In my previous job at an Amsterdam-based startup, my job description was – how to say – “flexible”. As a non-technical member of a company developing a new type of scalable real-time graphics database that was still in development, marketing opportunities were limited, sales would be preliminary, and branding depended always positioning.
Like any startup startup member, I had to find something to do that would contribute to the business. I had a vague idea that the European Commission had made vast amounts of funding available to SMEs for innovative ideas, but I didn’t know where to start.
It led me on a bureaucratic quest to figure out how we could get a slice of that pie. And let me tell you, it wasn’t easy. This is exactly why I want to share what I’ve learned with you, because finding EU funding can be a great bridge between getting started and more serious funding rounds –– or just building your way to revenue. without dilution.
Let me tell you about cascading funding.
For this article, I spoke to many people involved at some point in the stunt, and all of them agreed that this type of funding is shamefully unknown and difficult to navigate as a time-strapped start-up employee, all by offering significant financial and commercial support to budding projects.
What is cascading funding?
Under the Horizon 2020 programme, the European Commission has earmarked around €800 million for a “public funding distribution mechanism to help beneficiaries, such as start-ups, scale-ups, SMEs and /or ETIs, to adopt or development of digital innovation.
This mechanism is officially known as Third Party Financial Support (FSTP), but is colloquially referred to as cascading funding. The idea is that instead of startups entering into a funding agreement directly with the European Commission or affiliated organisations, the funding would be distributed to consortia of companies who act as intermediaries to distribute the funds.
These consortia, in turn, set up open calls for startups or scale-ups to apply to, and provide (mostly) equity-free grants to participants of these programs.
Funding for these programs starts at €5,000, but can go up to €500,000, and is normally coupled with business support services for the selected startups – either in an accelerator type, free services like security audits, or by offering access to a network of similar companies and organisations.
This all might sound great, but rather vague, so let’s look at some examples of how it actually works.
Let’s look at some examples
In April 2020, a consortium composed of an educational association, an organizing accelerator and a funding platform launched IMPACT EdTech. The hybrid incubator/accelerator is designed to help European EdTech startups turn prototypes into viable products.
After an initial pitch round, 17 startups were selected to receive approximately €80,000 in the form of an equity-free lump sum payment and mentoring services to develop an MVP. With this MVP, the startups would once again go through a selection process, with seven advancing to the next round.
During this phase, the startups received an additional €90,000 in the form of a non-equity grant and received support in pitching their innovation to “relevant ministries of education, investors and potential partners.
This whole cycle was repeated three times between April 2020 and July 2022.
Along the same lines, programs like STADIEM for media industry startups, BlockStart for blockchain companies, AI4Europe for AI companies, ROBOTUNION for robotics, IMPACT Connected Car for connected mobility, NGI Assure for crypto and security startups, and S+T+ ARTS projects for art and technology all offer different levels of funding, prizes or support to European companies.
What types of startup programs are there?
In general, there are several types of programs. Accelerators like STADIEM offer grants in combination with business support programs, and usually higher levels of funding. Others, like NGI Assure, offer a lump sum of up to €50,000 to startups or individual developers. Some consortia offer vouchers for international travel and collaboration. And finally, there are prices that amount to around €20,000.
The big advantage of these cascading funding systems is that the application process is usually manageable in terms of the time invested. Unlike large-scale funding programs like those organized by the EIC, applications take days to prepare rather than months.
For example, the application form for the recently launched NGI0 Entrust program for “privacy and trust-enhancing technologies” consists of 13 open fields – and these include name, email address and telephone number. Initial funding starts from €5,000, but according to Michiel Leenaars, Director of Strategy at NLNet, it can go up to €500,000 for projects that prove to be large in the initial stage.
“I think we’ve proven that placing responsibility for allocating funds in socially responsible organizations can create huge benefits,” says Leenaars. “In some of our programs, 95% of participants have never received funding from the European Commission (EC).”
Another benefit he mentions is that you’re not dealing with a faceless EC entity, but rather a group of people invested in your success as a startup – and with that, their success as a funding distributor. .
The EC also sees the benefits of delegating the allocation of funds to consortia that genuinely care about their mission and know the industry in which they are investing.
What Do Startup Founders Think About Waterfall Funding?
Overall, startups seem very happy with these cascading funding programs.
Thomas Ketchell of education startup Sutori told us that they “were lucky to get support from ImpactEdTech who provided us with three pilot schools, one in Italy, Czech Republic and Slovakia to pilot Sutori and see if we can get traction with European schools. The funding allowed us to translate the platform and grow it.”
This is in stark contrast to the EIC accelerator debacle unfolding as this article is written.
As part of its most ambitious scaling investment programme, the European Commission has set up the European Innovation Council to find and fund the most promising European deep tech companies –– with grants of up to €2.5 million and equity investments of up to €15 million.
It turns out that the EIC is struggling to manage and distribute the funds, with scale-ups that signed grant agreements in July 2021 still not having received funds, and EC commissioners threatening to cut the program if this is not corrected quickly.
The cascading funding scheme is set to continue under Horizon Europe, the successor program to Horizon 2020. It remains unclear how much of the €95.5 billion fund will be allocated to cascading funding, but the success of previous programs will determine the level of funding. .
For those unafraid of the intimidating face of European bureaucracy, the Funding & Tenders portal now offers a cascading funding filtering option. Be careful though, if you search for “waterfall funding tenders” on Google, you will get a result called “Competitive tenders and tenders for third parties”, which does not include all the waterfall funding opportunities currently available. Fun, right?
In my experience, there are tons of consultants and services out there that offer advice for these types of grants – but also in my experience, you don’t really need them for cascading funding. With a little practice, anyone can break into the obsession with the funding and tender portal and find that bit of cash or support that just might help get your startup off the ground. And if you still have questions, hit me up on twitterhappy to help you.