Patient Capital or Political Peril: A Deep Dive into the History, Turmoil, and Future of the EIC Fund
Part I: The Genesis of a European Venture Capitalist
Section 1: From Grants to Equity: The Policy Imperative
The creation of the European Innovation Council (EIC) Fund represents one of the most significant and ambitious shifts in European Union innovation policy in the last decade. It marks a deliberate pivot from a long-standing tradition of providing non-dilutive research and development grants to a novel, more complex model of direct, risk-taking equity investment. This evolution was not an abrupt change but a multi-year process driven by a persistent policy challenge: Europe's struggle to translate its world-class scientific research into globally competitive, market-leading companies. The journey from the grant-based SME Instrument to the establishment of a public venture capital fund reveals a growing recognition within the EU that grant funding alone was insufficient to bridge the critical scale-up financing gap, often termed the "valley of death," that plagued Europe's most promising innovators.
1.1 The Predecessor: The Horizon 2020 SME Instrument (SME-I)
The policy landscape prior to the EIC Fund was dominated by grant-based mechanisms. Under the Horizon 2020 framework programme (2014-2020), the flagship tool for supporting innovation within small and medium-sized enterprises (SMEs) was the SME Instrument (SME-I). Launched in 2014, its primary objective was to unlock the potential of SMEs by filling the funding gap for early-stage, high-risk research and innovation projects and to spur the commercialization of research results.
The SME-I was structured into three phases, providing a continuum of support:
- Phase 1: Focused on concept and feasibility assessment, offering grants of €50,000 to explore the technical and commercial viability of a business idea.
- Phase 2: Supported R&D, demonstration, and market-testing activities to bring an innovation to investment readiness. This phase provided more substantial grants, typically ranging from €500,000 to €2.5 million.
- Phase 3: Offered business acceleration services, such as coaching and mentoring, but provided no additional direct funding.
A key innovation of the SME-I was that it allowed single SMEs to apply for funding, breaking from the traditional EU requirement for multi-partner consortia, thereby targeting support directly at the company level. The instrument was inspired by the successful Small Business Innovation Research (SBIR) programme in the United States and initially envisioned a "funnel model" where a large number of Phase 1 projects would be whittled down to the most promising candidates for Phase 2 funding. However, this strict sequentiality was abandoned early on, allowing companies to apply directly to Phase 2, a first sign of the need for greater flexibility in supporting market-ready innovations.
Despite its utility, the SME-I had a fundamental limitation: it was exclusively a grant instrument. While it could de-risk the R&D phase (up to Technology Readiness Level 8), it could not provide the substantial, patient risk capital needed for companies to scale up production, enter global markets, and navigate the perilous "valley of death" where many promising European tech companies faltered due to a lack of follow-on financing.
1.2 The EIC Pilot (2018-2020): A Bridge to a New Model
Recognizing the limitations of the grant-only approach, the European Commission initiated the EIC Pilot phase from 2018 to 2020. This was a crucial transitional period that served as a testbed for a more radical approach to innovation funding. The pilot consolidated existing instruments, most notably the SME-I and the Future & Emerging Technology (FET) programme, under a single umbrella to provide more coherent support to innovators.
The pilot introduced two transformative changes that directly paved the way for the EIC Fund. First, it moved to a fully "bottom-up" approach for the SME-I, eliminating the need for applicants to fit their projects into predefined thematic topics. This empowered innovators to propose their best ideas, regardless of sector. Second, and more culturally significant, it introduced face-to-face interviews with a jury of experienced innovators and investors as a mandatory part of the selection process for Phase 2. This marked a profound shift away from the EU's traditional, purely paper-based evaluation towards a model that mirrored the pitch sessions of the venture capital world, where the credibility of the team and the ambition of the vision are assessed alongside the technical proposal.
The most decisive evolution occurred in March 2019 with the launch of the "Enhanced EIC Pilot". This iteration replaced the old SME-I Phase 2 with the newly branded "EIC Accelerator." It was here that the concept of blended finance was introduced for the first time: a unique combination of a non-dilutive grant of up to €2.5 million and an optional, dilutive equity investment of up to €15 million. This hybrid model was the direct precursor to the EIC Fund's core offering, designed explicitly to provide both R&D support and the scale-up capital that the SME-I could not.
1.3 The Birth of the EIC Fund (2020): An Unprecedented Public VC
Building on the experience of the pilot, the EIC Fund was formally incorporated in June 2020 and became operational in September of that year. Its establishment marked a watershed moment for EU policy. The EIC Fund was structured as a unique legal entity: a fund operating under private law, with the European Commission as its sole shareholder, established to make direct equity and quasi-equity investments into companies selected by the EIC Accelerator.
The Fund's mandate was clear and ambitious: to act as the venture arm of the EIC and systematically address Europe's deep-tech funding gap. It was designed to provide "patient capital"—long-term investment with an average horizon of 7-15 years—to high-risk, high-potential companies that were deemed "non-bankable" or too risky for private investors alone. Its primary objective was not to maximize financial returns but to achieve "impact investment" by de-risking breakthrough innovations and, crucially, acting as a catalyst to "crowd in" private co-investors. This strategy was a direct response to the well-documented disparity in venture capital investment between the EU and the United States, which was seen as a major impediment to Europe's technological sovereignty and competitiveness.
