Supporting innovation - SME instrument (the Innovation in SMEs programme and Access to Risk Finance) Ivan Kulchytskyy

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1 Supporting innovation - SME instrument (the Innovation in SMEs programme and Access to Risk Finance) Ivan Kulchytskyy President of AEI NCP ICT in Ukraine tel +38 (050) mail: kul.ivan@gmail.com

2 Some key messages about SME in HORIZON2020 Clara de la Torre, Director of Directorate C, Research and Innovation, DG RTD, SMES AND HORIZON 2020 INFORMATION DAY OCTOBER 18: Big change from the previous Framework Programmes is that the programme covers the whole innovation chain from basic research to innovative products. From lab to market; from bright idea to must-have product! More money will be available for testing, prototyping, demonstration and pilot type activities, for business-driven R&D, for promoting entrepreneurship and risktaking, and for shaping demand for innovative products and services. Horizon 2020 will therefore help the business sector to reap full commercial rewards from inhouse innovation. SMEs will receive around 20% of the combined budgets of the Societal Challenges -pillar, and of the specific objective Leadership in Enabling and Industrial Technologies, part of the Industrial Leadership -pillar, which in practice will mean about 8.65 billion Euro in EU support for Research and Innovation activities for sure going to SMEs. More importantly than the numbers still is the fact that the Union is determined to increase the impact of funding on the SMEs that are supported.

3 What are the problems? Between 70% and 88% of businesses regard administrative difficulties in other EU Member States as important in deciding whether or not to engage in cross-border trade Only 45% of European citizens would like to be self-employed, as compared to 55% in the United States and 71% in China Between 400,000 and 700,000 SMEs are unable to obtain a loan from the formal financial system Only 25% of SMEs in the EU export directly outside national markets and only 13% export beyond the EU

4 SME, entrepreneurs, innovation at the core of EU2020 strategy HORIZON 2020 COSME Regional funds

5 CIP 3,6 Competitiveness 2,4 1,1 Financial instruments 1,4 COSME FP7 R&D 54 R&D 77 HORIZON 2020 R&DI

6 Horizon 2020 Innovation in SMEs Extracts from WP: Support to research, development and innovation projects Creation of a favourable ecosystem for SME innovation and growth. Innovation in SMEs includes the SME instrument, for which budget is allocated in the Societal Challenges and Leadership in Enabling and Industrial Technologies, the support to the EUREKA/Eurostars initiative that provides funding for transnational collaborative projects of research-intensive SMEs and various actions that aim at developing and providing better innovation support services to SMEs. Innovation in SME is a forward looking complement to the European Structural and Investment Funds (ESIF).

7 SME instrument? Concept & Feasibility Assessment Demonstration Market Replication Research Development Procurement Commercialisation SME window EU financial facilities IDEA business coaching and complimentary services MARKET 7

8 Phase 3 = 2% budget Phase 1: Concept and feasibility assessment Input: Idea/Concept: "Business Plan 1" (~ 10 pages) 10% budget Activities: Feasibility of concept Risk assessment IP regime Partner search Design study Pilot application etc. 10% success 30-50% success Output: elaborated "Business plan 2" Lump sum: ~ 6 months Phase 2: R&D, demonstration, market replication Input: "Business plan 2" plus description of activities under Phase 2 (~ 30 pages) 88% budget Activities: Development, prototyping, testing, piloting, miniaturisation, scaling-up, market replication, research TL>=6 Output: "investorready Business plan 3" 1-3 (5) M EC funding ~ 12 to 24 months Phase 3: Commercialisation Promote instrument as quality label for successful projects Facilitate access to private finance Support via networking, training, information, addressing i.a. IP management, knowledge sharing, dissemination SME window in the EU financial facilities (debt facility and equity facility) Possible connection to PPC (and PPI?) No direct funding

9 Main features (1) Targeted at all types of innovative SMEs showing a strong ambition to develop, grow and internationalise Only SMEs will be allowed to apply for funding and support Single company support possible No obligation for applicants to sequentially cover all three phases; Each phase open to all SMEs; however SME strongly encouraged to go in phase1 70% funding (exceptions possible) 9

10 Main features (2) A Fast Track to Innovation pilot to be launched in 2015 Aimed at 'innovation actions' with a maximum of 5 partners and a maximum of EUR 3 million per project Bottom-up driven logic Continuously open call with three cut-off dates per year Higher weighting on impact (impact, implementation, excellence) Covering all fields across LEITs and Societal Challenges 10

