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Editorial

The SME Instrument: New Funding Opportunities for SMEs

Dr Bernd Reichert

Under Horizon 2020, the European Union's funding programme for research and innovation for 2014-2020, there is a new tool – the SME Instrument – through which the EU will provide direct funding to SMEs. Indeed, it will be the only instrument which is exclusively accessible to SMEs.

The SME Instrument is designed to support the growth and internationalisation of SMEs through innovation, and several features have been developed to achieve this goal.

The first feature concerns the type of SMEs which it will support. It is aimed at innovative companies with growth potential and ambition to internationalise – that is, companies targeting a European and/or global market. These companies do not need to be part of a consortium, as the tool can provide single-company support. Although the companies supported need to be innovative, they do not need to be high-tech nor research-intensive, since the SME Instrument also aims to support non-technological forms of innovation where appropriate.

The SME Instrument will support a particular range of activities. These activities correspond to a high ‘technology readiness level’ (TRL 6 or higher), which means that the technologies being developed (devices, materials, software, work processes, etc.) are relatively mature. The activities supported are undertaken in a production environment and might include scaling-up, miniaturisation, piloting activities, and test and demonstrator activities.

Dr Bernd Reichert, Head of Unit of the Executive Agency for Small and Medium-Sized Enterprises (EASME), summarises it this way: ‘The SME Instrument is a new company-centred activity aiming to support and fund the growth potential and internationalisation ambitions of small companies that base their growth and market strategy on completely new approaches and breakthrough innovation.’

Available Support

The support available through the SME Instrument is structured, and depends on the stage of development of the product or service.

There are three phases. Phase 1 is the feasibility phase or ‘proof of concept’ phase, and involves such activities as market studies, intellectual property rights (IPR) studies, costumer surveys, risk assessments, and feasibility and viability assessments. For this phase the support provided is a lump sum of EUR 50,000.

Phase 2 is the innovation project phase or ‘demonstration of commercial potential’ via such activities as prototyping, testing, piloting, miniaturisation, scaling-up and application development. For this phase the SME Instrument will provide funding in the indicative range of EUR 0.5 million to EUR 2.5 million – typically 70% of funding required by the SME.

Phase 3 is the commercialisation or ‘go-to-market’ phase. For this phase the SME Instrument will not provide direct funding but will support the SMEs through investor readiness activities, IPR support, networking activities, and awareness raising with respect to the financial instruments (both equity and loans).

This structure has been adopted to best serve the needs of the SMEs, Dr Reichert explains. ‘On the one hand side we know that there are many companies entering public support programmes without a clear strategy about what to achieve during the project and especially afterwards during exploitation and commercialisation. On the other hand small companies have often complained that they are not able to embark on a bigger, longer project without knowing the risks and boundary conditions linked to it. That's why Phase 1 has been created.’

In all, the funding available through the SME Instrument during its first two years (2014-15) will be about EUR 500 million, and through the course of Horizon 2020 (2014-2020) it will total about EUR 3 billion.

There is also a coaching and mentoring scheme provided through the Enterprise Europe Network (EEN) for all successful applicants in Phases 1 and 2, in order to help them maximise the use they can make of the funding. The coaching will be provided through a central service in EASME. The EEN will function as the first contact between company and coach, to assess company needs, support in the selection of the right coach, support the company and coach in case of problems, and so on.

Dr Reichert explains: ‘We think that companies growing strongly and wanting to enter new global markets also need new skills in management, marketing, and so on. The coaching will cater for this.’

Applications

After its starting date on 1 March 2014, SME Instrument projects can be submitted to a continuously open call with about four cut-off dates per year when funding allocations will be decided. A company can submit a proposal at any time, which will immediately be evaluated by external experts. If the evaluation scores are all above the required thresholds, the application will be held until the next cut-off date, when all proposals will be ranked according to quality and the best proposals will be funded based on the available budget. The first cut-off for Phase 1 will be in June and for Phase 2 in October. After this, the cut-off dates will be in March, June, September and December.

Application for support through the SME Instrument is intended to be simple. The application for Phase 1 is just 10 pages, and times to contact are short (envisaged as three months for Phase 1 and six months for Phase 2). The rating of applications will be based predominantly on the envisaged market opportunities, the company’s growth potential and the company team.

Competition is expected to be very high, although it is expected that most of the companies showing a very promising result with respect to feasibility and viability after Phase 1 will be provided funding under Phase 2.

‘Only the very best applications will get support,’ Dr Reichert warns. ‘So it is important that before applying SMEs reflect very carefully whether European funding, especially the SME Instrument with its high quality claim and presumably very high application numbers, is really the best option. We intend to find the gold nuggets of small European companies among a lot of sand and – hoping that it is gold we will find and fund – we will support it with various services in order for the company to have improved chances to grow and prosper.’