The creation of the EIC Fund was not merely an incremental adjustment to an existing program; it represented a fundamental redefinition of the European Commission's role in the innovation ecosystem. By stepping into the shoes of a venture capitalist, the Commission was attempting to fuse two profoundly different institutional cultures: the methodical, process-driven, and risk-averse world of public administration, and the agile, opportunistic, and risk-tolerant world of venture capital. The traditional role of the EU in funding is governed by strict financial regulations, with an emphasis on accountability and a low tolerance for failure, as evidenced by the structure of past framework programmes. In stark contrast, the venture capital model, which the EIC Fund was designed to emulate, is predicated on a portfolio approach where the failure of many investments is an accepted cost in the pursuit of a few transformative successes.
This inherent contradiction was embedded in the Fund's DNA from its inception. The political ambition to create a European public VC was in direct conflict with the operational and cultural realities of its parent institution. Evidence of this clash emerged early, with the Commission's own budget directorate raising alarms over the "reputational risk" associated with investing public money into startups that could, and often do, fail. This foundational tension between a VC mission and a public-sector reality set the stage for the significant implementation challenges that would follow, making the subsequent crisis not an unforeseen accident, but an almost inevitable consequence of the Fund's groundbreaking but conflicted design.
| Year | Milestone | Description |
|---|---|---|
| 2014 | Launch of H2020 SME Instrument | A grant-only instrument for SMEs is established under the Horizon 2020 framework. |
| 2018 | Launch of EIC Pilot Phase | SME-I and FET programmes are consolidated; face-to-face jury interviews are introduced. |
| 2019 | Launch of Enhanced EIC Pilot | The "EIC Accelerator" replaces SME-I Phase 2, introducing the blended finance option (grant + equity). |
| Jun 2020 | Formal Incorporation of EIC Fund | The EIC Fund is established as a legal entity under private law to manage equity investments. |
| Mar 2021 | Launch of Fully-Fledged EIC | The EIC is officially launched as a core pillar of the Horizon Europe programme. |
| 2021-2022 | Onset of Major Funding Delays | Companies selected under Horizon Europe face severe delays in receiving grant and equity components. |
| Sep 2022 | Appointment of External Fund Manager | AlterDomus is appointed as the external manager to handle investment decisions, with the EIB as advisor. |
| Jan 2024 | Transfer of Shares to EIB | The Commission completes the restructuring by transferring its shares in the EIC Fund to the EIB. |
| 2025 | Launch of STEP Scale-Up Scheme | A new scheme is introduced to provide larger equity investments (€10M-€30M) for strategic technologies. |
| Feature | H2020 SME Instrument (Phase 2) | Horizon Europe EIC Accelerator |
|---|---|---|
| Primary Funding Type | Non-dilutive grants only | Blended Finance (non-dilutive grant + dilutive equity) |
| Maximum Funding Amount | €2.5 million | Up to €17.5 million (€2.5M grant + €15M equity) |
| Target TRL | TRL 6 and above (close-to-market) | TRL 5 to 9 (from validation to scale-up) |
| Application Process | Two-phase written proposal | Multi-step process including short proposal, full proposal, and a mandatory jury interview |
| Key Objective | De-risk R&D and demonstration activities | Bridge the scale-up funding gap ("valley of death") and crowd in private investment |
| Investor Role | No direct investor role for the EU | EU (via EIC Fund) acts as a direct equity investor |
Part II: The Implementation Crisis: Ambition Meets Bureaucracy
The official launch of the European Innovation Council under the Horizon Europe framework in March 2021 was meant to herald a new era of agile, high-impact support for Europe's deep-tech champions. Instead, the initial years of the EIC Fund's operation were defined by a crippling implementation crisis. The Fund's ambitious mandate to operate like a venture capitalist collided head-on with the bureaucratic inertia and political complexities of the European Commission. This resulted in a logjam of funds, a governance vacuum, and a significant backlash from the very innovators the Fund was created to support. The period between 2021 and 2023 was not just a series of teething problems; it was a systemic failure that threatened the credibility of the entire initiative and exposed the profound challenges of embedding a public VC within a public administration.
Section 2: The Rocky Launch and Governance Impasse (2021-2023)
2.1 The Logjam of Funds: A Crisis for Beneficiaries
Almost immediately after its full-scale launch, the EIC Accelerator ground to a halt. Companies that had successfully navigated the highly competitive selection process and were promised funding found themselves in a state of limbo, facing what would become extreme delays. By May 2022, the European Commission was forced to publicly acknowledge "unforeseen delays" in the decision-making process, particularly for companies awarded blended finance.
