EU to Address Innovation Issue Through EIC Overhaul

The European Commission is taking steps to enhance and modernize the European Innovation Council (EIC) in a manner similar to the Advanced Research Projects Agency (ARPA) in the United States, with the goal of providing increased support for startup and scaleup companies.

This initiative is part of a set of proposals put forth today for the European Innovation Act.

Stéphane Séjourné, the executive vice president for industrial strategy, highlighted the innovation challenge, stating, “We have an innovation problem: the United States outperforms us due to its higher rate of innovation.”

He pointed out that while more startups are emerging in Europe compared to the US, only 8% of global scale-ups are based in Europe, indicating a conversion issue. Europe excels in research but struggles to translate that research into marketable products.

Furthermore, nearly 30% of European unicorns have relocated outside the EU in the past 15 years, often due to inadequate support and funding for their growth.

• Europe’s technology trends for 2025
• US $500m tech hub funding up in the air
• Europe looks to attract AI, automotive researchers

To address these challenges, a European Innovation Act is being proposed, which includes bolstering support through the EIC and introducing a ‘lab to unicorn’ program aimed at improving technology transfer agreements from universities to startups, an area that has seen sluggish progress in the region.

Commissioner Ekaterina Zaharieva, responsible for startups and innovation, emphasized, “We have 35,000 early-stage startups in Europe. The issue is not a lack of ideas or talent but the need for a strategy to maximize this potential.”

The Act’s startup and scaleup strategy encompasses five key areas, such as establishing an additional investment fund, particularly for AI, quantum, and cleantech, and facilitating access to AI computing resources for startups.

It also includes revisions to the tax treatment of stock options, a long-standing request from tech companies, as well as simplified visa requirements to attract engineers and researchers.

“European innovators face challenges navigating the diverse company rules, tax systems, and testing procedures across 27 countries,” Zaharieva explained. “To address this, we will introduce a ‘28th regime’ tailored for innovative companies, potentially enabling them to establish operations in Europe within 48 hours.”

• £66m for UK AI hardware projects under ARIA
• Call for UK cleantech version of ARPA

The EIC has been supporting deep tech startups with grants and equity investments up to €30 million, but has encountered difficulties in decision-making processes, contract management, and scaling up startups.

Zaharieva highlighted a persistent funding gap for scaleup financing of high-risk, capital-intensive technologies requiring investments exceeding €100 million.

One of the Act’s nine measures involves establishing a public-private investment in a Scaleup Europe Fund under the EIC to make direct equity investments in strategic sectors like AI, quantum, and cleantech. However, concerns remain about the EIC’s capacity to manage such a substantial fund.

“The current EIC STEP Scale-Up Call only offers equity investments up to €30 million, limiting our ability to provide strategic guidance,” Zaharieva noted. “Without intervention, innovative companies may relocate or be acquired by non-European entities. The Scaleup Europe Fund aims to attract significant private investments to support Europe’s tech autonomy and economic stability.”

“Additionally, we plan to expand the European Innovation Council and streamline its processes with more ARPA-inspired approaches,” she added.

The Commission, in collaboration with the European Investment Bank, intends to engage with major institutional investors to develop a voluntary European Innovation Investment Pact for those committing to invest a portion of their assets into EU funds, venture capital, and unlisted scaleups.

Moreover, efforts are underway to leverage existing financial tools and create new instruments to invest in European security and defense startups and scaleups, a proposal introduced recently.

A European Corporate Network will also be established to better integrate large companies, corporate venture investors, and corporate buyers into the EU’s innovation ecosystem, enabling them to benefit from innovative solutions developed by startups.

“In Europe, the transition from research to commercial success remains challenging. While universities contribute over 10% of patents filed at the European Patent Office, only a third of these patents are commercially utilized,” Zaharieva remarked. “Furthermore, public procurement processes in many EU nations tend to favor established providers over startups due to risk aversion.”

The Commission is exploring ways to enhance and simplify startups’ access to public procurement, taking into account their specific needs. A Lab to Unicorn Initiative is in the works to expedite the commercialization of research outcomes, establishing European Startup & Scaleup Hubs in universities with guidelines for licensing, revenue-sharing, and equity participation for academic institutions and inventors involved in commercializing intellectual property and launching spinoffs.

According to Zaharieva, 59% of startups in Europe operate with distributed teams, with 78% of engineering teams working remotely. This trend has helped retain talent within regions and enabled startups to tap into a broader pool of European expertise while reducing operational expenses.

However, managing cross-border teams remotely poses challenges due to complex tax and social security obligations. Startups often struggle to match the compensation and benefits offered by larger firms, hindering their ability to attract top talent. Issues related to Employee Stock Options, such as varying tax treatments across EU Member States, further compound these challenges.

The proposed Choose Europe campaign aims to entice researchers to Europe, featuring a ‘Blue Carpet’ initiative to attract global talent with visas for top entrepreneurs and skilled professionals.

“We will explore best practices for treating employee stock options in startups, potentially considering legislative measures to harmonize certain aspects of their treatment,” Zaharieva concluded.

ec.europe.eu