Taking you to the frontier: the popular funding scheme for SMEs revamped
European Commission shifts into high gear in its popular funding scheme for small and medium-sized enterprises. Preparing for Horizon Europe, the upcoming ninth framework programme for funding innovation, the European Innovation Council is rolling out the Accelerator Pilot during 2019 and 2020. Combining grant and equity funding, the EIC Accelerator Pilot replaces the SME Instrument Phase II with its first cut-off on October 9th. The SME Instrument Phase I, the 50,000 € grant for a feasibility study, will no longer be available after the September 5th cut-off.
High-risk, high-reward, but non-bankable? Time to shine!
The EIC Accelerator Pilot combines the Phase II’s grant of up to 2.5 M€ with an optional equity financing of maximum 15 M€. The activities funded under the new instrument will remain the same as they were under the Phase II, i.e. getting the high-risk innovations from demo stage to market-ready products and services. However, the closer you are to the market the more reasons for you to apply for the blended finance, as the grant only is reserved for TRL 6-8. This means that applicants wishing not to give away their precious shares in exchange for equity need to stick to the given instructions closely; the grant-only support is reserved to companies “in need of one last push before the scaling-up phase” (TRL ranging from 6 to 8). Technology Readiness Level or TRL is the scale the Commission is using to define how close to entering markets you are with your tech: 6 means that you’ve demonstrated your technology in a relevant environment, and 8 that your technology is complete and qualified.
The European Commission justifies this change with their will to co-invest in truly radical innovations that lack or have an insufficient market response, due to the high degree of risk involved, in other words, unable to acquire needed growth-funding from private investors. With this in mind, the Commission is expanding on their previous agenda of featuring support to solely high-risk but high-reward companies and projects.
To manage the equity funding, the Commission is establishing a Special Purpose Vehicle. During the due diligence process, the fit for equity of the companies is verified. In exchange for the investment, the EC has indicated that the maximum number of shares they take is 25%. Throughout the process, The Commission will also approach other European investors to map their interest to co-invest. Moreover, if the Accelerator gives you a “no-go”, EC promises to give guidance to find funding from other instruments.
Quo Vadis, funding for SMEs?
The SME Instrument Phase II has been one of the most attractive funding instruments for highly innovative growth companies. With its non-dilutive and substantial 2.5 M€ grant with a 70% funding rate, it has accrued over 1500 applications per cut off during the past few years. In 2018, the rate of passed applications varied from 4 to 8%, a frustratingly low number.
Will the equity funding be a gamechanger? Will remake attract newcomers to the instrument, or chase away the applicants? If you got interested to learn more, we are happy to give your project idea a look under the hood to see if you are one of the first companies to get funded from the EIC Accelerator. The first cut-off for the new instrument is on October 9th, and the call is now open. Contact us to learn more!