Finance

Innovation investing stimulates European SME growth

Bernd Reichert of the Executive Agency for Small and Medium Sized Companies Brussels, updates about the European Commissions funding tool specifically targeted towards SMEs – the SME Instrument – as part of its Research and Innovation Framework Programme called Horizon 2020. The SME Instrument has a budget of around 3 billion Euros in grants until the year 2020.

Europe has a pulsating tissue of small businesses that are at the basis of the continent’s technological innovation. 99% of all businesses in Europe are small and medium-sized enterprises (SMEs). Creativity, innovation and risk-taking abilities are clearly not missing as most of the highly innovative ideas and products that enter the market every day emanate from SMEs, making them the keystone of Europe’s competitiveness. Still, compared to other parts of the world, like the US and Japan, SMEs in Europe struggle to get the cash flow needed to bring their brilliant ideas on the market, and to scale up. As the risk capital market fails to support them in this critical moment, small businesses are stuck in the “valley of death” that leads to many good prototypes and concepts being forsaken in the back drawer.

With this in mind, we in the European Commission decided in 2014 to set up a new funding tool specifically targeted towards SMEs – the SME Instrument – as part of its Research and Innovation Framework Programme called Horizon 2020. The SME Instrument has a budget of around €3 billion in grants until the year 2020. We aim to identity and invest in small but highly innovative companies with a strong growth potential. As a return the companies create growth, investments, jobs and put fresh, innovative and useful technologies and products on the market. The programme has two phases – the first phase offers a grant of €50.000 to carry out a feasibility study and the second phase provides a grant up to €2.5 million (€5 million for medtech and red biotech projects) to bring the concept to market-maturity. As funding the companies is a good start but not sufficient, we offer them coaching services, training and support to commercialisation as part of the socalled phase 3 of the programme.

Inspiring cases show us that public funding of SMEs bring about more investments, more growth, more jobs and the return is manifold for them and society at large.

Hundreds of companies we have selected have taken advantage of the funding as a springboard to grow and attract further investments, but to make our case we’ve chosen two to illustrate how this growth potential draws bigger and global investments.

Ultrahaptics is a British company founded in 2013 based on technology originally developed at the University of Bristol, UK. The technology that enables users to receive tactile feedback without needing to wear or touch anything. The technology uses ultrasound to project sensations through the air and directly onto the user. Users can ‘feel’ touchless buttons get feedback for midair gestures or interact with virtual objects.

With this startling technology Ultrahaptics secured seed funding in 2014 and received in 2015 an SME instrument grant worth almost €1.5 million. These allowed for the further development of the technology and the expansion of the engineering team. To date the company has raised more than €14.2 million in private funding of which €12.6 million in a “Series A Round” of funding.

Likewise, Dyadic, an Israeli company that develops solutions to online data breaches, has grown exponentially since they received a €2 million SME Instrument grant in October 2014. Dyadic delivers encryption and authentication services that are simple to use and don’t disrupt systems or workflows. Over the last years, the world has seen an unprecedented escalation in the number and size of data breaches, most due to hacking. The objective of Dyadic Security is to provide high security to organisations, and to protect digital assets, even in the event of a network breach. Since the grant with the SME Instrument, the company made a deal of $2million with a Japanese multinational which in turn resulted in an investment round with a private fund in Silicon Valley.

These inspiring cases show us that public funding of SMEs brings about more investments, more growth, more jobs and the return is manifold for them and for society at large. New innovations, new technologies, new medicines, diagnosis tools, new sustainable energy systems in the end benefit us all – in addition of course to generating revenues for our businesses. Their growth potential is huge.

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BERND REICHERT, Executive Agency for Small and Medium Sized Companies Brussels, Belgium.

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