The EIC adds equity-based investments to SME Instrument grants
A novel feature of the EIC Accelerator Pilot inaugurated in October 2019, offers candidates up to €17.5 million in combined grant and equity financing to scale-up quickly and effectively.
The fund targets innovations with tremendous transformative potential with a demonstrated readiness to scale and deemed to carry too much risk for private investors.
Grants (not exceeding €2,5M per applicant) will finance activities from TRL 6-8, while activities going beyond TRL 8 will be financed through blended financing (in exchange for equity).
Applicants are asked to indicate if they want blended finance and the amount requested for equity. The maximum is € 15 million for equity investment.
A positive and fair change of the rules governing the SME Instrument.
Blended financing is a concrete and pragmatic step to create a self-sustainable long term instrument mechanism to support high risk, radical innovations in Europe.
Such mechanism enables the EC to reinvest into the programme thus making the fund self-sustainable, which could appease potential critics of the practice of sponsoring the growth of private companies whose interest lies in maximising the profit of shareholders.
Around 500 companies requested blended financing in October 2019 (for a total of €2.8bn) – with equity representing, on average, 2/3rds of the requested amount per application (Grant support was requested from approximately 1,350 companies, for a total of €2.4bn).
The absence of information on Blended Financing is putting its legitimacy at risk.
The EIC Fund is expected to be established in Luxembourg, incorporated as a public limited liability company (Société Anonyme (SA)) with variable capital (SICAV) in the form of a Reserved Alternative Investment Fund (RAIF). The structure of the fund will be set-up by the EIB Group, forming a community of VC’s and investors who are involved in EFSI9 (Juncker Plan) and InnovFin but open to any other willing to support the EIC.
Yet, beyond this, seven weeks after the October cut-off stakeholders remain largely uninformed of the financing rules and procedures governing the instrument.
Crucially officials themselves admit being in the dark on how investments will be decided, the exact financial instruments coming into play (European Investment Fund? VCs? a mix of them?), the role and the influence exerted on beneficiaries by fund, the size of investments and how they are determined (valuation methods, etc.), as well as their terms and conditions.
In this framework, considering the amounts and the pace at which they are distributed, the present lack of transparency could put the legitimacy of the EIC altogether at risk.
While we welcome the intention of the EC, and while we understand that a pilot will inevitably require a learning by doing approach to some extent – as we are dealing with vast amounts of public funding – transparency should be maintained at the highest levels.
We look forward to seeing the process developing further.
European Commission (June 2019), EIC Accelerator offers new blend of grants and equity – last retrieved on 22/11/2019 (Link)
Andrii Degeler (September 2018), European Commission prepares to add equity-based investments to SME Instrument grants, Tech.eu – last retrieved on 22/11/2019 (Link)
European Commission (October 2019), High demand of European start-ups and SMEs for equity financing from the European Innovation Council (EIC) – last retrieved on 22/11/2019 (Link)