reimbursed up to a maximum of 70%; full scale-up operations (e.g. Technology Readiness Level 9 or above) will not be reimbursed by the grant but can be financed by the investment component. The grant component should normally not exceed EUR 2.5 million.

Applicants can choose to request:
-the investment component only and are not required to request a grant component.
-a grant component only or grant first under the following conditions:

  • Grant only: the applicant must provide evidence of its financial capacity (e.g. revenue flow, existing investors, or shareholders) to finance the deployment and scaling up of the innovation proposed.
  • Grant first: the innovation is based on a scientific discovery or novel technology and still requires significant work to validate and demonstrate in relevant environments in order to properly assess its commercial potential. Such innovations may include those based on research results from the EIC Pathfinder and Transition, as well as ERC.
    All successful applications will receive, in addition to funding, free access to a wide range of Business Acceleration Service.
Source: Antonello Fiorucci

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