The impact on beneficiaries was severe and immediate. Startups reported waiting for over a year to receive their promised capital, a delay that is often fatal in the fast-moving world of deep-tech. This uncertainty paralyzed their strategic planning, preventing them from hiring key personnel, launching products, or negotiating with other investors. One founder stated that the situation was the "total opposite of what the EIC Accelerator intends to do," highlighting how the instrument designed to accelerate growth was, in fact, acting as a brake. The crisis became so acute that media reports warned of startups being pushed to the brink of bankruptcy, a direct consequence of the Fund's inability to disburse its committed capital. By November 2022, months after the Commission had promised to clear the backlog, only a handful of equity agreements had actually been signed with companies from the Horizon Europe cohorts, demonstrating the depth and persistence of the problem.
2.2 The Root of the Crisis: A Governance Vacuum
The funding delays were not merely administrative oversights; they were symptoms of a profound governance crisis at the heart of the EIC Fund. The core issue was that the European Commission, as an institution, was ill-equipped to handle the responsibilities of a venture capital fund manager. It lacked the necessary in-house expertise, operational agility, and, most importantly, the cultural risk appetite required for equity investing.
This institutional mismatch created a decision-making paralysis. As noted, the Commission's own budget directorate raised serious concerns about the reputational and financial risks of directly investing in startups, which could fail and result in a loss of public money. This internal conflict between the EIC's risk-taking mission and the Commission's traditional risk aversion led to a situation where, during the transition, every investment decision had to be escalated to the College of Commissioners—the highest level of EU bureaucracy—effectively grinding the investment process to a halt.
The proposed solution was to delegate the management of the Fund to the European Investment Bank (EIB). However, this move was poorly executed. It was met with significant political backlash from EU member states who had negotiated different governance rules for the EIC, leading to protracted and difficult negotiations between the Commission and the EIB. This "botched handover" created a governance vacuum that lasted for months, leaving hundreds of companies in the lurch.
Ultimately, the Commission settled on a complex, multi-layered structure. In September 2022, it appointed an external fund manager, the Luxembourg-based firm AlterDomus, to take responsibility for the day-to-day investment and divestment decisions. The EIB was retained in the role of an investment advisor to the fund manager. While this structure was intended to finally resolve the impasse by bringing in external expertise, its negotiation and implementation added further delays and created a complex governance model with multiple actors, a far cry from the agile, decisive structure of a typical VC fund.
2.3 The Beneficiary and Investor Backlash
The operational chaos and prolonged uncertainty triggered a significant backlash from both beneficiaries and the private investment community. For the startups caught in the logjam, the experience was deeply damaging. A survey of EIC beneficiaries revealed widespread frustration: 95% of respondents found the EIC Fund to be lacking in communication, support, and transparency, while 75% identified the extreme duration of the investment process as the single greatest challenge.
The crisis also severely damaged the EIC's reputation with the very co-investors it was designed to "crowd in." The Fund's primary strategic goal was to act as a catalyst for private investment, but its bureaucratic and unpredictable nature became a major deterrent. A survey of private investors found that 40% were simply not interested in engaging with the EIC Fund, citing its complex and time-consuming processes as prohibitive. This feedback demonstrated that the Fund was not only failing its direct beneficiaries but also struggling to fulfill its core mission of building a trusted network of capital providers.
The implementation crisis of 2021-2023 was not just a period of operational failure; it was a pivotal event that fundamentally reshaped the EIC's governance and trajectory. The crisis was born from the Commission's initial failure to grant the EIC sufficient autonomy to execute its VC-like mission. Paradoxically, the fallout from this failure did not lead to greater independence but to the opposite: a tightening of control by the central Commission directorates.
The EIC was originally conceived with a degree of operational independence, to be implemented by its own executive agency (EISMEA) and guided by expert Programme Managers. However, when the investment delays spiraled into a political crisis, prompting the European Parliament to threaten to block the EIC's budget, the Commission's central Directorates-General intervened heavily to regain control. According to former EIC Programme Manager Iordanis Arzimanoglou, this resulted in five 'parent' DGs assuming oversight roles, with the explicit intent to "influence more and restrict the independence of the programme manager". This reaction, while perhaps understandable from a bureaucratic risk-management perspective, effectively reined in the EIC, transforming it from a semi-autonomous, expert-led body into a more traditionally managed Commission instrument. The crisis thus created a negative feedback loop: a problem caused by a lack of autonomy was used as the justification for imposing even greater central control, pushing the EIC further away from the agile, risk-friendly model it was intended to be.
Section 3: Navigating the Gauntlet: The EIC Application and Evaluation Process
Beyond the governance crisis, the very design of the EIC Accelerator's application and evaluation process presents a formidable challenge for applicants. It is a highly competitive, multi-stage gauntlet characterized by high attrition rates and, according to many participants, a set of contradictory evaluation criteria. While officially designed to identify and support Europe's most disruptive, high-risk innovations, the process in practice often appears to favor more mature, de-risked companies, creating a significant paradox at the heart of the instrument.
3.1 The Three-Step Gauntlet
The EIC Accelerator application process is a rigorous filter designed to select only the most promising companies from a vast pool of applicants. It consists of three distinct stages, and failure at any point can lead to rejection:
- Step 1: Short Proposal. Applicants submit a concise summary of their innovation, a pitch deck, and a short video pitch. This initial screening is evaluated on a rolling basis, and a "GO" from evaluators is required to proceed.
