In my previous job at a startup in Amsterdam, my job description was – how to say – ‘flexible’. As a non-technical member of a company developing a new kind of scalable, real-time graphics database that was still in development, marketing opportunities were limited, sales would be tentative, and branding still relied on positioning.
Like any startup member, I needed to find something to do that would contribute to the company. I had a vague suspicion that the European Commission had made huge amounts of funding available to SMEs for innovative ideas, but I had no idea where to start looking.
This put me on a bureaucratic quest to figure out how to get a piece of that pie. And let me tell you, it wasn’t easy. That’s exactly why I want to share what I’ve learned with you, because finding EU funding can be a great intermediate solution between bootstrapping and more serious rounds of funding – or just building your way to dilution-free revenue.
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I’ll tell you about cascade financing.
For this article, I spoke to many people who were involved in the cascade at one point or another, and they all agreed that this type of funding is embarrassingly unknown and difficult to navigate as a time-bound startup employee, while still providing significant funding. financial and business support for fledgling projects.
What is Cascade Financing?
Under the Horizon 2020 programme, the European Commission has committed around €800 million to a “public funding allocation mechanism to help beneficiaries, such as start-ups, scale-ups, SMEs and/or mid-caps, to absorb or development of digital innovation.”
This mechanism is officially known as Financial Support for Third Parties (FSTP), but it is popularly referred to as cascade financing. The idea is that instead of startups entering into a funding agreement directly with the European Commission or affiliated organisations, the funding would be distributed among consortia of companies acting as intermediaries to distribute funds.
These consortia, in turn, set up open calls for startups or scale-ups to apply for, and provide (largely) equity-free grants to participants in those programs.
Financing in these schemes starts at $5,000 but can go as high as $500,000, and normally involves business support services for select startups – either in an accelerator of sorts, free services such as security audits, or by providing access to a network of similar companies. and organizations.
This may all sound great, but kinda vague, so let’s take a look at some examples of how this really works.
Let’s take a look at some examples
In April 2020, a consortium comprising an education non-profit, an accelerator organizer and a funding platform launched IMPACT EdTech. The hybrid incubator/accelerator is designed to help European EdTech startups build prototypes into viable products.
After an initial round of pitching, 17 startups were selected to receive approximately €80,000 as a stock-free lump sum payment and mentoring services to develop an MVP. With this MVP, startups would go through another selection process, seven of which would advance to the next round.
In this phase, startups received an additional €90,000 as an equity-free grant, and were helped to introduce their innovation to ‘relevant education ministries, investors and potential partners.
This entire cycle was repeated three times between April 2020 and July 2022.
In a similar vein, programs such as STADIEM for media technology industry startups, BlockStart for blockchain companies, AI4Europe for AI companies, ROBOTUNION for robotics, IMPACT Connected Car for connected mobility, NGI Assure for cryptography and security startups, and S+T+ ARTS for art and technology projects all offer different levels of funding, awards or support for European companies.
What kind of startup programs are there?
In general, there are a few different types of programs. Accelerators such as STADIEM offer grants in conjunction with business support programs and usually higher levels of funding. Others, such as NGI Assure, offer a lump sum of up to €50,000 to startups or individual developers. Some consortia offer vouchers for international travel and collaboration. And finally, there are prizes that go up to around €20,000.
The major advantage of these cascade arrangements is that the application process is usually manageable in terms of time investment. Unlike large-scale funding programs such as those organized by the EIC, application preparation takes days rather than months.
For example, the application form for the recently launched NGI0 Entrust program for ‘privacy and trust-enhancing technologies’ consists of 13 open fields –– including name, email address and telephone number. The initial financing starts from € 5,000, but according to Michiel Leenaars, Strategy Director at NLNet, can go up to € 500,000 for projects that prove to be important in the initial phase.
“I think we have proven that shifting the responsibility for allocating funding to socially responsible organizations can bring enormous benefits,” says Leenaars. “In some of our programs 95% of the participants have never received any money from the European Commission (EC).”
Another advantage he mentions is that you are not dealing with an anonymous EC entity, but with a group of people who have invested in your success as a startup – and therefore in their success as a financing distributor.
The EC also sees the benefits of delegating resource allocation to consortia that really care about their mission and know the industry they are investing in.
What do startup founders think about cascade financing?
In general, startups seem to be very happy with these cascade funding programs.
Thomas Ketchell, of the education startup Sutori, told us they were “lucky to get the support of ImpactEdTech who have given us three pilot schools, one in Italy, the Czech Republic and Slovakia to test Sutori and see if we can get to grips with European schools. † The funding enabled us to translate the platform and grow the platform.”
This is in stark contrast to the EIC Accelerator debacle that is unfolding as this article is being written.
As part of its most ambitious investment program for scale-ups, the European Commission has set up the European Innovation Council to find and finance the most promising European deep tech companies – with grants of up to €2.5 million and equity investments of up to €15 million .
It turns out that the EIC is having some trouble managing and distributing the funds, with scale-ups that signed grant agreements in July 2021 still haven’t received funding, and EC commissioners threatening to scrap the program if not soon. is resolved.
The cascade funding program will continue under Horizon Europe, the successor program to Horizon 2020. It is still unclear how much of the €95.5 billion fund will be allocated to cascade funding, but the success of the previous programs will determine the level of funding.
For those unafraid in the daunting face of European bureaucracy, the Funding and Tenders portal now offers an option to filter by cascade financing† Beware though, if you google ‘cascade funding tenders’ you will get a result called ‘Competitive calls and calls for third parties,’ which does not include all currently available cascade financing options. Nice is not it?
From my experience there are numerous consultancies and services that offer guidance for these types of grants – but also from my experience you don’t really need them for cascade financing. With a little practice, anyone can fathom the stupidity of the Funding and Tenders portal and find that little bit of money or support that can kickstart your startup. And if you have any questions, hit me up on twitterhappy to help.
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