Press "Enter" to skip to content

‘It’s going to kill your business’: Startups turn on €2B EU fund

Several European startup leaders feel they have been misled when it comes to the funding terms of their European Innovation Council Accelerator grants | Michel Porro/Getty Images

A number of high-tech, European startups awarded cash and investments by a special European Commission innovation fund say the process has actually left some of them on the verge of bankruptcy.

They say that after having been told the EU would raise capital investments for them, they were later informed that they would, in fact, be forced to raise at least half of the cash independently with investors they source themselves.

This has put the startups — all of which were selected for funding by the European Innovation Council (EIC) Accelerator — in financial difficulty, founders said. As a result, several fear they will have to lay off staff or even shut down.

“Don’t touch this instrument because it’s going to kill your business,” said the CEO of one of the companies who, like others, spoke to POLITICO on condition of anonymity due to concerns about future funding.

The EIC Accelerator, which is run by the European Commission and backed by the European Investment Bank, was set up in 2019 to foster EU startups developing breakthrough technologies including nanoelectronics, agricultural streamlining or battery technology.

Many of these companies are spin-offs from university research programs that might struggle to raise funds via traditional means. The Accelerator, which has made €2 billion available for the 2019-2020 period, aims to help them gain critical mass and commercial viability, in keeping with the EU’s aim of bolstering so-called “tech sovereignty” in the bloc.

But the founders and directors of nine startups, among 75 selected by the fund, said the terms of their funding were not clear.

All the companies in question received a first tranche of their €2.5 million grant. The trouble came with the equity funding aspect of the fund, which would allow investors to put in anywhere between €500,000 and €15 million in return for a stake in their firm.

The founders said that despite having been told the Commission would help to find those investors, they have been left on their own to raise 50 percent of the up to €15 million. The startups are now worried about how they will raise the money. Business plans contingent on the investments they believed would be guaranteed are now at risk of collapsing.

As proof of the Fund’s original commitment, they point to the document they received when they were first selected, which states: “If there are no co-investors, and upon positive conclusion of the due diligence phase and of the investment negotiation, the EIC Fund will nonetheless provide the investment needed by the company.”

Asked why the startups feel they have been misled about the funding terms, a spokesperson for the European Commission said: “It is crucial to underline that never the companies were promised a firm equity amount.”

The spokesperson added: “We are not forcing companies to go out for funding to replace the EIC. We are on the contrary helping them to attract other investors.” Read from source….