Giving European start-ups the competitive edge

Unicorn companies, start-ups with a value of more than $1 billion, are about as rare in Europe as living examples of those mythical creatures. The European Commission hopes to change that through the creation of the European Innovation Council (EIC).

"The EIC is to be a counterweight to the European Research Council, " explains Science Foundation Ireland director general Prof Mark Ferguson, who is also chair of the EIC advisory board. "The ERC's role is to support future Nobel Prize-winners. We are trying to create unicorn companies by setting up a one-stop-shop for breakthrough innovation."

The EIC is a new instrument which is part of the Horizon Europe science and innovation programme, the successor to Horizon 2020, Ferguson adds. “It is operating in pilot mode at present. It has brought together a number of previous instruments and changed them. It is doing things that the full EIC will do when it is formally established.”

One of the main objectives of the new body is to bridge the gap that exists between Europe and the US when it comes to the commercialisation of innovation. "If you look at scientific citations, Europe is marginally ahead of the US and if you look at start-up company numbers, they are about the same," Ferguson notes. "But if you look at the number of companies that grow and scale, the US is far ahead with about 50 times as much venture capital available there. If you look at the digital economy, the big companies like Microsoft, Facebook, Amazon are all American and Europe doesn't have any. Europe's challenge is to scale up companies at the same rate as the US does."

The EIC offers grants for breakthrough technologies and accelerator funding for innovative start-ups. “We can offer up to €2.5 million in grants and up to €15 million in equity investment. That’s potentially up to €17.5 million. Also, we will use this to crowd in private investment. This is the first time that the EU is doing equity investments. We also want to see more private investment in companies. We want innovative companies to grow and scale at pace and we are working with the market to do it, not supplanting it.”

Early-stage equity investment

The early-stage equity investment from the EIC will be very important. “If we are the first investor in companies, we will not price the risk,” Ferguson says. “Our investment will help de-risk the companies and make them more investible for second and further rounds of funding. We want the EIC to be an investor of choice for early-stage innovative companies and we will build a network of venture capital firms and other investment partners who we will work with over time.”

The proposed budget for the EIC is €10 billion for seven years from 2019. “In 2019, we had a budget of €1 billion and we have €1.5 billion for 2020. The budget is roughly €1.5 million a year during pilot mode.”

Funding is awarded through competitive calls with eight Irish start-ups and SMEs being awarded more than €31 million in funding under the latest one. They were among 72 European companies which were awarded a total of €314 million. Ireland ranked second, jointly with France and Denmark after the Netherlands in terms of the number of companies awarded funding and the successful Irish applicants included Kite Medical, OneProjects Design Innovation, Provizio, Remedy Biologics, Kastus Technologies, SiriusXT and Aquila Biosciences.

The funding available under this call was larger than usual as it included €164 million for Covid-19-related applications. “The European Commission made an additional €150 million to ensure that the focus on Covid-19-related funding did not result in other applications being displaced. When the results were announced, 36 Covid-related applications got €166 million and non-Covid applications were awarded €148 million,” Ferguson says.

“We received 4,000 applications for this call, that’s about 1,500 higher than normal,” he adds. “Typically, we would receive 2,000 to 2,500 applications. The success rate for companies is very low. It’s just a single-digit percentage and this is due to the huge demand. We are only able to fund a small proportion of applications.”

Noting the success of Irish companies in the latest round, Ferguson is quick to point out that he has nothing to do with funding awards. "That's down to the good work of Enterprise Ireland and other agencies who have supported and helped them," he says.

It is not the end of the road for companies which are not awarded funding, however. “We give out seals of excellence to companies which are not funded. More than 800 companies got them and that is very important as countries with structural funds can invest in them.”

The current EIC call is focused on the European Green Deal. “We’ve had more than 2,000 applications for the €150 million in funding available under this call. The Green Deal is a huge market opportunity where Europe can gain a real competitive advantage.”

In October, the EIC call for applications will have a focus on female entrepreneurship.

In its short life, the EIC has already built up an impressive investment portfolio with 17 companies having already gone for IPOs, 37 of them acquired by other companies, and €4.2 billion in follow-on investment raised. “Forty-three of the companies have grown to more than €100 million in value, so-called centaurs. That’s not bad for a pilot. Of course, we want to do better. It’s an iterative process, and we are continually improving. The success of the pilot shows the need for this type of instrument. There is demand for it and there is a real opportunity to help build companies of scale in Europe and keep them headquartered in Europe.”