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European Innovation Council delays put startups at risk

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On December 16, 2021, the European Innovation Council Accelerator announced its largest funding round ever with 99 companies to receive €627 million

As the examples in the press release highlighted, these companies develop and use complex and novel solutions to solve large-scale problems, generally with significant environmental or other positive impacts on society.

For the founders of these companies, the news that they would receive millions of euros in funding was nothing short of life-changing. The grant should allow them to continue building in the near term, while the matched equity tranche should make the next fundraising easier and result in a larger total funding round.

Many founders enthusiastically took this news to their boards and investors. Over the next few years, they built a strategy around it. This capital increases their chances of achieving product-market fit, increasing the next funding found and, ultimately, success.

What has happened so far?

Six months later, excitement gives way to despair. The companies that were told they would receive blended financing — a mix of grants and equities — continue to battle an endless bureaucratic nightmare played out via email.

Every day founders wake up with the hope that they will receive a message of good news. When it finally comes, it says there is one more opaque process to take place now with an uncertain timeline. Even with due diligence completed and contracts prepared, many founders are told not to expect any money until September.

By then, many of these companies will be dead.

Failure to make progress in providing these funds would be very damaging at any time, but in a deteriorating private finance market, the impact is even greater. There is simply no capital available to fill the multimillion-dollar financing gaps created by the failure of this process.

What to do next

The intention of the European Innovation Council is not in question. They wanted to support startups that do good work and increase the number of successful deep tech companies that are built and become successful in Europe.

The problem is with their execution. And if it’s not fixed before the summer, they’ve probably killed more startups than they end up helping. Not only that, but the whole scheme will be called into question if prospective applicants decide it’s not worth the risk of applying, winning the funding, and then being abandoned.

Solving the problem should be easy. Regularly bring the decision makers into a space – real or virtual – and allocate sufficient resources to catch up. If unavoidable controls and processes remain, handle risk wisely and grant the grant in installments so that the companies can at least pay their employees and other bills now.

A big moment for the European Commission

The European Commission’s machinery has often been criticized for its bureaucracy and inefficiency. This is an opportunity for them to act, recognize that the process is broken and fix it.

Failure to do so will not only inflict untold damage on the many startups that depended on the funding, but will provide further evidence that the European Commission should not interfere in private markets.

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