Horizon Europe: What awaits European innovators?

By Kenneth Glarbo Andersen, Thomas Elmbæk Knudsen, and Morten Kröger, Partners, Innovayt A/S

Change vs. Continuity: What awaits in the new Horizon Europe programme?

The current 7-year EU framework Programme for research and innovation – Horizon 2020 – is drawing to a close, and European researchers and innovators are eagerly awaiting the new Horizon Europe programme to be implemented from 2021 to 2027.

Although not yet done and dusted – as we write, the European Parliament still has to formally sign off on the programme and budget – the structure and many details are already in place, and a number of descriptive accounts of Horizon Europe and its contents are already readily available (see, for example, https://ec.europa.eu/info/horizon-europe_en).

But what’s really in store for European researchers and innovators? In the following, we present the first impressions of a ‘super-user’ of the European framework programmes. At Innovayt, we have been involved in several hundreds of successful proposals for the present Horizon 2020 programme, as well as for previous framework programmes, with our activity spanning all main areas from fundamental research funded by the European Research Council to purely industrially led actions, and programmes targeting Small and Medium-sized Enterprises.

Will Missions be a game-changer?
As always, the political rhetoric around a new EU research framework programme puts emphasis on the many changes to come, in overall funding philosophy as well as in implementation. Horizon Europe 2021-2027 is no exception, and this is perhaps hardly surprising, as each new 7-year programme by definition is the brainchild of new EU commissioners and legislators.

In keeping with this tradition, the new Horizon Europe will depart from the past through the introduction of a number of novelties: a new European Innovation Council; whole new modes of public-private partnerships; new instruments for researcher mobility; widening of research support to all EU members; and more.

Not least, the introduction of 5 overarching “Mission” areas to provide orientation for all EU funds to be paid out to European research consortia is heralded as a game-changer in EU research policy. The Missions signal grand ambitions, for which the EU can ultimately be held accountable, with one Mission being devoted to “conquering cancer”, aiming to save more than 3 million lives by 2030. Another Mission is dedicated to preparing Europe for climate disruptions and accelerate the transformation to a climate resilient and just Europe by 2030.

The Missions – and the new organization designed to implement them, with dedicated “Mission Boards” as the focal point, may admittedly help to position and communicate European research better than past framework programmes. As such, Missions very much follow in the footsteps of the European Research Council, formally introduced in the 7th Framework Programme 2007-2013, who has similarly done a good job in promoting the EU Framework Programme brand by offering high-profiled grants to the very best fundamental researchers in Europe.

But in terms of the day-to-day working of the framework programme, particularly as experienced by it users, it is doubtful that Missions will imply much change at all. Missions are indeed conceived as horizontal objectives, primarily designed to “link activities” and placed in the so-called second pillar of Horizon Europe devoted to Global Challenges and Industrial Competitiveness. Immediately below the Missions lie a number of thematic priorities, such as “Health”, “Digital, Industry, and Space”, and “Climate, Energy, and Mobility”, which appear as the main categories under which calls for proposals will be published. In the Commission proposal, only around 10 percent of the Pillar II budget is set aside for dedicated Mission calls, whereas largely the rest will be implemented under these thematic headings. And since the second pillar takes up more than half of the entire programme budget, for the majority of its funding, Horizon Europe looks much likely to be managed through a thematic approach – just like all of its predecessors.

This gravitation towards themes is no surprise. It happens because it is literally impossible to translate high-level objectives – either couched as Missions in Horizon Europe, or as “Societal Challenges” or “Leadership in Enabling and Industrial technologies” in the current Horizon 2020 programme –  directly into operational calls for proposals.

Now, is the de facto thematic approach to programme management good or bad? We would argue that it is not so bad after all. For one thing, it ensures a high degree of continuity and transparency that significantly reduces costs for users of the programme. For first-time users, faced with the vast complexity of this the World’s largest R&D funding programme, simple themes based on industry categories or application areas offer an intuitive and the simplest possible way of identifying the most relevant subprogrammes to apply for. And for the many returning customers of EU framework programmes, themes represent a familiar approach.

Missions aside, when scratching the surface of all the other novelties cited in Horizon Europe, it is fair to say that the overall impression of Horizon Europe is equally one of continuity rather than novelty. For one thing, public-private partnerships, widened R&D support, and instruments to support researcher mobility have all been longstanding components of EU framework programmes. Some names will change in Horizon Europe, and individual instruments will be tweaked somewhat, but the reality is that most instruments remain relatively unchanged. This is the case, for example, for mobility actions in the so-called Marie Sklodowska-Curie Actions, where the main instruments remain committed to co-funding cross-border and cross-sector research education and researcher mobility, although with new labels on instruments and slightly altered rules for participation.

