Micro, small and medium-sized enterprises, SMEs, have difficulty in obtaining capital or credit, particularly in the early start-up phase. In the European Central Bank report on the results of the survey on "access to finance of SMEs in the euro area - October 2013 to March 2014", SMEs with struggling economies said they continued to perceive it as a very pressing problem where Greece (66%) remains the country reporting the highest percentage in this respect, followed by Italy (52%), Spain (45%) and Portugal (43%). The problem is less evident in Finland, the Netherlands, Austria and Germany.
"SME Instrument" is a new 2.8 billion euros funding scheme of the European Commission managed by The Executive Agency for Small and Medium-sized Enterprises (EASME) to support economic growth, thanks to which a business could receive up to 3 million euros in funding, business support and mentorship. It is part of Horizon 2020, EU Research and Innovation programme with nearly £67 (€80 billion) of funding available from this year up to 2020.
Enterprise and Industry says that more than 99% of all European businesses are micro, small and medium-sized enterprises : "They provide two out of three of the private sector jobs and contribute to more than half of the total value-added created by businesses in the EU. Moreover, SMEs are the true back-bone of the European economy, being primarily responsible for wealth and economic growth, next to their key role in innovation and R&D. In the enlarged European Union of 28 countries, some 23 million SMEs provide around 75 million jobs." Also nine out of ten SMEs are micro enterprises with less than 10 employees: "hence, the mainstays of Europe's economy are micro firms."
I interviewed Steve Rogers Deputy Head of Unit, SMEs, Financial Instruments and State Aid at DG Research & Innovation of the European Commission who explains more about the scheme.
What is the novelty of this program?
EU Framework Programs have been running for 30 years and have always been focused on projects, never on a particular firm. "SME Instrument" makes possible for the first time, single company support. If you are starting to do a "core business", with a business plan and an idea for commercialization, the last thing you want to do is to necessarily work with a consortium, so quite a lot of the proposals are provisionally submitted from single and individual firms. The "SME Instrument", as we referred to it for short hand, also allows a wide use of subcontracting and that is also a fairly novel feature.
Who are you looking for?
We are exclusively targeting SMEs that have a very strong ambition to develop, grow and internationalize, highly innovative SMEs with a business plan. If you have an idea that you want to explore, a concept that has feasibility in the first phase and then in the second phase you want to go and look at the replication of your idea in the market and in the third phase commercialise it and you want to subcontract some of the work, there are various rules about that under Horizon 2020.
How many applications have you had so far?
"SME Instrument" opened on March the 3rd and is its first round. We have a system where you can start the application online and save it to submit it later. There are about 600 applications at the moment in the system but only a few of those have been fully submitted so we don't know what the number is going to be by the first date. We could have between 900 and 1500 proposals for this first round of the "SME Instrument", even if it is hard to predict because we have never done anything like this before. We have asked a lot of intermediaries who deal with SMEs on a regular basis for various national associations: Member States have various intermediaries that give advice to SMEs, and everybody seems to think it is a reasonable estimate.
Can an individual apply?
Yes. An individual can submit a proposal with details of which company he subcontracted his idea to. I emphasize that at the moment this process is new. We are beginning to evaluate these first proposals as they come in and we have a team of evaluators who have expertise on setting business plans, looking at the marketability of concepts. However we do not have a lot of information yet about how the firms are putting the proposals together and the degree of subcontracting. I believe it is going to be at least another couple of months before we have that information at hand.
What do the three phases involve?
Another novel aspect is that the "Instrument" is divided into three phases: phase one is the concept and feasibility assessment where you get your lump sum of 50 thousand euros that should last for about six months, you start with a fairly short business plan which tells about your basic idea and concept. During this phase you will be looking at the feasibility of your idea, the risks involved, how to take it further, intellectual property, piloting, whether you might need to look for other firms to work with in the future, as you're bringing down the innovation chain. After six months you also come up, we hope, with an elaborated business plan which is the input to phase two, when you start looking more at prototyping, testing, piloting, scaling up... Successful completion of phase two will open possibilities for support from the access to risk finance facilities under Horizon 2020 and COSME. The latter should facilitate access to private finance. We had a lot of feedback from firms that already have a fairly elaborated business plan and asked to come in directly at phase two so it will be quite interesting to see how that will work out. What proportions of applicants would like to do that, at the moment, we do not know.
How is funding distributed?
In the first phase you would get the lump sum of 50 thousand euros. In the second phase we would evaluate how much money you actually need from the EU, it could be between 500 thousand euros to 1.5 million. There is a table where there are different amounts of money according to different themes, but it is demand-led, for example there are from 2.4 million for biotechnology-based industrial processes up to 45 million euros under ICT in the Open Disruptive Innovation Scheme.
How are you helping entrepreneurs to know about the funding?
It happens at different levels, at one extreme through big national launch events with the Minister of Science or Innovation and the Director General and on the other extreme there are many regional events going on, some of them can be organised by regional administrations. Most Member States have a network of National Contact Points and Local ones to advise potential applicants.
Will there be any coaching provided during the phases?
