Is Soft Funding the Right Fit for You?

Is WHAT for me?

Soft funding is “non-dilutive” financial support, meaning you still keep full ownership of your company. It is typically given by governmental institutions as “state aid” for specific projects through grants, loans, or tax credits.

While state aid can sometimes distort markets, European and other governments find it worthwhile to promote public interest solutions in areas like R&D&I, environmental protection, crisis support, and SME risk capital.

State of state aid in Europe

In 2021, EU27 member states allocated EUR 334.54 billion on state aid, or about 2.3% of their total GDP. EUR 68.51 billion went to environmental & energy initiatives and R&D&I saw a 53% rise to about EUR 19 billion.

Direct grants still dominated at 58% of the total expenditure in 2021. Tax measures contributed 14%, while guarantees accounted for 8%.

Germany led in total state aid expenditure with EUR 121.21 billion in 2021, which accounts for 36% of the EU27's total state aid. France followed with EUR 63.3 billion (19%) and Italy (EUR 31.53 billion, 9%), Spain (EUR 20.45 billion, 6%) and the Netherlands (EUR 16.21 billion, 5%) also contributed significantly.

In addition, the EFTA states Norway, Iceland, and Liechtenstein distributed EUR 8.1 billion in state aid in 2021, a 37% increase from 2020, largely attributed to the COVID pandemic. Norway received 94% of this (EUR 7.6 billion) with EUR 2 billion for environmental protection, EUR 1 billion for regional development, and EUR 807 million for R&D.

Grants and tax incentives vary widely: many companies including small startups receive so-called “De Minimis” aid, consisting of EUR 300,000 or less over 3 years. 

Much larger grants are also common, e.g., the EU Innovation Fund' EUR 40 billion for environmental tech investments from 2020 to 2030 (Renewable hydrogen production and carbon capture and storage (CCS).

Can I Just Get Free Money From the Government?

Not quite. State aid, funded by taxpayers, aims to drive innovation, provide clean energy, support disaster relief, and enhance products and services. To uphold these goals, strict regulations and processes are in place. For example, the 78-page General Block Exemption Regulation (GBER) outlines allowed state aid categories in the EU and EEA with varying funding rates based on company size and aid type. Also, the 60-page User guide to the SME Definition clarifies which companies qualify as SMEs vs large companies, influencing the max. from 20-100% of project costs.

This is not to speak of the thousands of pages of new “calls for proposals” coming out every year, setting out how much money is available for which types of technologies and problems, and from which of the many different funding authorities. 

Even if navigating this ocean of information, identifying a funding programme and writing a proposal that gets approved you need to deal with detailed reporting requirements, tax implications, and potential issues such as project changes and withdrawn funding - Sounds fun? This is of course all while maintaining your business and delivering valuable products. 

The ultimate currency

While governments hand out hundreds of billions of Euros every year to private companies, navigating the complex regulations of these funds has a high cost in time, perhaps the most precious and irreversible resource of all.   

To give you a return on the time spent reading this, let’s look at key questions to consider before applying for soft funding: 

Which funding programme suits you best? 

To improve your odds of successfully securing grants, look for:

• Eligibility and “funding fit”: Does your project and organization meet the programme's criteria with respect to partners, capital, location, technology readiness etc.? Is there a unique fit? Does the programme seek exactly what your organisation offers?
• Funding rate and maximum grant/loan/tax credit: What is optimal funding scenario? Programmes often cover 45% of project costs up to EUR 2.5 million, requiring 55% from private investment. 
• Competitiveness: What are the programme's approval rates? Some reach 80-90%, others just 2-3%.
• Simplicity or lack thereof: All else equal, choose the simplest programme to apply, manage and report for. How long are the applications? 100 pages? 20 pages? 5 pages? Roughly how many hours will you spend to compete for the grant/incentive? 

Who will be in charge of Proposal writing and follow-up?

Do they have the expertise and resources? Do they have time? Often, the knowledge and experience required to write a winning proposal requires extensive input from CEO/CTO/CFO, whose time carries a high opportunity cost. This should be factored into decisions about whether to apply and what to apply for. Especially for early-stage companies where the time and attention of the chief executive(s) is crucial for survival.

What does a great consultant offer?

A great consultant is key to securing grants/loans/incentives efficiently instead of just wasting time on mind-numbing bureaucratic processes. 

Firstly, a great consultant has in-deep knowledge of soft funding, understanding legislation to guide you towards programmes that maximize your return on time spent. This is a fairly complicated equation based on factors mentioned above, such as max % of project cost funded, max funding amount, eligibility criteria, competitiveness, total funds available, rules for combining different grants, and complexity of the proposal and reporting process.

Secondly, they have participated in tens if not hundreds of similar proposal processes. Through experience and pattern recognition, they’ve seen what works for different funding programmes and how to craft winning proposals while navigating complex requirements.

Thirdly, they possess skills that allow them to quickly understand your project in sufficient depth and translate it into a proposal that maximizes your chances of winning. Ideally, they have a background in discipline(s) specifically relevant to your technology and project, whether this is mainly scientific (e.g. biology/physics), technological (e.g. computer science or mechanical/electrical engineering), financial or humanitarian. 

They also have a basic understanding of financial management and entrepreneurship, enabling them to address concerns of a CEO/CFO/owner. They have strong communication skills and collaborate well with stakeholders and funding authorities and write a coherent and persuasive proposal. 

Let’s be honest, working with a consultant is not for everyone. For simple proposals it might be a waste of time and money. Unless of course you just use the 1-2 free introductory meetings to pick their brain and get specific advice. 

Even a great consultant cannot always understand the project as well as the founder or a long-term team member. Avoiding generic and failing proposals requires a fair bit of this detail. Working with a consultant, this information must still be transmitted from the project owners to the consultant. The ability to ask the right questions and extract this information efficiently is one of the specific skills of a great consultant. But it still requires some number of hours from the company to transmit it, review proposal draft(s) etc. 

Fundamentally, the question of whether to hire a consultant for a soft funding proposal comes down to this:

1)    How much time and headache will it save you?

2)    How much will it increase your chances of winning the grant?

3)    Does this justify the fee charged by the consultant?

A conversation with a consultant can give you information to help with this decision (and some free advice). But of course only you, the company/project owner, can make it.

If you are considering applying for soft funding in Europe, especially within R&D, feel free to reach out to us.