- Step 2: Full Proposal. Companies invited to Step 2 must prepare a comprehensive business plan and submit it by one of the periodic cut-off dates. This detailed proposal is assessed remotely by a panel of expert evaluators.
- Step 3: Jury Interview. The final and most critical stage is a face-to-face (or virtual) interview with an EIC jury composed of experienced investors, entrepreneurs, and other experts. This is a high-stakes pitch where the team's credibility and vision are scrutinized before a final funding decision is made.
The process is notoriously competitive, with overall success rates from the full proposal stage to final funding often in the single digits, around 7-8%. The intensity of this competition is further heightened by the introduction of a strict "3 strikes, you're out" rule, which bars an applicant from resubmitting to the EIC Accelerator for the remainder of the Horizon Europe programme after three rejections at any stage of the process.
3.2 Contradictory Criteria: The "High-Risk" vs. "Low-Risk" Paradox
A central criticism of the evaluation process lies in the apparent contradiction between the EIC's official mandate and its practical application. On paper, the EIC Accelerator is explicitly designed to support "high-risk," "deep-tech," and "non-bankable" innovations—projects that are too nascent or uncertain to attract sufficient private investment on their own.
However, the reality of the evaluation process often seems to reward companies that are decidedly low-risk. Analyses of successful applicants and feedback from the evaluation process indicate a strong preference for companies that can demonstrate significant pre-existing validation. This includes having a strong and experienced team, a history of prior fundraising, existing market traction or customer relationships, and even revenue generation. Data shows that a remarkable 76% of EIC beneficiaries have a history of prior private fundraising, suggesting they were already "investor-ready" to some degree. This creates a difficult paradox for applicants: they must be "high-risk" enough to justify public intervention, yet "low-risk" enough to convince evaluators of their commercial viability. This has led to accusations that the EIC is not truly funding what the private market ignores, but is instead "piggybacking on private markets" by co-investing in companies that have already been de-risked and validated by VCs.
3.3 The Human Factor: Subjectivity and Inconsistency
The final stage of the evaluation—the jury interview—introduces a significant degree of subjectivity into the process. While the juries are composed of experts, their decisions are based on a short pitch and Q&A session, which can lead to variability in outcomes. Applicants have reported that the process can feel unpredictable, with "seemingly random outcomes" where evaluation criteria appear to be applied inconsistently from one case to another. A project's success or failure can hinge on the specific composition of the jury and their interpretation of the project's merits, adding another layer of uncertainty to an already challenging process.
The practical realities of the EIC Accelerator's funding patterns and evaluation criteria suggest that, despite its mandate to fund early-stage, high-risk ventures, it operates more like a large, public-sector Series A or B investor. The instrument is not typically used to take the initial "seed" or "pre-seed" risk on unproven ideas. Instead, it provides substantial growth capital to companies that have already achieved a significant degree of market and technological validation.
Several pieces of evidence support this conclusion. First, the ticket size of up to €17.5 million is far larger than a typical seed round and aligns closely with a substantial Series A or B funding round in the European venture ecosystem. Second, the explicit preference for companies with prior funding, established teams, and market traction indicates that the Fund is not the first institutional money into a company. Third, the EIC Fund's model often involves co-investing alongside a lead private investor, meaning the private market has already given a strong signal of approval before the EIC commits its equity.
Therefore, the EIC Fund's primary role in practice appears to be not the discovery of hidden deep-tech gems from scratch, but the amplification of the growth of rising stars that have already been identified and vetted by the private market. It functions as a powerful scaling mechanism, providing the significant capital needed to help validated companies become global leaders. This is a crucial and valuable role, but it is a subtle and important distinction from its official branding as a funder of last resort for "non-bankable" ideas.
Part III: Impact and Imbalance: An Analysis of the EIC Portfolio
Since its full launch, the EIC Fund has built a substantial portfolio of deep-tech companies, and the European Commission has been keen to highlight its successes through a series of impact reports. These reports paint a picture of a powerful investment vehicle that is creating significant value, fostering unicorns, and leveraging private capital. However, a deeper analysis of the data reveals a more complex reality. While the Fund has certainly backed a number of Europe's most promising companies, the distribution of this funding is highly concentrated, both geographically and sectorally. This has created a clear dynamic of "winners" who benefit disproportionately from the program, and "losers" who remain on the periphery, exposing a persistent innovation gap across the Union.
Section 4: The Winners - A Geographical and Sectoral Breakdown
An examination of the EIC portfolio reveals distinct patterns in where the money flows, identifying a clear cohort of countries, technology sectors, and company profiles that have been most successful in securing funding.
