There are a great number of different business models available to choose from (i.e. marketplaces, product sales, SaaS, B2B, B2C, B2B2C, etc.) and the EU even lists business model innovations as a viable project type which can receive innovation financing.
Still, some business models are better than others but it is extremely dependant on the type of industry and product. In order to assure that a business model is suitable for the EIC Accelerator and is able to score high in the eyes of the evaluators, two main criteria must be regarded – scalability and profitability:
Scalability is a key selling-point for the EU and it is directly asked for in the proposal template (see Scale-Up Potential) as well as in the Evaluation Criteria (see ESR Analysis). There are some business models which are easier to scale than others but it depends on the resources and personnel required to do so.
For example, an industrial and centralised hardware production where thousands of customers can be serviced from a single facility is easier to scale than a business model which requires a new facility to be set-up for each individual customer. Addressing scalability requires you to answer the question as to how the relationship between revenues and resource investments is.
- Does the scaling of your operations increase your profit margins?
- Is there a linear or exponential relationship between your profits and the number of customers?
- Can you create value in an automated fashion or does it include manual or labour-intensive actions?
The second point to address when considering the business model is the profitability of your product or service. When talking about scalability, it usually refers to the number of customers, sales or deployments that will be reached but the impact of each individual deployment is as much of a determining factor as the number.
When choosing a business model, you must always consider a combination of profitability and scalability which will define what a deployment at scale looks like. If a single sale will provide €1m in revenues at a high profit margin then the scaling of customer numbers will not be as central to the project as for a product which generates only €1k per sale. General questions for the assessment of the profitability are:
- How many product deployments or customers would you require to reach €20m in annual revenues?
- Would a single customer be enough to cover your costs and allow you to continue technological developments?
- What is the price for competing offerings?
The descriptions above are just illustrative examples and by no means a complete assessment of what a business model should look like. It is possible to be scalable even if multiple facilities have to be set-up and it is also possible to have a profitable business model with a strong reliance on manual labour and personnel. Still, scalability and profitability must always be assessed in unison.
In this respect, the exact business model is far less important than the combination of scalability and profitability. An online platform for fashion products which generates revenues based on manual servicing of user requests (B2C) and affiliate marketing (B2B) can be both unscalable and unprofitable while the same business can be both scalable and profitable if they automate the B2C service while selling a more profitable B2B software for fashion-related design planning.
It should be highlighted that labels such as unprofitable and unscalable are seen from an EU or investors perspective and that this does not mean that the former example could not generate revenues and be profitable at the same time. The EU wants to support high impact projects which generate a multi-fold Return on Investment (ROI) from the initial grant and equity financing.
With the investments usually being above €1m, this would require the accumulated profits to be above €10m for the years following the market introduction of the fully developed technology. As such, the EU’s threshold for profitable and scalable is higher than what is actually needed in most businesses, thus the EU’s strong focus on disruptive innovations and the creation of new markets.
These tips are not only useful for European startups, professional writers, consultants and Small and Medium-Sized Enterprises (SME) but are generally recommended when writing a business plan or investor documents.
Deadlines: Post-Horizon 2020, the EIC Accelerator accepts Step 1 submissions now while the deadlines for the full applications (Step 2) will be on June 16th 2021 and October 6th 2021 under Horizon Europe. The Step 1 applications must be submitted weeks in advance of Step 2. The next EIC Accelerator cut-off for Step 2 (full proposal) can be found here. After Brexit, UK companies can still apply to the EIC Accelerator under Horizon Europe albeit with non-dilutive grant applications only - thereby excluding equity-financing.
Contact: You can reach out to us via this contact form to work with a professional consultant.
EU, UK & US Startups: Alternative financing options for EU, UK and US innovation startups are the EIC Pathfinder (combining Future and Emerging Technologies - FET Open & FET Proactive) with €4M per project, Thematic Priorities, European Innovation Partnerships (EIP), Innovate UK with £3M (for UK-companies only) as well as the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants with $1M (for US-companies only).
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by Stephan Segler, PhD
Professional Grant Consultant at Segler Consulting
General information on the EIC Accelerator template, professional grant writing and how to prepare a successful application can be found in the following articles:
- EIC Accelerator Interviews: Pitch Deck vs. Proposal Documents (SME Instrument)
- Choosing a Good Project for the EIC Accelerator (SME Instrument Phase 2)
- The EIC Accelerator Budget: Grant vs. Blended Finance (SME Instrument Phase 2)
- EIC Accelerator – Introduction and Blended Finance (SME Instrument Phase 2)
- EIC-Accelerator Writing: Providing the Missing Link (SME Instrument Phase 2)
- The Biggest Mistakes When Applying to the EIC Accelerator (SME Instrument Phase 2)
- Identifying a Broad Vision for an EIC Accelerator Project (SME Instrument Phase 2)