11 Topics for SME-instrument in WPs of Societal Challenges and Leadership in Enabling and Industrial Technologies. Space-SME : SME Instrument ICT : Open Disruptive Innovation Scheme (implemented through the SME instrument) NMP : Accelerating the uptake of nanotechnologies, advanced materials or advanced manufacturing and processing technologies by SMEs PHC : Clinical validation of biomarkers and/or diagnostic medical devices SFS : Resource-efficient eco-innovative food production and processing BG : Supporting SMEs efforts for the development - deployment and market replication of innovative solutions for blue growth SIE : Stimulating the innovation potential of SMEs for a low carbon energy system IT : Small business innovation research for Transport SC : Boosting the potential of small businesses for eco-innovation and a sustainable supply of raw materials DRS : Critical infrastructure protection topic 7: SME instrument topic: Protection of Urban soft targets and urban critical infrastructures BIOTEC-5a : SME boosting biotechnology-based industrial processes driving competitiveness and sustainability

12 Evaluating SME instrument activities Commercialisation potential and economic impact There has to be a market Excellence in innovation Company's potential to achieve the envisaged results Easy to use/produce for the customer and the firm Technical solution possible and better than existing ones Plus: EU added value

13 Technology readiness levels (TRL) TRL 1 basic principles observed TRL 2 technology concept formulated TRL 3 experimental proof of concept -========== TRL 4 technology validated in lab TRL 5 technology validated in relevant environment (industrially relevant environment in the case of key enabling technologies) TRL 6 technology demonstrated in relevant environment (industrially relevant environment in the case of key enabling technologies) -=========== TRL 7 system prototype demonstration in operational environment TRL 8 system complete and qualified TRL 9 actual system proven in operational environment (competitive manufacturing in the case of key enabling technologies; or in space)

14 Eurostars 2 ( ) H2020 Regulation / Specific Programme - "Innovation in SMEs" : Support for research intensive SMEs "The goal is to promote transnational market-oriented innovation of R&D performing SMEs. A specific action shall target research intensive SMEs in any sectors that show the capability to commercially exploit the project results." " The action will be implemented by an Article 185 TFEU initiative building on the Eurostars Joint programme and reorienting it along the lines stated in its interim evaluation"

15 EUROSTARS TARGET GROUP: R&D performing SMEs > R&D performing SMEs strongly contribute to growth and job creation, especially when engaging in transnational collaboration in research > No other programme specifically targeting those SMEs > Consortium: at least one R&D performing SME engaging in transnational research collaboration either with another SME and/or including other actors of the value chain (eg: univeristies, research organisations) > Results of activities are expected to be introduced in the market within two years of the completion of an activity

16 INTEGRATION OF NATIONAL PROGRAMMES: - A pre-condition for art 185 Initiatives in H2020 (Art 20 Regulation) - - Three levels of integration Scientific integration: Participating states accept a single evaluation by independent experts and common eligibility/selection rules and criteria Management integration: The Eureka Secretariat is designated as dedicated implementation structure in charge of implementing Eurostars and receiveing, allocating, monitoring EU funding Financial integration: Earmarked funds by Participating States for Eurostars selected projects (creating a Virtual Common Pot: each participating state funds its own participants following national funding rules/rates). Ranking list binding for allocating funds.

17 Eurostars ( ) - Key Features - Final beneficiaries: R&D performing SMEs*. - Participants: 33 countries in the Eureka framework (28 EU Member States and 5 Associated Countries to FP7) + EU. - Funding: Eurostars countries: 300M EU contribution: max 100M = 400M public funding - Co-funding principle of projects - Bottom-up Status November 2010 *SME which reinvests at least 10% of its turnover to research and development activities or dedicates at least 10% full-time equivalents to research and development activities.

