The first call for the new blended finance instrument for scaling up offered by the European Innovation Council meets strong demand among applicants.
As a much-discussed novelty in the Horizon 2020 programme, the Accelerator instrument providing equity in addition to grant-based support can now offer a better idea of the demand for such a new form of financing. The first cut-off for the programme on 10 October saw a total of 1’852 applications requesting a record of more than €5.2 billion of financial support, including almost 500 applications seeking blended finance (combining grants and equity support).
The Accelerator is a much-discussed novelty in the Horizon 2020 programme. It is the latest evolution of the former SME Instrument phase 2 instrument. In 2017, the latter instrument underwent two important changes, turning to bottom-up calls without sectoral restrictions and introducing face-to-face interviews with expert panels into the evaluation process. As part of developing the European Innovation Council (EIC) for the next framework programme Horizon Europe in 2021, the European Council mandated the European Commission (EC) last year to conduct a so-called “enhanced pilot” of the upcoming EIC programmes (see SwissCore article). This included, along with the Pathfinder instrument for future and emerging technologies, the Accelerator instrument providing scale-up funding for late stage development and commercialisation activities.
The objective of the Accelerator is to address the dearth of Venture Capital funding in Europe for scaling up activities among start-ups and innovative SMEs. This gap between early-stage seed funding for development and late-stage funding after commercialisation is known as the Valley of Death. In order to abide by the principles of the European Union limits on state aid to private enterprises, commercialisation activities (those above the technology readiness level 8) are not to be supported by grant, hence the introduction of equity support.
In addition to testing procedures for evaluation and investment management, the piloting of the Accelerator instrument was to ascertain the interest among European start-ups for such blended finance, and for the novelty of having the EC as a potential investor, albeit one playing a passive role and only taking a minority stake. In this regard, the results from the first cut-off indicate strong interest. In addition to the almost 500 companies who actively requested blended financing (with an average 2:1 ratio of equity to grant), a further 900 companies who had requested grant-only support expressed their openness to a possible counter-offer from the EC including equity support.
Currently, the EC has earmarked €100 billion for the equity support from the Access to Risk Financing budget, with the option of increasing the budget if demand indicates a high number of high-quality projects. The evaluation process and the following investment process for the awardees that will be taking place over the next months will be closely followed. Indeed the pilot is undergoing continuous change and adjustments. In the latest change at the end of October, the EC published updated notes on eligibility, opening the Accelerator to current and former SME Instrument phase 2 beneficiaries, who had been excluded from the first call. This would open it up to Switzerland’s 23 current SME instrument phase 2 beneficiaries.