In the last article, we started exploring select focal points in detailed in the new EIC document. A special point in the revised EIC: investment characteristics, is particularly relevant to any project in search of investors.
The Revised Document
As reported in the document,
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.
The TRL (Technology Readiness Level) gauges technology maturity in acquisition. It aids development discussions and spans levels 1-9.
In 2010, the European Commission advised adopting TRL, extending it to Horizon Europe in 2014. Recognizing a company’s TRL level is crucial for its project’s eligibility for funds. Specifically, in the context of the revised EIC investment characteristics
Leveraging in Alternative Investments
The EIC Accelerator targets innovators and complements InvestEU, a financial instrument driven by investors and intermediaries.
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. Based on the Juncker Plan, it combines the European Fund for Strategic Investments together with 13 other EU financial instruments.
For supported policy areas and benefits, refer to this link about the Programme’s “windows”.
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 fulfills the role of an 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 (and 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 scale up in Europe.”
It will aim to crowd-in significant and fit-for-purpose additional or alternate funding needed to successfully develop an innovation, deploy it to the market and scale-up, whilst ensuring its sustainability. In addition to enhancing the impact of the Union support and contributing to stimulate the overall European investment ecosystem, bridging with and crowding-in qualified investors at the earliest stage is essential for the success of the investee companies and their innovation.
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.
The Commission is learning from the EIC pilot phase, guided by the EIC Board, to implement EIC equity investments effectively. The goal is an efficient instrument for investment decisions, attracting investors, and following market standards while addressing EU policy goals. The long-term EIC Fund management approach is anticipated for 2023 EIC Accelerator calls until Horizon Europe’s end in 2027.
Depending on the operation’s stage and nature, investors could be Business Angels, Venture Capital funds, Impact investment funds, Family offices. They may also be venture debt funds, National Promotional Banks and Institutions (NPBIs), or corporate venture arms.
Overall, it’s important for companies to understand the revised EIC investment characteristics that are prioritized.
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