European Innovation Council heavily criticised in parliament report – EURACTIV.com

Updated to include comments from the Commission.

The Commission must find a new approach to managing the European Innovation Council (EIC) following extended issues in its operations, according to a draft report released by MEP Christian Ehler on Wednesday (13 July).  

Since its launch last year under the Horizon Europe Programme, the EIC, which funds deep-tech startups in the EU, has attracted significant criticism due to delays in the release of its financing to recipients. 

Ehler, who acted as Horizon Europe’s rapporteur for the industry committee of the European Parliament (ITRE), has been a vocal critic of the EIC’s functioning and announced in June that he would launch an investigation into the fund’s operation. 

The European Innovation Council (EIC) will provide €20 million in funding for Ukrainian startups, the Commission has announced, just days after an MEP launched an investigation into the problems that have plagued the body since its launch.

The investigation’s draft report, presented to the committee on Wednesday, raises significant concerns about recent changes to the management structure of the EIC and recommends that the Commission reassess its approach to the body’s governance. 

“The main issue on the EIC is that the Commission is reshaping the programme to fit its existing bureaucratic habits rather than making it fit for purpose along the lines of the legislation, and more crucially, in line with the needs of applicants,” Ehler told EURACTIV. 

“Yesterday’s first discussion in the ITRE meeting showed that me and my colleagues received a consistent message from stakeholders: the EIC is not delivering what we need,” he said.

Criticism of the EIC has primarily been related to delays in the release of funding from the EIC Accelerator, the branch dedicated to financing startups and SMEs developing disruptive technologies. 

Last year, the Commission transferred the management of the EIC to the European Investment Bank (EIB) due to a lack of capacity to undertake the task itself and while this was initially met with some resistance from member states, it was finalised in February.  

Numerous companies, however, have subsequently experienced significant delays in receiving the funding they have been granted. The Commission attributed this backlog to the restructuring which it said was set to be completed by the end of June. 

These management changes form a key part of the concerns raised in the report, which argues that transferring management responsibilities to the EIB and an external fund manager will not provide “the flexibility and strategic consideration needed to make the EIC a success” in the way that direct management either by the Commission itself or via a “dedicated investment vehicle” would. 

The delays in delivering funding to recipients are also described as dismaying the report’s author. It is emphasised in the report “that the delays were completely and only the result of conflicts between different DGs of the European Commission about the management of the EIC Fund” and these “interservice conflicts” are described as having “put at risk 96 European deep-tech companies.”

Concerns are also raised about the EIC’s investment terms, particularly a policy mandating that the fund refrains from being the lead investor in an equity round and that companies bring in matching external co-investment, measures which the report describe as going “against the objective of the EIC.”

Instead, the report “firmly rejects the notion” that the EIC cannot be the sole or lead investor, arguing that its capacity to inject capital into companies at points when the market is not otherwise ready to is one of the key purposes of the EIC. 

Another of the fund’s core purposes, the report notes, is its ability to take risk, on the basis of which it says it “notes with concern that mixed signals are received by stakeholders from evaluators regarding the appropriate risk and bankability of EIC Accelerator proposals.”

Rather, it says, it is “deeply convinced that the EIC Accelerator can only be successful if there is a clear policy and communication on the appropriate risk and bankability for EIC Accelerator projects.”

The Commission on Tuesday (5 June) released its new European Innovation Agenda, setting out 5 core channels through which it will seek to boost deep tech investment and innovation within the EU

Based on the assessment, the report includes a number of recommendations, most prominently calling on the Commission to “reassess its implementation of the EIC Fund and to find a new management model that reflects the ambitious and transformative nature of the EIC.”

Within this new approach, it says, the body’s Investment Committee and the EIC Fund Board should be maintained, while the EIB and appointed external fund manager take care of “day-to-day portfolio management”. 

It also urges the development of an investment strategy for equity investments grounded in “milestones based on the merits of the innovation as well as the strategic objectives of the Union” and recommends the appointment of an independent body to oversee the Accelerator’s implementation, to be in place by 2025 at the latest.

“The Horizon Europe Regulation establishes that for managing EIC blended finance, the Commission shall make use of indirect management”, a Commission spokesperson told EURACTIV. “The Commission is now working to set up the indirect management architecture as soon as possible.”

“It is true that due to the need of the EIC Fund restructuring under the provisions of the Horizon Europe legislation and technical challenges, the EIC Accelerator scheme experienced delays in the signature of grant and investment agreements for companies selected in 2021”, they added.

“All delayed grant decisions for companies that requested blended finance from the 2021 cut-offs are now expected to be taken by the end of summer.”

[Edited by Luca Bertuzzi/Nathalie Weatherald]