Supporting SMEs is at the heart of the Europe 2020 objectives, but do they go far enough? A future roadmap should lead to a single European investment environment, writes Gary Bridgeman
Gary Bridgeman is managing director of Hodos Consulting, a consultancy focused on innovation and business strategy for public financing.
Small and Medium-sized Enterprises (SMEs) face more difficulties accessing finance compared to larger companies, especially when it comes to the specific needs of these enterprises. Also, it is well recognised that venture capital access is more difficult in Europe, than say the USA.
European policy has previously been more academic when considering funding for research and development, but Horizon 2020 is seeking to change that and there are now a range of financial policies and instruments to assist SMEs. Supporting SMEs is also at the heart of the Europe 2020 objectives. The question is does Horizon 2020 go far enough?
The EU research and innovation programme, Horizon 2020, provides support to SMEs through a dedicated new instrument allocating €3 billion to all types of market oriented innovative SMEs showing strong company leadership and effective innovation and IPR strategies. And by bringing together measures that are currently spread across several programmes, the instrument seeks to be a comprehensive scheme adapted to SME needs – via funding technical feasibility, prototype development and by supporting the commercialisation of ideas.
However, innovation isn’t a linear process but rather an organic one which requires a different funding and investment environment than previously seen in other European programmes. These funding programmes need to be able to support pure science research and enable start-ups and early stage companies to develop their ideas. We are facing global challenges – China, India, and even America are partners and competitors.
The SME instrument is not for everyone
It is clear that the SME instrument isn’t targeted at micro or start-up companies. The European Commission publicly stated this when it launched the instrument earlier this year. But then who is it right for?
The European Commission is looking for ideas with the potential to change the current paradigm. The focus is on highly disruptive innovation and evaluators will be looking out for applications that demonstrate potential for society level change across Europe. This is a very high bar, and one that will lead many companies to waste resources in applying for a funding instrument that isn’t right for them.
How can companies know if they are right for the instrument?
The competition for funding will be fierce; the funding available may seem large but simple maths shows that once divided across Europe, the number of eventual winners will be limited.
Many companies apply for funding programmes that aren’t right for them. They need to look inwards and at the process they use for developing a proposal. Before applying for funding, companies should carry out a frank assessment of their ideas.
Applying for European funding means that a company is ready to trade outside of its local market. It will also need some evidence that its idea has the ability to grow in Europe. This naturally means that the company and idea will have some history in its own member state. If a company meets these two requirements – innovation and history – then it is probably right for the SME instrument.
The key to success: innovation and societal change
What makes something innovative is a very open question. Many different experts will give you a different answer – what is innovative for me may not be innovative for you. And innovation isn’t invention; invention is the creation of an idea whereas innovation is the better use of several novel ideas that have been brought together.
This is why collaboration is so important for innovation; to bring together different components of other ideas to form a new and better service. Twitter for example is basically SMS messaging applied to the Internet, with a one-to-many broadcast feature. Often it is the bringing together of two or three different technologies or services that has the biggest potential to change society.
Take apart a smart phone and it is a phone, a camera, an Internet portal, a GPS sensor, some accelerometers and a touch screen. On their own each one of these technologies isn’t exciting but brought together in a package – you won’t leave home without it. To be successful under the Horizon 2020 instrument a company’s idea has to be as life changing as the smartphone.
Final thoughts: more harmonisation is needed not less
The new Horizon 2020 SME instrument doesn’t go far enough. And it isn’t just about the opportunity to win funding for innovative ideas. I would like to see more funding but also better structural handover from national funding to Europe funding. A single funding environment should provide a roadmap from member start-up towards a European funding instrument that fosters collaboration, innovative and entrepreneurship. Intuitively it seems there would be more benefits aligning member state funding schemes and European funding scheme better.
Europe needs more harmonisation in its business investment environments, not less. The unfortunate fall out from the recent elections may see us move away from implementing a single European business investment environment. But we shouldn’t ignore the real need to have a single European investment environment that allows entrepreneurs to operate in any member state under the same conditions.