After securing smart capital from a platform like Pitchdrive, startups can seek a financial mix that includes a combination of smart and dumb money, enabling them to raise capital faster.
One way to raise dumb money is by applying for government grants, loans, guarantees and equity. The European Union has a number of programs that supports startups depending on the nature of their business.
In general terms, there are two types of EU funding:
Direct funding is where capital is managed by the EU institutions in the form of grants and contracts. Grants are given to projects that meet EU policies or further the interests of the EU. Whereas contracts are given to businesses to buy goods or services that are required for purposes like studying, training or IT equipment. Startups can apply for grants and contracts through the EU’s Funding and Tenders portal.
Indirect funding is managed by national and regional authorities and comprises around 80% of the EU budget. There are five principal funds that startups can apply for:
- European Regional Development Fund, which aims to strengthen economic and social cohesion in the EU.
- European Social Fund, which focuses on improving education and employment opportunities.
- Cohesion Fund, which aims to reduce economic and social disparities and promote sustainable development.
- European Agricultural Fund for Rural Development, which supports the economic viability of rural communities through rural development measures.
- European Maritime and Fisheries Fund, which supports the European fisheries sector towards more sustainable fishing practices.
To apply for indirect funding, startups should apply through their national or regional authorities. For example, founders in Belgium, would either need to apply to the Belgian national authority, or a regional authority like Antwerp Province.
The Importance of a Financial Mix
Combining smart money from investors with dumb ‘growth’ capital, allows startups to only sell the amount of equity that they’re comfortable with. It enables them to raise funding quicker as they don’t have the pressure of raising a large round with limited evidence of growth.
When applying for government funding, it’s important to have a financial mix of debts and equity. Whereas equity can help with cashflow, investors will expect to see a return on their money and startups will need to relinquish some control of their business.
When taking on debt, the loan is only temporary and can provide startups with predictability. However, the founders need to have acceptable credit ratings to qualify and assets are often held as collateral.
Having a financial mix can help startups spread their exposure to risk and find an optimal financing structure that works for their business.
Startup Funding Through Grants
EU grants are usually awarded to startups after a call for submissions. Startups submit a proposal, outlining why they’d be a good fit for the funding. The conditions of funding are usually aligned with the EU’s social, economic and infrastructural policies. For example, if the EU is focusing on promoting the creative sector, it might offer grants to startups in the cultural or media space.
The process for applying for grant funding varies depending on the individual grant. Startups have to check their eligibility against the grant guidelines. For EU funding, startups usually need to be located in one of the member states. After registering with the European Commission, startups can submit their proposal and provide all relevant documentation like financial identification, balance sheets and their budget.
Here’s a list of the EU’s current open calls for grant funding.
Funding Support During COVID-19
There have been a number of funding initiatives announced to help startups during the pandemic and new funding rounds continue to be rolled out. The French government for one, announced a comprehensive support plan for startups by bridging the gap with refinancing and liquidity measures, to the sum of €4 billion.
Startups that were in the process of raising a new funding round can raise a bridge round through Bpifrance, who is offering €80 million. The government is also allowing startups to borrow as much as two years of payroll for employees based in France, and startups can access tax returns quicker.
As part of the Horizon 2020 project, the European Commission recently announced a new initiative called COVID-X. The funding is available to EU companies and healthcare providers to boost data-driven solutions to overcome challenges in the fight against COVID-19.
The €4 million project is a 2-year initiative that will provide funding to over 30 European data technology companies. In bridging the gap between the European digital sector and the healthcare system, the project will unlock the full capacity of Artificial Intelligence and data to help save lives. The first funding round has now closed, but there will be a second round of funding announced in the coming months. Startups that meet the criteria, can apply here, when the next round of funding opens up.
Spreading Risk Exposure
There are several ways to access government funding as a startup. In having an optimal financial mix of debts and equity, businesses can spread their exposure to risk.
At Pitchdrive, we help early-stage startups secure smart capital that can be leveraged to access support from governments. With the backing of investors, our startups benefit from gaining knowledge as well as capital, which increases their chances of succeeding in a highly competitive environment.
Our quick decision-making process means founders can focus on growing their business instead of spending valuable months trying to raise the capital they need to accelerate.
Learn more about how Pitchdrive can provide you with smart capital to grow your startup.