Another feature is coaching. Everybody taking part in phase one and phase two is offered free business coaching. It is voluntary for entrepreneurs to do. The coaches are going to be recruited over the coming three months: a call of special interest for potential coaches has been launched. They will be recruited and based in Member States. The Enterprise Europe Network will meet "SME Instrument" participants, who are interested in taking advantage of this. There will be three or four potential coaches in the region that know about the theme of the firm, your Enterprise Europe Network office will contact you to let you know about them, you as the entrepreneur will pick coaches which provide the best service and discuss the type of coaching plan needed. That is a novelty as it is the first time we are doing this. It will be available not just in capital cities, as the Enterprise Europe Network is widely spread, for example two years ago I was in Győr, Hungary, where the Chamber of Commerce was hosting an EEN office.
It is interesting to see that according to the World Bank Survey 2014 where 189 economies are ranked on their ease of doing business, the United Kingdom comes tenth in the world and second in the EU. Denmark is at the top of the EU list while at the bottom we have Czech Republic, Croatia and Malta.
What is the EU doing to adopt the same favourable EU business practises and tax schemes for all Member States?
It's a huge subject. It's a question of finding good practises in parts of Europe and taking into account that what works to that country in a particular economic climate and business culture might not work in another. One thing that has been done is organizing exchanges of best practises from different parts of Europe, a sort of mutual learning to look at access to finance, at setting up a company online. In the UK there is the Startup Loans Scheme which I have been tracking with interest, and in the Netherlands it has been done also. Enterprise and Industry organize these workshops and the Commission is facilitating this interaction. However we need to stress that what seems to work in one part of Europe may not be easily transposable to another part for all sorts of different reasons. We have to be humble about the whole thing: one size will not fit all. Ed.: The Enterprise Europe Network offers a feeback service called "Speak up on EU law", on legislative proposals and initiatives on small businesses, if you are facing problems doing business at home or across Europe.
What are you hoping to achieve in the future?
We are hoping to achieve a more tailored approach to helping highly innovative SMEs to get on the market.
"SME Instrument" is only one of the many Horizon 2020 funding programs start-ups can benefit from. Michael Jennings, European Commission spokesperson for Research, Innovation and Science, says: "Another interesting theme is that we do see start-ups or spin-out companies appear from established academic research projects we fund. Since the intellectual property belongs to project participants and not to us, they are free to do so. We sometimes even help - for instance our blue sky research agency, the European Research Council, by providing 'proof of concept' grants to existing grantees to test the marketability of their research findings."
Isidro Laso Ballesteros, Head of Sector of European Commission Startup Europe also explains that last April there has been a €15 million funding call to support ICT entrepreneurship and web start-ups, with 108 applications of which 5 or 6 have been made from organizations. They are also working on a 2016 call. The funding was not directly for entrepreneurs but for "consistent builders": accelerators, venture capitalists etc... Isidro says, "There have been a number of applications in particular from Tech City UK and Italy, the latter I suppose thanks to the new Italian legislations for start-ups, also Startup Europe Partnership is led by Mind the Bridge an Italian organization, so these activities are favouring access."
In relation to ICT, according to the European Commission Digital Agenda Scoreboard 2014 - Research & Innovation, Germany and the United Kingdom are the biggest recipient of EU funding and together with Italy, France and Spain account for 60% of total EU funding with 57% of participations over the period 2007 - 2013.
"SME" stands for micro, small and medium-sized enterprises and is determined by its number of employees (up to 250 employees) and either turnover (from 2 million up to 50 million euros) or balance sheet total (not exceeding 43 million euros). It does not need to satisfy both and may exceed one of them without losing its status.
The definition was adopted by the European Commission in 1996 and came into force on 1 January 2005. It was made for setting financial thresholds for micro enterprises, encourage the adoption of measures during the start-up phase, improve access to capital... and the European Commission, the European Investment Bank (EIB) and the European Investment Fund (EIF) invite Member States to apply it as widely as possible.
A single for-profit SME or a consortium of for-profit SMEs established in EU Member States or Horizon 2020 associated countries are eligible for funding. Other partners like research providers or larger companies, individuals and SMEs established in third countries can be involved as third parties in a subcontracting relationship. A start-up without balance sheet can also apply.
Iceland and Norway became the first non-EU Horizon 2020 associated countries while Albania, Bosnia and Herzegovina, Former Yugoslav Republic of Macedonia, Israel, Moldova, Montenegro, Serbia, Turkey are expected to be associated at the end of June or early July. Association of the Faroe Islands is not expected to be complete until late in 2014. Association of Switzerland is currently on-hold.
In 2014 and 2015 "SME Instrument" will sponsor SMEs operating within 13 themes:
High risk ICT innovation
Nanotech, or other advanced tech for manufacturing and materials
Space research and development
Clinical research for the validation of diagnostics devices and biomarkers
Sustainable food production and processing
Low carbon energy systems
Greener and more integrated transport
Eco-innovation and sustainable raw material supply
Urban critical infrastructure
Biotechnology-based industrial processes
Mobile e-government applications (2015 only)
SME business model innovation (2015 only)
Proposals must be prepared and submitted via the online proposal submission system under the Participant Portal. Calls for proposals are continuously open with several cut-off dates per year; the closest one is on the 18th of June.
Other useful links: European Small Business Portal.