4.1 The Dominance of Western Europe
The most striking feature of the EIC's funding distribution is its significant geographical imbalance. Cumulative data from 2021 to 2024 consistently shows that a handful of Western European nations dominate the portfolio. France, Germany, and the Netherlands are the undisputed leaders, consistently ranking at the top for both the number of companies funded and the total amount of financing received. This concentration is so pronounced that the top 10 recipient countries account for a staggering 80% of all funded companies since 2021. This pattern indicates that the EIC, despite its pan-European mandate, has so far failed to break the long-standing trend of EU research and innovation funding being concentrated in its most developed member states.
4.2 Key Technology Verticals
The EIC portfolio also shows a clear concentration in specific deep-tech verticals. While the "Open" calls are theoretically open to any field, the funded projects cluster around a few key areas of strategic importance. Health and MedTech have emerged as the most dominant sectors, consistently receiving the largest share of funding. This includes sub-fields like diagnostics, cell and gene therapies, and medical imaging. Other heavily funded verticals include:
- Digital, Industry, and Space: With a strong focus on Artificial Intelligence, quantum technologies, semiconductors, and advanced manufacturing.
- Clean Tech: Encompassing a broad range of innovations in energy (especially energy storage and hydrogen), environmental technologies, mobility, and agrifood.
This sectoral focus reflects both the bottom-up strengths of Europe's innovation ecosystems and, increasingly, the top-down strategic priorities of the EU.
4.3 Profile of a "Winner"
The data also allows for the creation of a profile of a typical "winning" company. These are generally not nascent, garage-stage startups. A 2023 analysis of funded companies revealed that a remarkable 84% were at least five years old, and 63% already had more than 10 employees. They tend to be more mature ventures with a strong intellectual property position, a well-defined business plan, and a credible, experienced management team.
In terms of funding type, the blended finance option—combining a grant with an equity investment—is the overwhelming choice for successful applicants. From 2021 to 2023, blended finance accounted for nearly 80% of the total funding awarded by the EIC Accelerator, cementing its status as the program's standard and most popular offering.
Section 5: The Losers - The Persistent Innovation Gap
While a select group of countries and sectors have thrived under the EIC, a large portion of the EU remains on the sidelines, highlighting the program's struggles to close Europe's persistent innovation divide.
5.1 The "Widening" Countries' Struggle
Countries from Central and Eastern Europe, designated as "Widening" countries due to their lower performance in research and innovation, are severely underrepresented in the EIC portfolio. Many of these nations have only managed to secure funding for one or two companies over the entire 2021-2024 period, a stark contrast to the dozens of winners in countries like France and Germany.
This disparity is not necessarily due to a lack of innovative ideas, but rather to systemic challenges within their national innovation ecosystems. These include a lower level of awareness of the complex EIC application process, a scarcity of specialized consultants and professional writers to help prepare competitive proposals, and weaker national support structures to nurture companies to the point where they can compete on a European level. The EIC Board itself has acknowledged that access to both public and private capital is significantly more difficult in these regions.
5.2 Attempts to Bridge the Gap
The EU is aware of this innovation gap and has implemented several policy tools aimed at mitigating it. These include:
- The EIC "Plug-In" Scheme: This allows certified national or regional funding agencies to nominate top-performing companies from their own portfolios for a "fast-track" entry into the EIC Accelerator's full application stage, bypassing the initial screening.
- The Seal of Excellence: High-quality proposals that are positively evaluated by the EIC jury but cannot be funded due to budget limitations are awarded a "Seal of Excellence." This quality label is intended to help them attract funding from alternative sources, such as national or regional funds, including the European Regional Development Fund (ERDF).
- Collaboration with the EIT: The European Institute of Innovation and Technology (EIT) runs complementary programs specifically designed to boost innovation capacity in these regions. The EIT Regional Innovation Scheme (RIS) and the new Regional Innovation Booster pilot aim to build up local ecosystems and connect them to the wider pan-European network.
The pronounced geographical imbalance in EIC funding reveals a fundamental truth about the instrument's role in the European ecosystem. The EIC Fund does not, and perhaps cannot, create vibrant innovation hubs from the ground up. Instead, it functions as a powerful amplifier for pre-existing, mature national ecosystems. The countries that consistently "win" are those that already possess robust national support systems—strong universities, active national funding agencies, a deep pool of private venture capital, and a sophisticated network of advisors and consultants. These national systems create a pipeline of high-quality, well-prepared applicants that the EIC can then elevate to the European and global stage.
The policy solutions proposed to address the innovation gap tacitly confirm this reality. The emphasis is not on the EIC lowering its standards, but on national and regional bodies in "Widening" countries stepping up to use their own funds (such as ERDF and the Recovery and Resilience Facility) to better prepare their companies for the EIC competition. This implies that a successful EIC application is often the end result of a strong national support journey, not the beginning of one. Consequently, the EIC Fund does not so much level the playing field as it rewards the players who arrive best equipped. The "innovation gap" is therefore not a flaw in the EIC's selection process per se, but a reflection of the underlying economic and structural disparities that the fund, on its own, is not designed to solve.
Section 6: Measuring Success: Portfolio Value and Economic Impact
A key part of the EIC's narrative revolves around its reported economic impact. The European Commission regularly publishes impressive figures on the value of its portfolio, its success in creating high-growth companies, and its ability to leverage private investment. While these metrics are important, a critical analysis suggests that they may not tell the whole story, raising important questions about causality and the true "additionality" of the Fund's support.
