Horizon 2020 SME Instrument funding – the way to Champions League of SME’s

New qualification round of SME “Champions League” was closed September 7. Karostech  has been assisting four companies to apply for Phase 1 funding by the last cut-off date. In this blog we share some cumulative experience and observations from the recent SME Instrument journeys with our customers.

Horizon 2020 SME Instrument funding is generally considered very beneficial for companies. Indeed, 50 KEUR grant is issued by the European Commission in Phase 1 just for the feasibility assessment and business planning. Furthermore, up to 2.5 MEUR is available in Phase 2 for SME’s with disruptive business ideas having the potential to become global market leaders.

In terms of volume and impact this grant is comparable to venture capital investment, still not diluting the ownership and decision making power of current shareholders.

Sounds like any entrepreneur’s dream! However, since the launch of SME Instrument program, only 328 out of 5388 applications have been approved to Phase 2 funding (after Feb. 2016 cut-off). These figures clarify why the European Commission calls SME Instrument beneficiaries champions playing in the Champions League for European SME’s. So is applying worth of effort, if only 6% of applications get funded?

It’s quite common nowadays that informal application is enough to attract funding. Both public and private investors often make their decisions mainly based on pitching performance. Formal business planning quickly becomes legacy, especially within the agile and hyperdynamic start-up culture. Following very strict and formal requirements of SME Instrument make the application procedure time consuming, which might be mission impossible for many companies due to many practical reasons. First, very few SME’s are so structured in their business planning that filling the application with up-to-date data could be done by copy-pasting from the existing documents. Second, very few entrepreneurs are able to realistically evaluate the business potential of their companies. Typical problems here are either the excessive optimism (“we have unique technology and no competitors”) or too narrow local focus with no clue of global markets. Finally, for most of entrepreneurs spending a month of their time to the application with such a low success expectations feels just unreasonable. There are more important things like, for instance, sales which have direct impact on company’s business. And delegating the responsibility to lower level simply doesn’t work in case of SME Instrument application process.

The founders and management team have to be personally involved in order to make a successful application.

One of our recent customers wondered “how can it be so formal, no entrepreneur has time for this!”. Yep, that’s an opportunity for an external expert to step in and guide the company through the process. Well, it takes the consultant’s time too, but company’s own resources can be used for those “more important” things, in other words for everyday business operations. An effective external expert is able to put together a high quality application after having 3-4 intensive face-to-face meetings with the entrepreneur. All other information can be gathered from public sources, material provided by the company and his own business experience. And yes, it takes at least four weeks time to do it properly from the start to the final submission. Usually, the customer wants the consultant to do the writing. It’s just fine for us, we know how to do it. However, in order to ensure company’s engagement with project’s objectives it’s important to dedicate at least one person in the company, who’s closely involved in the process.

Another important thing to remember is that each application is evaluated by four independent evaluators possibly having very different backgrounds. Some may have academic or technical background, while others may come from finances or business development. The applicant has no chance to make personal impact on evaluators, the evaluation happens based on the written application only. So it has to be well balanced to satisfy evaluators with diverse backgrounds.

A good application can be well compared with the business plan.

In fact, not many start-up or growth companies have such a detailed business plan. Why don’t you get one as an extra bonus!

So is it worth of trouble afterall? NO, if you’re personally not so structured, but still not ready to outsource the process to the external expert.

YES, if A) you feel having real potential to reach Phase 2 funding, B) you consider the point of view of experienced external consultant worth of small investment.

Some of our customers especially appreciated the impact the application process had to streamlining company’s marketing communication. For instance, companies start using parts of application text and figures produced for the application in their marketing. The core message becomes clear and that immediately affects sales. One of the customers said that the company has benefited from the application process no matter what the final result is. However, the positive funding decision will definitely be a nice bonus both for us and the customer. The best thing a consultant can hear after the process is the question whether his services can be further used in the project implementation phase. We hear it each time after the submission is done. Hopefully, in October we’ll face a positive problem, when multiple applications get positive funding decisions.

So far Karostech has made seven applications for five customers, four from Finland and one from The Netherlands. Two out of three have already passed the evaluation and been approved.

Our customers have so far received 2.1 MEUR from the European Commission.

See you in the Champions League!

Karostech Ltd
About The Author
Erik is one of the co-founders of Karostech. Having a strong hands-on experience with starting up and developing technology based business, he is a seasoned consultant in the fields of ICT and innovation management. He also has an experience of acting as an expert in large EU funded cross-border projects.

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