Last month, I wondered how innovation and tech start-ups were funded by public (at European level) and private sector in the European Union (EU). During the last weeks, I had the opportunity to meet several experts on the topic of small and medium enterprises (SMEs), innovation, and start-ups. In particular, two events were more significant: the first day at the European Business Summit 2015 (EBS) and the “Pirates on shore” tour.
The EBS 2015 was a two-days event on business in the EU and allowed me to meet and listen to Bernd Reichert, Kumardev Chatterjee and Peter Jungen.
Bernd Reichert is the Head of Unit Horizon 2020 SMEs in the Executive Agencies for SMEs (EASME). Reichert explained what Horizon’s 2020 SMEs instrument is and described its three phases. Phase 1 funds (with a grant of 50 000 euro) the feasibility study of the innovative business idea; phase 2 supports the development of the project (such as demonstration, testing, piloting, scaling up, and miniaturisation) with between 0.5 and 2.5 million euro per proposal; phase 3 does not involve any fund, but helps the preparation of the market launch with extensive support, training, mentorship and facilitating access to risk finance.
Kumardev Chatterjee is the president of the European Young Innovators Forum (EYIF Asbl), which is a Belgian non profit association on youth innovation and entrepreneurship. He is also one of the owners – the others are the EYIF and Nicholas Zylberglajt, vice-president of EYIF – of the EU Startup Services Ltd, a British consulting company specialised in funding provided by the Horizon’s 2020 SMEs Instrument (phase 1 and 2).
During the meeting, Chatterjee spoke against venture capitals (VCs), because VCs take a part (usually 20%) of the companies in exchange of the funding. In this way, he claimed, start-ups loose their freedom to decide. However, he supported the funds provided by the EU and in particular the first two phases of the SMEs Instrument, which he explained in detail.
In the subsequent meeting, Peter Jungen had a different approach. He is a business angel investor and co-founder of the European Business Angel Network (EBAN). He quoted McAfee‘s book “The Second Machine Age” affirming that “We need more entrepreneurs than scientists”. He believed that companies in the EU should look for their funds much more through equity than bank loans. He complained about the higher level of European money invested in the United States than in the EU and showed that the VC spending per capita was 100 dollars in the United States, 10 dollars in the EU, 5 dollars in the Euro-zone and around 5 dollars in China and India. He explained that those data indicated two important factors. Firstly, the difference between the whole VC spending in the US and in the EU is bigger than the Juncker Plan. Secondly, China and India will overtake Europe soon, if nothing changes.
Having listened to them, I felt that I was missing something. However, I still had to attend in a more pragmatic event, arranged by Pirates on Shore in CO.STATION, a co-working space in Brussels. Pirates on Shore is a tour that takes place all over Europe and connects local entrepreneurs with Venture Capitalists and Business Angels; for each town they team up with 2-3 VCs and gather at a local tech hub. During the introduction of his company, Frank Maene helped me to find an answer to my doubts. Maene is a managing partner of Volta Ventures, a Venture Capital investing in high tech innovation. He explained how a tech innovative start-up needed usually around 20 million euro for its entire development; he showed the different funding steps his company followed; and he affirmed that a start-up needed to try every opportunity from private to public funding (VCs, national, regional, European funds, crowdfunding, etc). “Why? Because the first fund is easy to have, but the second and third are much more complicated”. And everything became much clearer in that moment.
In the last year, the European Commission has changed its approach and has been trying to fund SMEs targeting singular companies and not consortia. This effort is supported by the civil society and by the SMEs themselves. However, as a high tech innovative start-up needs more funding than what the SME Instrument provides, this company has to find money through other means for increasing its chance of success.
At the same time, in a medium- and long-perspective Europe has to enhance its attractiveness for capital and, as a result, increase the investments on its own innovative start-ups: its competitiveness is at stake.
If you are interested in:
- Horizon’s 2020 SMEs Instrument: http://goo.gl/wR6Bdy
- EASME: goo.gl/uP45cn
- European Business Summit 2015, check the hashtag #EBS2015 on Twitter or go to the page: www.ebsummit.eu
- Juncker Plan: http://goo.gl/xwQv8r
- EYIF Asbl: http://younginnovator.eu
- EU Startup Service Ltd: www.eustartupservices.eu
- EBAN: http://www.eban.org
- CO.STATION: http://www.co-station.com
- Pirates on Shore: http://goo.gl/aAwtbH
- Volta Ventures: http://www.volta.ventures
- Crowdfunding: https://www.kickstarter.com and https://www.indiegogo.com