Following the publication of the ‘Enhanced European Innovation Council (EIC) pilot’ work programme for 2019-20 – which you can find more information about here – and our podcast interviews with Commissioner Carlos Moedas and former head of Startup Europe, Isidro Laso, we thought it would also be a good idea to interview Caroline Bergaud.
Caroline is a smart cookie, but more importantly an independent expert and consultant on the EIC programme, and was kind enough to share with us some valuable insights on the programme’s latest developments.
Caroline, thank you for taking the time to sit with us.
We know that you have been following the SME Instrument/EIC Accelerator programme very closely since its inception in 2014 – and even earlier, during its conceptualisation. What do you see as positive in the latest developments of the programme announced last March by the European Commission?
I can see several things heading in the right direction. First, a now definite focus on truly high-risk innovations which clearly need public funding support until they are mature enough to be picked up by private investors.
This, in my view, is fully in line with the spirit of public funding and will avoid undue duplication with the market, which is what the Commission is after.
A second positive development in my opinion is the decision to put an end to €50k phase 1 grants which tended to duplicate national or other EU-funded (e.g. EIT) initiatives and, as far as I could see, had largely become a way for consultants to mitigate their losses in phase 2.
I have heard of many consultants taking between 50% and 100% of a phase 1 grant in return for their assistance in securing phase 2 funding which, for obvious statistical success reasons, most never secured, leaving applicant companies a bitter aftertaste.
Another positive development is the desire to both ensure the long-term sustainability of the programme and be fair to the European taxpayer by slowly moving to a blended funding model, grant + equity. Over time, this could help address the mismatch between the large volume of excellent proposals submitted to the EIC and the insufficient funding available, despite budget increases for 2019-20 and Horizon Europe.
What I am more worried about is the implementation side of that blended finance model.
Could you elaborate on this? What are your concerns there?
Equity funding is a very different endeavour from grant funding and something totally new for the European Commission. You will tell me that this was also true with funding close-to-market activities when the SME Instrument started in 2014 – and this is true.
Whenever venturing into new territory, you have to allow for a learning curve and the Commission is taking the right steps by contracting external expertise for the administration of the equity component.
However, the conditions for equity investment need to be made known upfront to applicant companies and it will be a tough job to agree on blanket terms that will be perceived as fair by all types of applicants – and their existing investors, if any.
Time is getting short, as the new Enhanced EIC Pilot is supposed to start as of 5 June and you cannot expect young, intrinsically fragile companies to dedicate months of work to developing a funding proposal to an exceedingly competitive programme unless they know upfront what the rules of the game are.
The current lack of clarity on equity terms together with the fact that only about €50m have been allocated to equity financing for the entire year of 2020 makes me anticipate that the large majority of applicants will propose to develop their technology to TRL8 only, which entitles them to apply for grant funding only – and thereby carefully avoid the equity component altogether.
The other question is whether the small budgets available for equity financing will yield sufficient evidence to the Commission to inform the conceptualisation of the equity element of Horizon Europe, which in my understanding is what this pilot was about.
Do you see any other issues in the new EIC programme?
I’m afraid I do. There is now a new requirement reflected in the evaluation grid that applicant companies should be able to evidence that they are ‘non-bankable’.
While I understand where this comes from; i.e. rightly addressing market failures as we discussed above, I don’t really see how a deeptech company of the type which the Commission wants to fund can be at TRL 6, (technology demonstrated in a relevant environment) which is another programme requirement, while being non-bankable and having failed to attract investment from the market.
There seems to be a contradiction in terms here as reaching TRL6 would for instance take a typical biotech company several years and millions of investment. Also, where is the 30% project co-funding supposed to come from, if companies are meant to demonstrate they are ‘non-bankable’?
I understand that this ‘non-bankability’ aspect is still under discussion among Member States, but further clarity is urgently needed for companies to assess whether they are any longer eligible to the programme. It takes months to build a proposal with a real chance of being funded so there is no time to lose.
Are there any changes that you would have wanted to see that were not covered by the latest Enhanced EIC Pilot work programme?
I would have wanted to see strengthened focus on evaluation quality, although I appreciate this is not something that would necessarily be reflected in a work programme.
It did last year though, with the introduction of a two-stage selection process, including interviews in Brussels, which I think is an excellent step and maximises the chances for only outstanding projects to be funded.
I think further reinforcing quality control at written evaluation stage would be very welcome too, as at the end of the day, over 90% of proposals get screened out at that stage and we need to make sure that the ones that get to the interview are both truly top-notch and aligned with the EU’s funding objectives.
As a consultant, I personally find that there are still too many inconsistencies in written marks and I think it would be a good use of taxpayers’ money to put in place further advanced analytics tools to monitor the relevance, objectivity and consistency of evaluators’ scoring.
Companies are subject to excruciating scrutiny throughout the EIC evaluation process and I feel their evaluators should be too. This would seem only fair considering evaluators are making decisions that are key to our common European future.