April 24, 2017
Horizon 2020 SME Instrument €2.5M of Equity-Free Grants for Innovative Start-Ups? Too Good to be True?
The European Commission has earmarked €3Bn to fund small and medium entreprises (SMEs) between 2014 and 2020 in the Horizon 2020 multi-year framework programme.
In 2017 alone, €440M Euros of grants are awarded to innovative SMEs that are 1-3 years away from commercialising a new product/service or an improved version of an existing product/service.
This programme, called the SME instrument, is a 3-phase process:
– Phase 1 (SME instrument 1) funds a market/feasibility study with a lump sum of €50,000
– Phase 2 (SME instrument 2) funds demonstration/market replication with up to €2.5M
– Phase 3 is not funded by the EC, but serves as a bridge towards private growth funding (series A or series B)
Do you qualify as an SME?
This will depend on your number of employees, turnover, balance sheet and ownership structure.
Check the official EC definition.
This new instrument was designed as a stimulus for SME-driven innovation in Europe, much like the SBIR programme in the USA. Over the past 3 years, it has become extremely popular with SMEs for three main reasons:
– Shortened average time-to-grant: between 2 months (SME instrument phase 1) and 4 months (SME instrument phase 2)
– Bottom-up topics: applicants can come up with any project related to the target domain
– Large funding per applicant: a single SME can receive up to €2.5M for a 2-year project
€2.5M? Equity free? Really? Where is the catch?
The SME instrument programme has become a victim of its popularity: average success rates dropped significantly between 2014 (~11%) and 2015 (~4%) and this trend continued in 2016, despite larger budgets being allocated to the programme.
If we exclude the February 2016 cut-off (where no resubmissions were possible as the results from the previous cut-off came late), the average success rate for 2016 was ~3% across all topics. However, it is important to understand that many proposals are written by proposal writers and resubmitted several times. Therefore, the odds of success for a primo-applicant developing a proposal without external help is even lower than 3%.
An additional problem is that the management teams of innovative SMEs rarely have the time to study these funding instruments in detail and to allocate sufficient resources to write an application that can stand a real chance in the competition (typically 200-400 hours). They naturally turn to consultancies. However, it does not make much sense to spend €10,000-40,000 of consultant work to develop your phase 2 application for a competition where only 3% succeed (and where most proposals are written by consultants anyway, so hiring one does not give you any guarantee of success).
So is it still worth applying? And if so, how?
A small number of consultancies are offering proposal writing services on a “success fee only” basis (no win no pay). This means that they only invoice their services when (and if) the SME receives public funding. These consultancies can “afford” this business model because they have much higher success rates than the average consultants.
For example, our consultancy has developed over 100 SME instrument applications (phase 1 and phase 2) since the programme started. We have demonstrated repeatable success in the most selective part of the programme (phase 2) with 21 successful phase 2 projects (of which 10 projects granted in 2016), all developed on a “no win no pay” model.
Here is what we learnt from our successful proposals
A stringent qualification process is a must
We only take 20% of the projects that are presented to us. We have to turn down many projects that, despite being technically excellent and innovative, do not demonstrate sufficient market maturity and alignment with EC strategic roadmaps. Since we only work on success fees, we have to give the entrepreneur true feedback on their chances, and we will not engage in an assignment where we are not fully convinced we can succeed.
Our advice: make sure you fulfil all the criteria and ask for independent third-party feedback about your chances before you start investing time.
There is no shortcut to excellence
The level of competition is extraordinarily high, and entrepreneurs must be prepared for the fact that their project will not get funded if it scores anywhere below 14 (out of 15). This requires an outstanding application without any weakness. Our proposal writing process typically takes 3 months, and there is no shortcut: building an excellent proposal takes time, regardless of the quality of the input provided by the entrepreneurs.
Our advice: plan your proposal writing resources (internal or external) at least 3 months before the deadline.
Persistence is key… until a certain point
Over 80% of our proposals score above 13 (out of 15) but many do not get funded (as the EC budget is not sufficient for all excellent proposals). We sometimes resubmit proposals several times before getting them funded. But this is only valid for excellent proposals. Resubmitting an average proposal (between 12 and 13) with incremental improvements is doomed to fail. Another risk is that after 2 or 3 submissions, evaluators get a déjà-vu feeling and score you the same as on the previous iteration.
Our advice: do not resubmit over and over again a “good” proposal as only truly excellent proposals will be successful, but instead, explore other funding schemes with higher success rates (e.g. EUREKA Eurostars, national funding, etc.)
About the Authors
Zaz Ventures provides innovation funding services (EC funding bid writing) across a variety of domains (ICT, Security, Transportation, Space, Energy, Environment, Manufacturing, Health, AgTech).
The majority of our projects are carried out on a no-win-no-pay basis. This means that we only invoice our services when (and if) the client receives public funding. This formula is particularly attractive for very competitive schemes where the average success rate is below 5%, such as the H2020 SME instrument.
Zaz Ventures has raised over 100M Euros of funding for its customers since the beginning of the Horizon 2020 programme. See our success stories at https://storify.com/H2020experts
Follow us on Twitter: @h2020experts or visit: www.zazventures.com