Brussels, 1 October 2012
Questions and answers on support for Small- and Medium-sized Enterprises (SMEs) in Horizon 2020- The EU Framework Programme for Research and Innovation
Member States have put research and innovation at the top of the European political agenda, by adopting the Europe 2020 strategy and endorsing the Innovation Union in February 2011, making it a cornerstone of plans for investment in sustainable growth and jobs. On this basis, the Commission last year proposed a €80 billion budget for the next research and innovation programme Horizon 2020.
Speaking today at the 2nd European SME Convention, Commissioner Geoghegan-Quinn outlines key measures in Horizon 2020 to support small and medium-sized enterprises (SMEs), the backbone to the European economy (SPEECH/12/663). The 2nd European SME Convention is organised by UEAPME, the European Association of Craft, Small and Medium-sized Enterprises.
Why is research and innovation important for SMEs and the European economy?
SMEs are important for growth and jobs because 99% of all European businesses are SMEs.
85% of net new jobs in the EU between 2002-2010 were created by SMEs1
R&D expenditure by SMEs is lower in the EU than in the U.S. and less than a third of EU SMEs have innovative activities
Why are taxpayers funding R&D at EU level?
EU research funding generates enormous added value for Europe. €1 of EU Framework Programme funding leads to an increase in industry added value of between €7 and €14. The expected long-term macro-economic impact of the current Seventh Framework programme amounts to 900,000 jobs, of which 300,000 in research, and an extra 0.96 percent of GDP.2
Studies show that SMEs who are active outside their country of origin are more innovative: 26% of internationally active SMEs introduced products or services that were new for their sector in their country compared with just 8 % of domestically-focused SMEs. Internationally active SMEs are also more active with process innovations that are new for their sector, in their country (11% vs. 3% for the SMEs without international activities)3. EU research funding is designed to encourage such cross-border links.
How will SMEs be funded?
SMEs will be encouraged to participate across Horizon 2020 programmes through a new dedicated SME instrument. It aims to fill gaps in funding for early-stage, high-risk research by SMEs as well as stimulating innovation. It is expected that through this integrated strategy around 15%, or €6.8 billion, of the total combined budgets of the 'Tackling societal challenges' Specific Programme and the 'Leadership in enabling and industrial technologies' objective will be devoted to SMEs.
A new dedicated SME instrument
The new instrument will integrate R&I-related SME support that is currently spread across several programmes and initiatives (notably the EU's current Seventh Framework Programme (FP7) for research and technological development and the Competitiveness and innovation Framework Programme-CIP) into one comprehensive, simple and easily accessible scheme with simple rules and procedures. It will target highly innovative SMEs showing a strong ambition to develop, grow and internationalise, regardless of whether they are high-tech and research-driven or non-research conducting, social or service companies. Only SMEs will be able to apply for funding, and even single company support will be possible to ensure market relevance and to increase commercialisation of project results. SMEs can decide how best to organise the project and with whom to collaborate. It covers the possibility to outsource research and development critical to the innovation projects of non-research intensive SMEs.
How will the SME instrument work?
Support is provided in three different stages covering the whole innovation cycle (similar to the U.S. SBIR model4). A feasibility part (duration approx. 6 months. EU contribution in form of lump sum up to approx. €75,000) will allow an assessment of the technological and commercial potential of a project; a main grant to the innovation activity phase (duration 12-24 months, EU contribution €1 million to €3 million) will be provided to undertake research and development with the emphasis on demonstration and market replication. The commercialisation phase will be supported indirectly through simplified access to debt and equity financial instruments as well as various other measures, for example on IPR protection. Successful completion of one stage will allow an SME to move on to the next. Each stage will be open to all SMEs.
Relying on existing SME support networks, notably the Enterprise Europe Network (EEN), a mentoring scheme shall be provided to beneficiaries to complement funding under the SME instrument. SME Associations may continue to assist and to support their member companies in a European project as part of an SME-led consortium formed under the SME instrument. Such associations will thus be able to play an important role in the dissemination of project results.