18 Lessons learned from the current initiative > The Interim Evaluation Report of a group of Independent Experts chaired by Ms. Laperrouze (2010) concluded that: "Eurostars is a good programme, which meets its objectives and adds value to European R&D performing SMEs" and it is worthy to be continued in the future and preferably with an increased budget BUT recommendations for improvements: i.a. leaner administartion, better time to contact, respect of Eurostars rules, more integration > Main achievements of Eurostars up to now: Higher than expected number of application submitted and projects funded: -> more than 3,500 applications during the 10 Cut-offs; 780 approved projects SMEs predominant in the consortium composition -> SMEs represent more than 70% of the 11,748 applicants and 80% of total project costs of projects funded Higher than planned E* countries funding: -> from 300M to 400M

19 EUROSTARS 2 Key Features A "Reinforced partnership" option based on full implementation of the recommendations made in the Interim Evaluation Report (Budapest document June 2011) Expected Improvements of Eurostars 2 (following recommendations): Quicker progress towards more scientific, management and financial integration, including a better synchronisation of funding. Shorter time to contract Respect of the Eurostars rules by all participating countries Increased Focus on SMEs with no previous international research experience Foreseen Funding (as in COM proposal) 3 times higher than E*1: - E*2 participating states (33 countries)= 861M - EU contribution = ~ 287M (1/3 of Eurostars countries' contribution) Total public budget increase from 400M in E*1 to almost 1.2 billion

20 "Access to risk finance" in HORIZON 2020:Rational Part of the Horizon 2020 budget (3.69%)* will not be provided through grant funding but in the form of risksharing (for loans and guarantees) and by providing risk finance (equity) Goal: Stimulate more investment in research and innovation, notably by the private sector Leverage effect: to attract additional finance and multiply HORIZON 2020 budget resources Addressing financing gaps: Intervention only if there are financing gaps in the R&I delivery chain (e.g,due to high risk) Building a bridge from R&D to Innovation: Effective and costefficient way to complement grant funding under Horizon 2020 and translate R&D results to the market

21 Principles and Implementation Continue and refine proven facilities that have supported R&I in : RSFF, RSI, GIF-1 (RSFF - the Risk-Sharing Finance Facility, RSI -Risk-Sharing Instrument for SMEs, GIF1 is to facilitate access to finance for SMEs) Continue to run facilities in a demand-driven way(no earmarking; "first come, first served"), coupled with targeted awareness-raising Encourage top-up funding to target sectors/policies Keep focused on attracting private investments As now, implementation via entrusted entities (EIB/EIF) (NB exploratory talks with other institutions) As before, select financial intermediaries through open calls for expressions of interest Complementarity with other EU's Financial Instruments, i.e. COSME

22 HORIZON 2020: "Access to Risk Finance" (sub)programme o Objectives: Facilitate access to finance for: (1) RDI-driven/ innovative SMEs & small midcaps; and (2) Ambitious RDI projects carried out by a variety of recipients (companies, universities, research centres etc.) o o Aim: At least 30% of the budget to serve R&I-driven SMEs and small midcaps One Debt instrument; one Equity instrument; Accompanying measures

23 What does "Access to risk finance" mean in the Horizon 2020 context? Using part of the Horizon 2020 budget to stimulate more investment in research and innovation not through grants but in the form of Financial Instruments: o Debt finance Loan finance, i.e. risk-sharing loans to companies and for innovative projects introducing new technologies Guarantees to financial intermediaries (commercial and development banks) that provide loans to research- and innovation-driven SMEs and small mid-caps o Equity finance Equity, i.e. venture capital for newly created companies exploiting R&D results

24 RSFF: Risk-Sharing Finance Facility Innovative loan facility co-developed by the Commission and the EIB; FP7 budget support (EUR 1 billion) for risk-sharing Operational since 2007 and available until the end of 2013 Loan finance for Research, Development, Demonstration and Innovation in EU Member States and FP7 Associated Countries Demand-driven; projects supported on a first come, first served basis Very successful: Loans of EUR 8.8 billion for more than 90 projects in 23 countries (EU Member States and Associated Countries) 24

25 RSI: Risk-Sharing Instrument for SMEs Guarantee facility under the RSFF for research-driven and/ or innovative SMEs and small midcaps (up to 499 employees) Pilot scheme (2012/2013) to test guarantees and counter-guarantees for loans/ leases for RDI investments; Implemented by the European Investment Fund (EIF); FP7 budget support to RSI for risk-sharing: EUR 270 million Significant leverage effect expected: Approximately EUR billion of EIF guarantees and total loans and leases of EUR 2.25 billion for the period Important to know: RSFF and RSI are the "blue print" for the future loan and guarantee Financial Instruments of Horizon Not legally binding