6.1 The Headline Figures
The EIC's impact reports showcase remarkable growth and value creation. The 2023 report, for instance, claimed that the total value of the overall portfolio of EIC-supported companies had reached nearly €70 billion, marking an increase of €20 billion in just over a year. The Fund is credited with nurturing over 150 "Centaurs" (companies with a valuation exceeding €100 million) and 8 "Unicorns" (valuation over €1 billion).
Another crucial key performance indicator is the Fund's ability to "crowd in" private capital. This is a measure of its success as an investment catalyst. According to the EIC, for every euro of direct equity investment made by the EIC Fund, it leverages over €3.5 in additional follow-on investment from private sources like venture capital funds, corporate VCs, and national promotional banks.
6.2 A Critical Look at the Numbers: The "Stealing Thunder" Controversy
While the headline figures are impressive, critics have raised valid questions about their interpretation. The core issue is one of attribution, sometimes referred to as the "stealing thunder" problem. This critique suggests that the EIC may be taking credit for the success of companies that were already highly valued, well-funded, and on a strong growth trajectory before they received support from the EIC Fund.
One pointed analysis highlights the case of TWAICE, a German battery analytics company that the EIC featured as one of its supported "centaurs." However, public data from investment databases suggests that the company had already raised over $30 million in private capital and had likely achieved its centaur status prior to securing EIC funding. This example casts doubt on the causality implied by the EIC's impact reports.
This raises a fundamental question about the Fund's "additionality"—that is, whether the EIC's investment was truly decisive in the company's success, or whether the company would have succeeded anyway. The impressive valuation of the EIC's portfolio is undoubtedly a testament to the quality of the companies it selects. However, it is not necessarily a direct measure of the impact the EIC has had on creating that value. It is plausible that the EIC's rigorous selection process is very good at identifying future winners, but this is different from being the primary cause of their winning. The "crowd-in" effect could, in some cases, be reversed: the presence of strong private investors may be "crowding in" the EIC, rather than the other way around, as the Fund seeks to co-invest in de-risked and validated deals.
| Rank | Country | Number of Funded Companies | Total Funding (€M, approx.) |
|---|---|---|---|
| 1 | France | 82 | >600 |
| 2 | Germany | 68 | ~500 |
| 3 | Netherlands | 52 | ~550 |
| 4 | Spain | 35 | ~200 |
| 5 | Israel | 29 | ~170 |
| 6 | Sweden | 25 | ~150 |
| 7 | Finland | 22 | ~130 |
| 8 | Belgium | 20 | ~120 |
| 9 | Ireland | 20 | ~110 |
| 10 | Denmark | 19 | ~100 |
| - | Other (Widening & Assoc.) | <10 each | Significantly lower |
| Note: Data compiled and synthesized from multiple reports covering the period. Total funding is an estimate based on reported figures and may vary slightly. The ranking highlights the concentration in the top 10 countries. | |||
| Sector | Number of Companies (Approx. %) | Key Sub-Sectors |
|---|---|---|
| Health & MedTech | ~40-50% | Diagnostics, Pharma, Cell & Gene Therapy, Medical Devices |
| Digital, Industry & Space | ~20-25% | AI/ML, Quantum, Semiconductors, Advanced Manufacturing |
| Clean Tech & Green Deal | ~25-30% | Energy Storage, Hydrogen, Renewables, Circular Economy, Agrifood |
| Advanced Materials | ~5% | Biomaterials, Nanomaterials, Composites |
| Note: Sectoral breakdown is based on analysis of multiple reports and company classifications, which can vary. Percentages are indicative of portfolio concentration. | ||
| Funding Type | Number of Companies | Percentage of Companies | Total Funding (€bn, approx.) | Percentage of Funding |
|---|---|---|---|---|
| Blended Finance | 320 | 56.8% | ~2.4 | ~80% |
| Grant First | 171 | 30.4% | ~0.38 | ~13% |
| Grant Only | 65 | 11.5% | ~0.13 | ~4% |
| Equity Only | 7 | 1.2% | ~0.12 | ~4% |
| Total | 563 | 100% | ~3.03 | 100% |
| Note: Data is for the cumulative period 2021-2023. "Grant First" was discontinued from 2024 onwards. | ||||
Part IV: Strategic Evolution and Future Trajectory
After navigating a tumultuous launch, the EIC Fund is entering a new phase of maturity. Its investment strategy is evolving, moving beyond a purely bottom-up approach to more actively support the European Union's overarching policy goals. The introduction of thematic "Challenges" and the ambitious Strategic Technologies for Europe Platform (STEP) signal a clear pivot towards using the Fund as a tool for industrial policy and bolstering Europe's technological sovereignty. This evolution is occurring against the backdrop of a high-stakes political debate about the future of all EU research and innovation funding, with the EIC's budget, governance, and long-term role hanging in the balance as preparations for the next Framework Programme, FP10, begin.
