
EU looks to tackle its innovation problem with EIC revamp

The European Commission is aiming to expand and revamp the European Innovation Council (EIC) along the lines of ARPA in the US to boost support for startup and scaleup companies.
The move is part of a series of proposals made today for the European Innovation Act.
“We have an innovation problem: the United States performs better because it innovates more,” said executive vice president for industrial strategy Stéphane Séjourné.
“More startups are being created in Europe today than in the United States. But only 8% of global scale-ups are based in Europe. This means we have a conversion problem. We are very strong in research, but less strong in converting this research into products.
“Finally, over the past 15 years, nearly 30% of European unicorns have relocated outside the European Union. Most of them lacked an appropriate environment or the necessary funding for their development.
“We need to reverse the trend. Ensure that companies that are born in Europe grow in Europe. Not in the United States or Asia,” he said.
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A European Innovation Act is being proposed to address this, including more support through the EIC as well as a ‘lab to unicorn’ programme to revamp technology transfer deals from universities to startups, which has been an area of slow growth in the region.
“We are home to 35 000 early-stage startups. We don’t lack ideas. We don’t lack talent. What we need is a plan to maximise this potential,” said Commissioner Ekaterina Zaharieva (above) who is responsible for startups and innovation.
The startup and scaleup strategy in the Act has five areas, from another investment fund, particularly for AI, quantum and cleantech as well financial support access to AI computing facilities for startups.
It also includes changes to the tax treatment of stock options, which tech companies have long been calling for, as well as easier visa requirements to attract engineers and researchers.
“A European innovator who wants to start a company from zero, struggles with 27 different company rules, taxation regimes, and ways to test his or her idea. This is why we will introduce a the “28th regime” — for innovative companies,” she said. “It will explore the possibility of enabling companies to establish in Europe more rapidly, ideally within 48 hours.”
The EIC has supported deep tech startups with grants and equity investments of up to €30 million but has struggled with the decision-making and contract process and the scaling up of startups.
Zaharieva points to a clear funding gap persists when it comes to the scaleup financing of high-risk, capital intensive technologies requiring investments above €100m.
Nine measures in the Act will include public-private investment in a Scaleup Europe Fund as part of the EIC to make direct equity investments in AI, quantum, clean tech, and more strategic sectors. However this will have to be substantial and there is concern about the ability of the EIC to manage such a large fund.
“The EIC STEP Scale-Up Call provides equity investments only up to €30m. This does not allow us to provide strategic direction,” she said. “If we don’t act, innovative companies will relocate or be acquired by non-European players. The Scaleup Europe Fund will gather large amounts of private money and invest directly in important sectors to support Europe’s tech independence and economic safety. Setting up this fund won’t affect the next Multiannual Financial Framework.”
“Next, we will expand the European Innovation Council and simplify its rules with more ARPA-style processes.
“The Commission, in coordination with the European Investment Bank, will work with large institutional investors to develop a voluntary European Innovation Investment Pact for those who commit to invest part of their assets under management into EU funds-of-funds, venture capital funds and unlisted scaleups.”
It is also looking to use existing financial instruments and develop new instruments to invest in European security and defence startups and scaleups which was proposed last month.
A European Corporate Network will also be created to better integrate large companies, corporate venture investors and corporate procurers into the EU’s innovation ecosystem and benefit from innovative solutions developed by startups.
“In Europe, translating research into commercial success is still difficult. While universities account for over 10% of patents filed at the European Patent Office, only one-third of these patents are commercially exploited. Additionally, the public procurement process in many EU countries is overly risk-averse, favouring established providers over startups.”
The Commission is looking at ways to improve and simplify the access to public procurement, taking into account the needs of startups and scaleups. It is planning a Lab to Unicorn Initiative to accelerate the commercialization of research results. This will see European Startup & Scaleup Hubs in universities with a blueprint for licensing, royalty- and revenue-sharing and equity participation for academic institutions and their inventors when commercializing intellectual property and creating spinoffs. This will include legal and implementation guidance on the applicable State aid rules.
59% of startups in Europe have remotely distributed teams, with 78% of engineering teams working remotely. This trend has helped prevent regional brain drain and enabled startups to access a wider pool of European talent while minimizing operational costs says Zaharieva.
However, work in remote cross-border teams is difficult due to the complexity of tax and social security obligations. Startups often cannot match the salaries and benefits offered by larger companies, making it difficult to attract top employees. The complexities around Employee Stock Options, such as differences in tax treatment across EU Member States, create additional challenges.
The recently proposed Choose Europe campaign to encourage researchers to come to Europe will include a ‘Blue Carpet’ initiative for global talent with visas to attract top entrepreneurs and skilled workers.
“We will also explore the best practices concerning the treatment of employee stock options for startups, including considering legislative measures to harmonize certain aspects of their treatment,” she said.
