This article is a continuation of Part 1 and presents an exploration of criteria that could lead to the immediate dismissals of projects applying to the EIC Accelerator blended financing (formerly SME Instrument Phase 2, grant and equity financing) by the European Innovation Council (EIC) and the European Commission (EC).
Many professional writers and grant consultants are highly creative when it comes to packaging an innovation in such a way that it sparkles and shines more than it should. Many startups or Small- and Medium-Sized Enterprises (SME) should assess, prior to their EIC Accelerator application, if they are a me-too business or truly a first mover.
Sometimes, a new product or service is only innovative in a certain environment (i.e. a region or industry) but the base technology is not new and only appears unique due to its specific application. Without a clear innovation, the barriers to entry for competitors are likely too low to warrant EIC Accelerator financing and an application would possibly be dismissed.
While it is clear that the EIC Accelerator does not finance non-profits, it is less clear that low-profits will also be unsuitable for financing. The EIC boasts about the growth observed for EIC Accelerator (or SME Instrument) beneficiaries (read: Impact Report 2020) but it does not clearly state what revenue-scale is expected from companies. Nowhere does it say “We want your maximum revenues next year to be €100,000 p.a. and your minimum revenues within 5 years of market entry to be at €50M.”
As a result, many companies applying to the EIC Accelerator think that they could have a chance but do not actually have the market impact or commercial scalability that the EU is looking for. Such an expected scale is hinted at under the rules for equity financing (i.e. an ROI within a certain time frame) but is not clearly quantified (read: Equity Financing). If the European Union would explicitly warn companies upon submission that the entered financials do not have the impact they are looking for, applicants would have much more realistic expectations of their success chances (i.e. when using submission forms for financials as proposed here).
Using the EIC for Material Expenses
The EIC is looking for startups that are at a certain Technology Readiness level (TRL) since an immature technology will likely be non-bankable and be in need of special financing from the EC (read: Understanding TRL’s). Companies that have already brought their technology to a high TRL but only need financing to scale up their production (i.e. purchasing materials, marketing, leases, etc.) will not be covered by the EIC Accelerator. If, however, these expenses are in addition to actual technology developments then these can be covered by the EIC as long as they are properly justified.
Foreign Ownership and Financing
The EU, as diverse and inclusive as it is, is very guarded when it comes to foreign ownership of grant applicants since they, understandably, want to make sure that government funds are spent inside the government’s territory. Having foreign entities (i.e. companies, individuals) take ownership in a startup that is seeking EU funding is not a problem per se but it should be assessed on a case by case basis if the SME is independent or controlled.
A startup owned to 49% by Chinese investors might not make the application to the EIC Accelerator ineligible but can raise many eyebrows from the evaluators and the jury in the pitch interview. The same goes for management teams that are all from a non-EU ethnicity and clearly give the look of being foreign even though the company, on paper, is based in an EU country and 100% owned by EU residents (i.e. if 9 out of 10 employees are from Pakistan).
Highlighting the inclusivity and diversity of a company works well in isolated cases but it should be assured that it is balanced and does not backfire in case that foreign control is suspected.
- Being Well-Financed: Does the applicant already have sufficient financing?
- Transforming the EU: Is the innovation presenting a transformative impact for the EU and its citizens?
- Opposing Values: Is the project aligned with the EU’s long-term goals?
- Non-Innovations: Is the company an innovator or a me-too?
- Small Profits: Does the company have exponential financial growth expectations?
- Using the EIC for Material Expenses: Is the funding required for technological developments or only scaling?
- Foreign Ownership and Financing: Is the company independent and EU-controlled?
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).
Any more questions? View the Frequently Asked Questions (FAQ) section.
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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)