Section 7: From Open Calls to Strategic Sovereignty
While the EIC continues to offer its foundational "Open" calls, which are bottom-up and open to any field of innovation, there has been a clear and growing emphasis on top-down, strategic funding instruments. This shift reflects a desire to more directly align the EIC's financial firepower with the EU's most pressing political and economic priorities.
7.1 The Rise of "Challenges"
A key feature of the EIC Accelerator and Pathfinder schemes is the use of "Challenge" calls. These are targeted calls that invite proposals in predefined thematic areas deemed to be of high strategic importance to the EU. The allocation of a significant portion of the EIC budget to these Challenges demonstrates a move away from a purely reactive funding model towards a more proactive one.
The topics for these Challenges are explicitly linked to major EU policy initiatives, such as the European Green Deal, the REPowerEU plan to end reliance on Russian fossil fuels, the EU Chips Act, and the Net Zero Industry Act. For example, the 2025 EIC Accelerator Challenges include calls for innovations in areas like Generative AI, new space technologies, future mobility solutions, and biotechnology-driven food production, all of which are central to Europe's long-term strategic goals.
7.2 The STEP Scale-Up Scheme: A New Tool for Industrial Policy
The most significant strategic evolution is the launch of the EIC Strategic Technologies for Europe Platform (STEP) Scale-up scheme in 2025. STEP represents a major escalation in the EIC's ambition and financial muscle. It is designed to provide much larger equity-only investments, ranging from €10 million to €30 million per company.
The explicit purpose of STEP is to help Europe's most promising deep-tech companies secure the very large-scale funding rounds (in the range of €50 million to €150 million) that are necessary for industrial production and global market leadership. The language surrounding STEP is overtly strategic. Its stated goals are to "bolster Europe's competitiveness and sovereignty," "reduce dependencies" on other global powers, and ensure that critical technologies are developed and manufactured within the EU. The scheme specifically targets deep-tech areas like digital technologies (including AI and quantum), clean and resource-efficient technologies, and biotechnologies—fields that are at the heart of the global technology race.
The introduction of Challenges and, most notably, the STEP scheme marks a profound transformation in the EIC Fund's identity and purpose. It is evolving from an instrument designed primarily to correct a market failure (the lack of early-stage VC funding) into an active and powerful tool of EU industrial and geopolitical strategy. Its objective is no longer simply to foster innovation for its own sake, but to strategically direct vast sums of public and private capital towards building European champions in sectors deemed critical for the continent's future.
This shift fundamentally alters the nature of the Fund. It is no longer just a public VC; it is a strategic sovereign investment fund. Its investment decisions will increasingly be evaluated not only on their potential for economic return or innovation impact but also on their contribution to Europe's strategic autonomy in a world of intensifying competition with the United States and China. This makes the EIC Fund a more potent, but also a far more political, entity, with its activities now directly intertwined with the EU's highest-level strategic ambitions.
Section 8: The Future of the EIC: The FP10 Battleground
The future of the EIC Fund is inextricably linked to the broader, high-stakes political negotiations over the EU's next multi-year research and innovation framework programme, currently referred to as FP10 (due to start in 2028). The key debates revolve around the EIC's budget, its governance structure, and its degree of independence from the central European Commission—the very issues that plagued its initial years.
8.1 The Call for Autonomy and Budget
In a powerful and unprecedented move, the European Research Council (ERC) and the EIC issued a joint statement in March 2025. They called for "increased" and "ringfenced" budgets for both bodies within FP10, as well as "a clear mandate, independence and agility in governance and operations". This joint front represents a direct response to the years of bureaucratic interference and implementation struggles, and it serves as a strong political signal that the EU's flagship science and innovation funders see greater autonomy as essential for their success.
This call for independence has received robust political backing. The European Parliament, in its recommendations for FP10, has strongly advocated for restoring the EIC's autonomy and agility, suggesting this could be achieved through a tailor-made legal entity that would allow it to operate with the speed of a private VC. Parliament also recommended a massive increase in the overall FP10 budget to at least €200 billion. Similarly, EU research ministers, in the March 2025 Warsaw Declaration, explicitly urged the Commission to "preserve the independence and expand the roles" of both the ERC and the EIC.
8.2 The "Competitiveness Fund" Debate
A major point of contention threatening this vision of an independent EIC is a proposal, reportedly originating from the Commission's central leadership, to subsume all research and innovation funding, including FP10, into a new, overarching "European Competitiveness Fund".
This proposal has been met with fierce opposition from the research and innovation community, as well as from the European Parliament and many member states. Critics fear that such a move would dilute the focus on science-led R&I, politicize funding decisions based on short-term industrial priorities, and fatally undermine the scientific and operational independence of bodies like the ERC and EIC. The overwhelming consensus among stakeholders is that FP10 must be preserved as a "standalone" programme dedicated to research and innovation.
