This is the post number two of a series that explains the revised EIC Investment Guidelines. Here, we focus on Characteristic of Investment.
The Investment Guidelines have been updated to provide more clarity to applicants and to reflect recent changes in the management of the EIC Fund and will remain in place until the end of 2022.
Updated: 1st March 2022
In the next articles, we will introduce other main points discussed in the document that might be of interest for any project that needs investors.
Today,
Insight on on the so-called:
Characteristic of Investment
As the document reports:
The EIC Accelerator supports innovators and entrepreneurs. Starting at the earliest at TRL 5 down to TRL9, the support aims at bringing their innovation to market deployment and scale-up. Adding to a grant component for TRL 5 to 8 activities, representing up to 70% of these activities’ costs, the investment component may be tailored and take different forms. It may consist of convertible instruments (i.e. loans/bonds/notes and other similar instruments such as participation rights and SAFE), a combination of such quasi-equity instruments and direct equity, or direct equity, initially covering seed stage up to growth equity rounds – to support the innovator along its journey from concept to scale up, evolving and increasing as stages of maturity and TRLs are achieved (milestones). Without prejudice to possible follow-on investment and the provisions of the Work Programme, which may provide for a higher amount in specific cases, the awarded initial investment component will range between EUR 0.5 and EUR 15.0 million.
What exactly is TRL? We already talked about it in this article:
TRL is the acronym for Technology Readiness Level. Basically, it is a method for understanding the maturity of technologies during the acquisition phase of a program. Enabling consistent and uniform discussions across different types of technologies, this method allows precise development follow-up. It spans from level 1 up to level 9 – which is the most mature stage.
The European Commission advised EU-funded research and innovation projects to adopt it in 2010. Thus, in 2014, EU Horizon 2020 programme turn TRL into a requirement. This was also the case in Horizon Europe.
Establishing the applicant company’s TRL level is vital for the success of the project. Indeed, it is a requirement for fund eligibility.
Leveraging in alternative investments
The EIC Accelerator focusses on innovators and entrepreneurs. In fact, it also complements the Single Union financial instrument (InvestEU), which is investor- and financial intermediary- driven.
The InvestEU Programme supports sustainable investment, innovation and job creation in Europe. It aims to trigger more than €372 billion in additional investment over the period 2021-27. Built on the successful model of the Investment Plan for Europe, the Juncker Plan, it will bring together, under one roof, the European Fund for Strategic Investments and 13 other EU financial instruments.
To know which “windows” – main policy areas – the Programme supports and which are the benefits involved, check out this link.
The EIC Accelerator aims at directly de-risking selected operations in order to better bridge these two worlds and crowd-in investors. For that purpose, the EIC Accelerator design aims to fulfil the role of initial or first risk-taker, where needed.
When investing direct equity (hence, for this section, excluding the investments in form of quasi-equity instruments), the EIC Fund will systematically seek co-investment from and syndication with other investors, at least on a matching basis 1:1 (seeking a leverage effect of 1:3 throughout the investment horizon), and even alternate investors.
Mariya Gabriel, Commissioner for Innovation, Research, Culture, Education and Youth said:
Europe has many innovative, talented start-ups, but too often these companies remain small or relocate elsewhere. This new form of financing–combining grants and equity–is unique to the European Innovation Council. It will bridge the funding gap for highly innovative companies, unlock additional private investments and enable them to scale-up in Europe.
It will bring in needed extra funds fit for developing innovations, marketing/scaling them, and ensuring sustainability. attracting qualified investors early is key for success and impact, also stimulating Europe’s investment scene.
More than funding only, “qualified investors” can add critical value to a company. They also have the knowledge, the expertise, the teams and the networks of contacts needed to help investee companies reinforce their teams and business strategies, and achieve a successful commercialization and scale up in the specific verticals, in accordance with their high-growth potential and ambition.
In fact, the Commission is assessing lessons learnt from the EIC pilot phase. EIC Board advice to the Commission is to identify the best options to implement EIC equity investments. The objective is to put in place a sustainable and efficient instrument to make investment decisions, attract qualified investors and manage investments following the best market standards while addressing the EU policy goals. The long-term EIC Fund management approach is expected to be ready for the 2023 EIC Accelerator calls. Moreover, it should remain in place until the end of the current Horizon Europe programming period in 2027.
Also, depending on the starting stage of the operation and its nature, investors may include Business Angels, Venture Capital funds, Impact investment funds, Family offices, Venture debt funds, National Promotional Banks and Institutions (NPBIs) or corporate venture arms.
To learn more about the EIC Revised Guidelines, check out our previous article on:
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