Closing the scale-up gap in innovation

Strengthening the competitiveness and resilience of European industry has been the European Union’s primary focus for the past few years. Despite Europe having proven its resilience, future competitiveness needs to be ensured, particularly by focusing on the deployment and scaling up of digital technologies, deep tech innovation, clean and resource-efficient technologies, and biotechnologies within the European Union.  

The European Investment Bank (EIB) Report 2024/2025, published early this year, highlighted how market integration, simplification of regulatory barriers and targeted industrial policy effort can catalyse large scale investment in innovation, digitalisation and green transition.  

Ensuring that the European Union has a significant pipeline of scale-up companies delivering innovation in strategic sectors is essential to increase economic growth and address strategic autonomy. 

This targeted public intervention aims to enhance EU industrial competitiveness by focusing on developing critical technologies for a sustainable, competitive future. It tests new strategic measures and strengthens EU industrial policy. The STEP Regulation sets the following main objectives: (a) supporting the development or manufacturing of critical technologies throughout the Union or safeguarding and strengthening their respective value chains; and (b) addressing shortages of labour and skills critical to all kinds of quality jobs in support of the first objective.

The STEP regulation identifies three main strategic technology areas:

·        Digital and deep tech

·        Clean tech

·        Biotech

It aims to bring major new technologies to Single Market and avoid technology dependencies on other regions. It is implemented in a coordinated way across 11 EU programmes (including Horizon Europe/ EIC) and through Structural Funds (ERDF). To qualify as critical under the STEP framework, a technology must meet at least one of the two conditions below: 

Innovativeness - bring to the internal market an innovative, emerging, and cutting-edge element with significant economic potential.

Strategic dependencies - contribute to reducing or preventing the strategic dependencies of the Union. Promoting positive cross-border effects within the internal market.

Why STEP in the EIC?

The report by Enrico Letta, published in April 2024, followed by Mario Draghi’s report, extensively discussed the challenges and hurdles that the EU faces in scaling up innovations within the EU single market. Actions are required to support the growth of startups and scaleups, which are key to innovation in Europe. Particularly for deep-tech companies, several reports (see caption in the figure below) have shown that scale-up funds are heavily reliant on overseas investors, bringing a high risk of companies relocating.        

To tackle this challenge, the European Union aims to bolster its support for innovation by removing investment barriers and implementing targeted public interventions. In the context of the STEP Regulation, the European Innovation Council (EIC) provides support for innovations with breakthrough potential and disruptive nature that have scale-up potential but may be too risky for private investors. Within the EIC programme, the EIC Accelerator already targets the provision of investment in the form of equity-only support or other repayable forms to companies carrying out innovations, but the maximum amount is limited to EUR 15 million (except in exceptional cases).  

The EIC STEP Scale-up call, represents a new ambitious scheme within the EIC Programme with a budget of €300 million in 2025 and a projected growth to €900 million over the period 2025-2027. 

Allowing for equity-only support for non-bankable SMEs and small mid-caps would address the existing market gap, in particular for investment needs in the range of EUR 15 to 50 million.

This initiative aims to provide larger investments in companies developing strategic technologies to bring them to the market and reduce strategic dependencies. The EIC STEP Scale Up scheme offers financial support in the form of investments to startups, SMEs, and small mid-caps, between EUR 10 to 30 million. Its goal is to scale-up innovation in Europe's strategic technology sectors, particularly in quantum technologies and semiconductors, thereby enhancing the EU´s economic and technological competitiveness. The EIC Step Up scheme will catalyse larger funding rounds, amplifying the impact of the initial investment. It is designed to leverage private co-investment and achieve a total investment of at least €50 million to €150 million.

STEP Regulation amends Horizon Europe legislation on EIC (Art 48.1) to allow:

Ø  equity-only support to non-bankable SMEs, including start-ups, carrying out breakthrough and disruptive non-bankable innovation;

Ø  equity-only support required for scale-up to non-bankable SMEs, including start-ups, and non-bankable small mid-caps, including entities which have already received support, carrying out breakthrough and disruptive non-bankable innovation in the critical technologies. 

In addition, STEP Seals will be awarded to all projects passing evaluation thresholds in STEP calls (both funded and unfunded) to facilitate access to complementary or alternative funding. Those companies also gain access to EIC Business Acceleration Services.

This scheme is designed for companies seeking major funding rounds. The application requires proof of initial market interest from a qualified investor, covering at least 20% of the total target funding round. 

Target companies/applicants:

   •          Developing Strategic Technologies: Companies/applicants that have already secured initial funding rounds and are aiming to raise a major funding round (e.g., EUR 50-150 million) to scale up and become global leaders.

  •          Commercializing and Scaling Innovations: Companies/applicants facing significant risks in commercializing and scaling their technology/innovation, which cannot be financed by market investors alone (no change in evaluation criteria on risk).

  •        Inclusive of Various Support Levels: Companies with existing EIC support or already in the EIC Fund portfolio, as well as companies with no previous EIC support.

The EIC STEP scale-up call is a rolling call open throughout the year but the evaluation of proposals submitted will be carried out in batch, indicatively every three months unless the EIC sees a specific urgency.

Find more details on the application process here, or you can get in touch with the EIC National Delegate and NCP.