8.3 The Long-Term Vision: What Could the EIC Become?
The outcome of these debates will determine the long-term trajectory of the EIC. Proponents of a stronger EIC envision it evolving into a more independent and powerful agency, akin to the US Defense Advanced Research Projects Agency (DARPA). Such a body would have the budget, autonomy, and risk-taking culture to make truly transformative, high-risk bets on the technologies of the future. Another vision, articulated by former programme managers, sees the EIC evolving into a portfolio of specialized, thematic funds—such as an "EIC Health" or "EIC Digital"—that could provide more tailored support to the unique needs of different innovation sectors.
The central challenge remains resolving the EIC Fund's foundational contradiction: can it secure the genuine autonomy, agility, and risk appetite of a world-class venture capital fund while remaining a publicly owned, politically accountable EU institution? The negotiations for FP10 will be the decisive battleground where this fundamental question about the future of European innovation policy is fought and, ultimately, answered.
Regardless of the political outcome of the FP10 debate, the EIC Fund's tumultuous journey has already carved an indelible mark on European policy. It has forced the EU to confront the inherent limitations of its traditional grant-funding model and has successfully mainstreamed the once-radical concept of the state acting as a direct, risk-taking equity investor. The Fund was launched as a "breakthrough initiative" and a real-world "experiment". Despite its severe and damaging implementation failures, the core principle of blended finance has not been abandoned. On the contrary, it has been reinforced and expanded through the new STEP scheme, which doubles down on the idea of the EU as a strategic investor.
The political debates today are no longer about whether the EU should be an equity investor, but about how it can be a better one—more autonomous, better funded, and more agile. In this sense, the EIC Fund's greatest and most lasting legacy may not be the individual unicorns or centaurs in its portfolio, but the irreversible paradigm shift it has triggered in public finance and innovation policy. It has provided a painful but invaluable education for policymakers on the immense challenges and strategic necessities of public venture capital. The EIC Fund has permanently changed the EU's understanding of its own role as a market actor, a transformation that will shape European economic strategy for decades to come.
Conclusions
The European Innovation Council Fund was born from a clear and pressing policy imperative: to solve Europe's persistent failure to convert scientific excellence into market-dominating companies. Its creation marked a radical departure from decades of EU policy, establishing the European Commission as a direct, risk-taking venture capital investor. This report's deep dive into its history, operational reality, and strategic evolution yields several key conclusions:
- A Structurally Conflicted Design: The EIC Fund was founded on an inherent and unresolved contradiction. Its mission to operate as an agile, risk-tolerant venture capitalist was placed within the institutional framework of the European Commission, a body that is culturally and procedurally risk-averse. This foundational clash was not a minor flaw but a core design feature that made the subsequent implementation crisis of 2021-2023 almost inevitable. The severe funding delays and governance paralysis were direct consequences of this structural tension.
- A Crisis That Reshaped Governance: The implementation crisis was a pivotal event that, paradoxically, led to greater centralization and less autonomy. The operational failures were used as a justification for increased oversight from the Commission's central directorates, pulling the EIC further away from the independent, expert-led model it was envisioned to be. While recent restructuring with an external fund manager has stabilized operations, the EIC now operates under a more complex and multi-layered governance structure.
- An Amplifier, Not a Creator, of Innovation: Despite a pan-European mandate, the EIC Fund's resources are overwhelmingly concentrated in a few Western European nations with mature innovation ecosystems. The data strongly suggests that the Fund does not create innovation hotspots from scratch but rather acts as a powerful amplifier for companies that emerge from strong national support systems. This raises critical questions about its role in closing the EU's innovation gap, a task for which it appears ill-equipped to handle alone.
- A De Facto Scale-Up Fund: While branded as a funder for "high-risk" and "non-bankable" ideas, the EIC Accelerator's evaluation process and portfolio composition show a clear preference for more mature, de-risked companies that have already secured private funding and market traction. In practice, it functions less like a seed investor and more like a large, public-sector Series A/B fund, providing crucial scale-up capital rather than taking the initial leap of faith.
- Evolution into an Instrument of Strategic Sovereignty: The Fund's focus has evolved significantly. With the introduction of targeted "Challenges" and the ambitious STEP Scale-up scheme, the EIC Fund is being transformed from a market-failure correction tool into a proactive instrument of EU industrial and geopolitical strategy. Its primary purpose is increasingly to build European champions in technologies deemed critical for the EU's global competitiveness and strategic autonomy.
- An Uncertain but Defining Future: The future of the EIC Fund is at the heart of the debate over the EU's next Framework Programme, FP10. There is a powerful consensus among stakeholders, the European Parliament, and many member states that the EIC needs a larger, ringfenced budget and, most crucially, greater operational autonomy to fulfill its potential. Whether it can achieve this independence in the face of pressures for central control will be the defining question of its next chapter.
Ultimately, the EIC Fund's legacy is twofold. It stands as a cautionary tale of the immense difficulty of embedding a venture capital mindset within a public bureaucracy. Yet, it is also a testament to a successful paradigm shift. The principle of the state as a direct equity investor is now firmly entrenched in EU policy. The EIC Fund, through its turbulent journey, has provided an invaluable, if painful, real-world education in public venture capital, permanently altering the EU's approach to fostering innovation and securing its technological future.