The audit finds that the SME Instrument has proven effective in supporting innovation, but issues recommendations for its successor under Horizon Europe.
The SME Instrument was created as part of Horizon 2020 (2014-2020), the Framework Programme for Research and Innovation of the European Union (EU) with the aim of supporting innovation in small and medium-sized enterprises (SMEs) and start-ups by filling the funding gap for early stage high-risk projects and increasing private-sector commercialisation of research results. On 22 January, the European Court of Auditors published a report which assesses the SME Instrument’s effectiveness, taking into account its design, management and outputs. Endowed with a budget of €3 billion for the period 2014-2020, the SME Instrument awards grants to high-potential companies in order to provide support for a feasibility study (up to €50’000 in Phase 1) or doing research, development and market-testing (€2.5 mn in Phase 2). Coaching, mentoring or other business acceleration services are other examples for provided assistance (Phase 3).
Overall, the audit concludes that the SME Instrument has been successful in supporting innovative SMEs. More than 5’000 projects have been funded in EU Member States and 16 associated countries. However, the audit also finds that the broad objectives, targets and introduced changes during the SME Instrument’s implementation have caused uncertainty among stakeholders. Limited resources and a high number of resubmissions have further complicated the selection procedure and the development of business acceleration service. Some financed SMEs could have been financed by the market, according to the report. Participation varies “markedly” between countries, which is partly due to the varying levels of support provided by National Contact Points (NCPs) and the Enterprise Europe Network (EEN) representatives in the countries.
Looking at the different schemes of the Instrument, the audit finds that Phase 1 provides effective support thanks to its fast selection process. However, it entails disproportionally high administrative costs in terms of evaluation, grant preparation, grant signature and coaching services. Given the “excessive burden on SME Instrument administration” imposed by the Phase 1 programme (four project officers manage around 1’000 projects per year), the project monitoring is “limited to administrative checks, without an assessment of the quality of the feasibility study.” In addition, schemes similar to Phase 1 support already exist in many Member States and associated countries. On the other hand, surveys among National Innovation Agencies demonstrate a high appreciation of Phase 2 in its current form, which has proven effective in supporting beneficiaries and giving them visibility to raise additional investments. The coaching and business acceleration services in Phase 3 cover a broad range of topics. Not all of them are evenly appreciated, but they play a key role in providing tailor-made support although being launched rather late in the framework programme.
The European Commission has discontinued the Phase 1 programme as of September 2019. Instead, the Pathfinder (replacing the former FET-Open and FET-Proactive) and the Accelerator (a modified version of the previous Phase 2) were introduced under the ‘Enhanced EIC Pilot’ which runs from June 2019 to the end of 2020. As a consequence, the Court of Auditors issues recommendations applicable to the SME Instrument’s successor under Horizon Europe (2021-2027). It recommends improving the communication strategy and the support to NCPs and the EEN in order to target the right beneficiaries and expand the geographical reach. Further, the report says that business acceleration services and synergies with other EU-backed financial instruments that could contribute to scaling-up beneficiaries and bringing innovation projects to the market should be enhanced. Most importantly, the Court of Auditors recommends to replace Phase 1 by a similar scheme managed by the Commission, and preserving a scheme similar to Phase 2 within the European Innovation Council (EIC) under Horizon Europe (2021-2027), “building on the results from the EIC pilot.” Regarding the question of whether or not this should include the option for blended finance, the Court of Auditors only states that “the provision of financial support to projects through equity finance” is one of the aspects under consideration that “have yet to be considered or tested.” As a next step, the Research Working Party of the Council of Ministers will discuss the Court of Auditors’ report on 2 March.