26 SMEs and Small Midcaps Who or what is eligible for a loan? o o o Loan is for investments in R&D or innovation with significant technology or application risk or Loan is to a "fast-growing" enterprise (meaning >20% p.a. in growth or employees over last 3 years) or Loan is to an "enterprise with significant R&D or innovation potential" which means what, practically? Catalogue of criteria just one must be met * Actual criteria, subject to fine-tune -This instrument is likely to be available from the first quarter of 2014

27 "Enterprise with significant R&D or innovation potential" o o o o o o o o Expenditure in innovation in last balance-sheet is at least 20% of loan volume At least 90% of loan is earmarked in business plan over next 2 years for R&D/innovation expenses or investment Firm awarded grants, loans or guarantees from EU or national R&I support schemes within last 2 years Firm awarded an innovation prize within last 2 years Firm registered a patent within last 2 years Firm has been invested in by high-tech VC fund Firm is based in science, technology or innovation park Firm received tax benefits linked to RDI investment within last 2 years 27 Not legally binding

28 RSI - Financial Intermediaries (up to now) N Financial Intermediary Country 1 Unicredit Bank Austria Austria 2 Ceska Sporitelna (Erste) Czech Republic 3 ABN Amro Netherlands 4 Bankinter Spain 5 AIB Ireland 6 Banco Popolare (joint application - 2 FIs) Italy 7 Cassa Di Risparmio di Cento Italy 8 Deutsche Bank Germany 9 Komerční banka Czech Republic 10 BPI Portugal 11 Bank Pekao Poland 12 BPCE (joint application - 17 FIs) France 13 Credito Valtellinese Group (joint application - 4 FIs) Italy 14 Raiffeisen Leasing Polska Poland 15 Halkbank Turkey 16 Bpifrance financement France

29 HORIZON 2020 Financial Instruments o Equity finance: Early stage finance for innovative enterprises - notably seed and start-up companies, growth-stage also possible. ("Successor to GIF-1") Pilot facility for technology transfer (under development) to bring R&D results from public research organisations and universities to the market o Implementation of the guarantee facility (debt) and the equity facility will be made in co-operation with COSME financial facilities for SMEs o Accompanying measures: Technical and financial assistance (of EIB); improving investor-readiness of start-ups, SMEs and small midcaps; piloting co-investment by Business Angels; prizes for best practices in R&I finance etc.

30 o Horizon 2020 Financial Instruments More information RSFF European Investment Bank (EIB) RSI European Investment Fund (EIF) o EU Access to Finance Specific portal Portal doing business in Europe o Not legally binding

31 Who supports if you have an idea? The 'National Contact Points' for the different parts of Horizon But not specialist in SME instrument The 'Enterprise Europe Network' is a specialist in SME opportunities but lacks depth in themes The two shall cooperate closely for your benefit

32 Horizon 2020 support innovation The organisation of a mentoring scheme Central EC management (e.g. Exec. Agency) Network of innovation Agencies (e.g. TAFTIE) Investors Networks (e.g. EBAN, EVCA) Industry Sector Plaforms (Associations, Clusters) Specialist support for SMEs Coaching/ Mentoring Networks Coaching «strategic innovation» EEN SME/ Start-up Coaching «financing» Coaching «technological innovation»

33 COSME and Horizon 2020 Both aim at creating jobs and growth, but in a complementary way: COSME by policy support and horizontal actions, Horizon 2020 by direct financial assistance to innovative projects Both offer financial instruments building on the same platforms: COSME to all SMEs, Horizon 2020 to innovative SMEs and mid-caps The Enterprise Europe Network (funded under COSME) also provides information to SMEs on Horizon 2020 and other EU programmes Need for a specific SME programme to take full account of their economic and political importance

34 Specific actions to improve access to markets Enterprise Europe Network 600 business support organisations in 50 countries Information and qualified services for SMEs at their doorstep, including information on access to EU funding programmes Help in finding international business partners making full use of EU-wide business support, technology transfer services engaging European SMEs in shaping EU legislation

35 Supporting SME activities outside the EU European added value consists in: Providing better overview, more coherence, visibility / transparency : we are already starting a «mapping» exercise and the creation of a dedicated portal Promoting clusters and networks for SME internationalisation

36 Ukrainian delegation at FAIR INNOTECH in Kielce, Poland, Oct 2013

37 Thank you very much Ivan Kulchytskyy President of AEI NCP ICT in Ukraine tel +38 (050) mail: