January 26, 2021  /  blog

Since I started DRIAD in 2014, I have met hundreds of entrepreneurs and business owners. The first question most have is, what are innovation grants exactly? How do they work, what do they fund, and how do I know if I am eligible?

I will try to answer these questions by pulling together our expertise applying to dozens of different innovation grants across Europe. This summary is meant for UK businesses, but the general advice applies to almost all innovation grants.

What is grant funding?

A grant is public funding invested in a private organisation to deliver a specific piece of work. 

Grants are non-dilutive funding: the recipient does not have to give shares of the organisation as counterpart for capital.

Grant funding does not require you to provide any securities either.

Grants are awarded in a competitive process, where only the best projects are funded. These projects have to meet very specific criteria to win.

Innovation grants are just one type of grant

There are different types of grants covering different use cases; some are accessible only to not-for-profit organisations, some are available to buy equipment or to refurbish offices.

We are specialists of innovation grants, which fund research and development projects conducted by private companies – emphasis on the word project, as it is not meant to finance the operations of the company.

Well-known examples of innovation grants available to British SMEs are:

  • The SMART grant, provided by Innovate UK
  • The EIC Accelerator grant, provided by Horizon Europe
  • The Eurostars grant, provided by the Eureka network

These providers are effectively distributing tax money made available by the British government.

Why is public money financing private ventures?

Governments worldwide agree that there is a failure of the financial markets when it comes to financing research and development. On the one hand, leveraging R&D is essential to unlocking growth – and the growth of a developed country rests on its ability to bring innovative products to the markets; on the other hand, innovation projects are very risky, by nature unproven and therefore, very difficult to finance using private capital. Even venture capital mostly avoid investing in early-stage R&D. 

Governments are addressing this market failure by offering competitive grants to strongly innovative companies, provided they can demonstrate the positive impact the successful innovation project will have on the company, the nation, and the taxpayers that are footing the bill.

What can innovation grants be used for?

Innovation grants will typically fund the following elements, provided you can justify that these are costs necessary to incur for the success of your innovation project; in decreasing order of importance:

  • Labour costs, including current staff or new hires
  • Equipment, including consumable, new equipment, and fractional use of large equipment (e.g. supercalculator)
  • Subcontracting, which has to be limited to non-key elements
  • Overhead costs, including additional operation costs caused by the project (e.g. accounting)
  • IP costs

Innovation grants are not meant to finance:

  • Any costs that are not part of the innovation project, such as marketing and sales operations,
  • Purchase of offices or machinery,
  • The industrialisation of a product that is already fully developed.

How difficult is it to win an innovation grant?

Grants are delivered in the form of competitive calls for projects with a set deadline, to finance solutions answering specific challenges. This is called the scope, and making sure your project is within the call’s scope is key.

Innovation grants are competitive. Typically, only one applicant out of 10 is funded; the more open/generic the call for the project, the lower the success rate. At its worst, we have seen Horizon 2020 competitions reaching success rates below 1%. On the other hand, the more specific the competition, the higher chance of success. Eureka Eurostars boast a 20% success rate, but it will only fund innovation projects that are conducted by 2+ SMEs in different countries members of the network – an oddity in the start-up world.

Applying to a grant almost always requires preparing a very detailed, very structured document which is the business plan of the project specifically answering to the call. Preparing an application can take anywhere from 50h to 200h+ of work for specialists, as it has to be tailor-made to describe your project.

What are the financial peculiarities of innovation grants?

They usually cover only a part of the total costs of the project. For an SME, it will typically be between 50 and 70% of the total costs. Therefore the applicant is expected to be able to justify where the rest of the sum comes from.

The time to access funds is significant. It usually takes a month to prepare an application, 2 months for the funding body to judge the application, 1 month of due diligence, and 1 month of setup before the project can even start – and that is a best-case scenario. Any work started before that won’t be covered by the grant, which means no refunding.

Funds are made available throughout the project: they are often refunded in arrears or attached to milestones (intermediate reports) so don’t expect to access the whole amount at once

Usage of funds is monitored during the project, which means that you are expected to submit a plan on how you’ll spend the funds and on what, and stick to that plan as much as possible – and you’ll be judged on this by the funding provider.

Where do I find available grants?

Start by following the key funding providers: Innovate UK, Horizon Europe, Eureka.

They often have newsletters such as https://ukri.innovateuk.org/subscriptionpage.

Find your Local Enterprise Partnership at https://www.lepnetwork.net/, they might have funding streams available.

Find and follow the https://ktn-uk.org/ linked to your sector of activity.

How do I know I am eligible for a specific grant?

The answer to this question is too long for such a post – which is already long enough! – but we will be providing answers in later instalments.

If you have any questions about eligibility, please get in touch at  contact@driad.co or hit the button below to fill out our survey!