What financial instruments (equity and debt) will support SMEs?
Greater use of financial instruments will help leverage yet further private research and innovation investments, including venture capital investments for innovative, high-tech companies, and in particular SMEs. Under Horizon 2020, a total amount of € 3.5 billion is budgeted for financial instrument facilities, and accompanying measures, for research and innovation. At least one-third of this amount will be dedicated to SMEs and small mid-caps. A leverage ratio of up to 5 is envisaged, meaning that for every euro provided through the financial instruments, additional finance of up to 5 euro will be generated.
Two financing facilities will be available:
A debt facility providing loans, guarantees and other forms of debt finance to entities of all forms and sizes, including research and innovation-driven SMEs
An equity facility providing finance for early- and growth-stage investments, with a particular focus on early-stage SMEs with the potential to carry out innovation and grow rapidly.
They will be implemented via a mandate to, or a partnership with, the European Investment Bank Group and/or other international financial institutions and national intermediaries. These Horizon 2020 facilities will be operated in conjunction with the financial instrument facilities of COSME, the Programme for the Competitiveness of Enterprises and SMEs, where €1.4 billion has been allocated to debt and equity financing in support of SMEs.
How will innovation in SMEs be encouraged?
Activities that will be funded from the €619 million budget of the specific objective 'Innovation in SMEs' include:
a) a specific action for research intensive SMEs building on the Eurostars joint programme. (SMEs will be encouraged to participate in other parts of Horizon 2020, such as the Marie Skłodowska-Curie Actions or the activity on Future and Emerging Technologies).
b) measures to enhance innovation capacity of SMEs through new and experimental types of SME innovation support. Measures may include, for example, projects animated by intermediary organisations to develop and demonstrate new industrial value chains between innovative SMEs and a commitment of regional authorities to put value chains in practice. Furthermore they may comprise assistance to SMEs to connect with research and innovation partners across the Union ('spin-in projects').
c) support for market driven innovation, for example, through procurement networks.
In this context, it is also envisaged to strengthen the role and innovation services of the Enterprise Europe Network - EEN (under the COSME Programme).
What measures help small and medium-sized enterprises (SMEs) to innovate in FP7, the current research programme?
Special attention was given to Small and Medium-sized Enterprises (SMEs) in the last Work programme (2013) for FP7 published in July this year with a package worth around €1.2 billion. This included financing for SMEs of around €970 million out of the €4.8 billion call budget for the "Cooperation" (10 thematic research priorities) programme. Ring-fenced budgets for SMEs, in some calls, covering up to 75 % of available funding, exist in nine of the 10 themes. There was also €250 million for the dedicated SMEs programme "Research for the benefit of SMEs", including demonstration actions for FP7 research results. Approximately 20,000 SMEs are expected to benefit from FP7 before the end of the Programme.5
What other financial instruments already exist?
The European Commission has partnered with the European Investment Bank Group to launch a dedicated guarantee facility to support lending by commercial banks to innovative SMEs. The Risk Sharing Instrument (RSI) is managed on behalf of the EIB by the European Investment Fund. A first agreement between the EIF and a commercial partner is due to be signed on Oct. 3. Several more agreements with banks and/or other financial intermediaries are expected to follow by year end.
The RSI aims to encourage banks to provide loans and leases of between €25,000 and €7.5 million to SMEs and small mid-caps undertaking research, development or innovation, and seeking finance for investments and/or working capital. Some 10 or so banks are expected to be involved in the pilot phase, allowing the RSI to reach up to 500 beneficiaries with a total loan volume of up to €1.2 billion.
Risk sharing instrument: http://www.eif.org/what_we_do/guarantees/RSI/index.htm
SEC (2005) 430
Small Business Innovation Research, http://www.sbir.gov
* All figures are quoted in constant 2011 prices.