Also, if we look at the rules and funding instruments implementing themes, with regard to rules around eligibility, budgeting and funding rates,  they similarly display a large degree of continuity from previous programmes. This is undoubtedly a virtue of the new framework programme, and the Commission has by now been striving for many years to maintain continuity in this area, which obviously makes the programme simpler and more transparent.

New SME instruments
So where do the real changes lie in Horizon Europe? Arguably, one has to look towards the new instruments of the European Innovation Council to find evidence of a truly evolving funding philosophy. The EIC, charged with funding “breakthrough innovation” in the new programme, represents a relatively small fraction of the total programme budget, but nevertheless a number of the new EIC programs and initiatives appear to depart clearly from the traditional EU funding modalities. Among several novel elements, we will briefly analyze the ideas of coupling grant funding directly with “hard” funding in the form of equity investments from the EU into innovative SMEs; and the idea of pro-active project management from the side of EIC.

The idea of mixing soft with hard funding is implemented in the EICs flagship SME instrument – the EIC Accelerator. The existing SME Instrument of Horizon 2020, which has already for a while now been replaced by a pilot version of its Horizon Europe equivalent, has traditionally been the EU’s main grant funding instrument targeting individual SMEs holding breakthrough innovations. The instrument – highly lucrative for its beneficiaries but also extremely competitive – has historically existed in several framework programmes in various forms and shapes. A key trait of these generations of the SME instrument, as with almost all other instruments in the framework programme, is that it has been purely grant-based, typically offering grants to SMEs up to a level of around 2.5 million Euros per project.

In Horizon Europe, the SME Instrument will be based on a combination of a grant with an equity investment (or other private capital market intervention) from the EU. This implies a fundamental change in funding philosophy, whereby not only more of the innovation cycle is funded, but also the commitment of the EU is elevated entirely as the so-called EIC Fund will take up actual stakes in target SMEs. Although the equity formula has been piloted up until the launch of Horizon Europe, this is a real novelty in the Framework Programme context, which promises to change the perspective for applicants. At the most general level, instead of simply planning for a grant-funded project with a given time duration, the applicant now has to strategically consider the prospect of a continued EU investment taking the company all the way or close to market breakthrough, and demanding thorough considerations of issues such as go-to-market strategy and timing, ramp-up, company valuation, dilution, capital structure, and more.

Another real novelty is proactive programme management, whereby EIC managers will not merely respond to progress reports coming from funded projects, which is today’s norm in grant funding, but will indeed take on a more active role, which includes the possibility to allocate additional funds to projects based, e.g., on milestone assessments of the project, or the possibility for EIC managers to fast-track projects from one EIC funding instrument to another without going through a new application process. If this role change materializes, it will mean a real shift from the traditional reactive role taken by EU programme managers, which will also be felt by the users of the programme who can expect a more rigorous follow-up on funded projects. This may, by the way, also imply that already awarded funding may be cut short if irregularities are spotted or milestones are not reached.

In terms of assessing these changes, both for EU equity investments and for pro-active project management the jury will still be out for quite some time. Not only will it be long before impact can be discerned in the sense of European SMEs being brought to life and profitability due to this approach. Even the conclusion of the first equity investments in SMEs are some way off, as the bureaucratic process is already significantly delayed for each new applicant, who now – in addition to negotiating a grant agreement with the EU – have to pass through due-diligence and negotiations on term sheets with the EIC Fund.

Change vs. Continuity
So Horizon Europe – unsurprisingly – offers a mixed picture with regard to change vs. continuity. But the overall impression is of continuity. The Implementation of the Mission approach does not look much like a revolution, but the idea to perhaps increase budgets for dedicated Mission calls after the first three years may change this image somewhat. On the other hand, the new European Innovation Council instruments for European SME funding seem to disrupt many of the established modes for paying out public R&D support, and for actual programme management. In a wider perspective, the changes forthcoming here open up for a breakdown of traditional barriers between the two different worlds of “soft” public grant funding and “hard” private capital market funding. The wider repercussions of all this shall be interesting to follow.

Above all this analysis of programme substance lurks, of course, another key element of Horizon Europe, namely its budget. in the end, after agreement on the next multiannual financial framework (EU budget 2021-27), the overall Horizon Europe budget is roughly flat when compared with Horizon 2020, capped at around 80 Bn euro. This is indeed an additional point of – disappointing – continuity, given all the many obvious reasons for investing more in European R&D in these years, and particularly considering that the Commission originally had proposed to increase the research budget by close to 30 percent to a level around 100 Bn euros.

In spite of this, exciting times lie ahead for European research and innovation. We welcome Horizon Europe and look forward to continue helping European researchers and innovators navigate successfully in a funding landscape, which may remain complex – but also benefits a lot from continuity from past programmes.

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