The European Innovation Council’s Delays Are Putting Startups At Risk
On 16 December 2021, the European Innovation Council Accelerator announced its largest-ever funding round with 99 companies set to receive €627m.
As the examples in the press release highlighted, these companies are developing and adopting 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, receiving the news they would receive millions of Euros in funding was nothing short of life-changing. The grant funding would allow them to keep building in the short-term, whilst the matched equity tranche should make the next fundraising easier and result in a larger overall funding round.
Many founders excitedly brought this news to their boards and investors. They built the next few years of strategy around it. This capital increases their chances of reaching product-market fit, raising the next found of funding and, ultimately, success.
What Has Happened So Far
Six months later and excitement is giving way to despair. For the companies that were told they would receive blended funding – a mix of grant and equity – they continue to battle an interminable bureaucratic nightmare played out via email.
Every day founders wake up hopeful they will receive a message with good news. When it finally comes, it states that there is another opaque process that must now happen with an uncertain timeline. Even when due diligence has been completed and contracts prepared, many founders are being told not to expect funds until September.
By then, many of these companies will be dead.
The lack of progress in delivering these funds would be extremely damaging at any time, but in a deteriorating private funding market, the impact is even worse. Capital is simply not available to plug multi-million Euro funding gaps that have been left by the failure of this process.
What Needs To Happen Next
The European Innovation Council’s intent is not in question. They wanted to support startups doing good work and increase the number of successful deep tech companies being built and becoming successful in Europe.
The problem is with their execution. And if it’s not fixed before the summer, they will likely have killed more startups than they end up helping. Not only that but the entire scheme will be called into question as future applicants decide that it is not worth the risk of applying, winning the funding, and then being left in the lurch.
Fixing the problem should be simple. Get the decision-makers in a room – real or virtual – regularly and assign sufficient resources to process the backlog. If unavoidable checks and processes remain, take a sensible approach to risk and provide the grant funding in tranches so that at least the companies can pay their employees and other bills now.
A Big Moment For The European Commission
The machinery of the European Commission has often been criticized for its bureaucracy and inefficiency. Now is an opportunity for them to step up, acknowledge that the process is broken, and fix it.
Failure to do so will not only cause untold damage to the many startups who were relying on the funding but will provide further evidence that the European Commission should not get involved in private markets.