Reshaping the European Innovation and Deep Tech Startup Market

Interview with Michiel Scheffer, President of the EIC European Innovation Council, by CEC European Managers’ Deputy Secretary General and Chair of the Working Group on Innovation for a More Competitive EU, Silvia Pugi.

The European Innovation Council (EIC) is currently one of the main instruments through which the European Union supports deep-tech innovation and startups. With an annual budget of €1.4 billion and a portfolio of hundreds of innovative companies, the EIC funds high-risk projects and helps companies move from the laboratory to the market.   It is led by Michiel Scheffer, President of the EIC and a figure with a background that combines business, research, and policy.

His experience offers him a privileged perspective on the difficulties European companies encounter in scaling up, the need for more patient capital (i.e., capital that can wait years for a return on investment), and the strategic choices that await Europe in the coming years. 

We spoke with him about scale-ups, technological autonomy, and the role the EIC can play in strengthening the continent’s competitiveness.

President Scheffer, the EIC supports startups from early stage to scale-up. What are the strategic priorities for the coming years?

Our long-term goal is to help companies overcome the famous “valley of death,” the stage where even a brilliant idea can die due to a lack of capital, given the extremely high costs of developing new technologies (think, for example, of quantum computing). We do this because our primary mission is to ensure the future development of the European economy, as defined in 2017, when the EIC was conceived.

The novelty that has emerged in recent years is the focus on new technologies: hence the push to invest in quantum computers and photonics. This impulse has become even more urgent since 2022, when a new mission emerged for the EIC: to work towards Europe’s strategic autonomy. Europe is extremely dependent on the outside world – and therefore vulnerable – in many areas: semiconductors, software, AI foundation models, but also energy, raw materials, and fertilizers, all areas where technological innovation can find solutions.

Then there is the issue of productivity. The Draghi report highlights that European productivity has been stagnant for about ten years. Healthcare is the most urgent case: much more efficiency is needed, and AI applied to diagnostics can be a decisive tool.   Our job, today, is to simultaneously address growth, autonomy, and productivity.

The EIC has just published the new Work Programme for 2026. Could you illustrate how the budget will be allocated?

The annual budget of the European Innovation Council is €1.4 billion, structured across four instruments: Pathfinder with €300 to €400 million, dedicated to visionary research; Transition with €100 million, which offers the initial capital to bring a scientific result out of research toward prototyping; Accelerator with approximately €400 million, which combines grants and equity for the scale-up phase; and Super Scaler “STEP” with €300 million.

In addition to these, there are funds for ecosystem capacity building activities.

In 2026, we will introduce a new instrument, the Advanced Innovation Challenges, dedicated to innovations with high transformative potential but high risk: a two-stage process, with a first mini-call of €300,000 that allows companies to test the feasibility of their idea, followed by a second call of up to €2.5 million to develop and test the most promising solutions.

Another novelty: we will streamline the application process.

How does the EIC Fund application process work? And how does it compare to private venture capital?

The application procedure involves four phases: it starts with a Short Application, a PowerPoint presentation and a video presentation, assessed by experts who assign a go/no go. If the outcome is negative, feedback and guidance for improvement are provided.

If the outcome is positive, the Full Application can be submitted, which consists of a complete business plan, with a technology roadmap and milestones for the next 24 months, patent status, intellectual property, team skills, and use of funds.

If that goes well, the Due Diligence begins, which involves a direct discussion with the experts in charge of the assessment, who test the company on critical points.

The final phase is the final interview, a 45-minute conversation, where the team’s credibility, vision, and execution capability are evaluated.

The application process takes an average of four months between the full application and the final decision. The overall success rate is 5–6%: we receive about 1,500 applications a year and fund 70–80 of them.

How does your application process compare to that of private venture capital?

VCs (Venture Capitals) evaluate each deal individually; the EIC works with a portfolio-building approach, comparing proposals to select the best ones. This makes our evaluation process a bit longer but much more in-depth: behind every approved deal is the work of about 12 people for several days.

Compared to VCs on the market, we are less selective in the early stages – about 30% pass each phase – while VCs usually discard 80% at the first pitch. Overall, we approve 5–6% of applications compared to 1–2% for VCs.

And in terms of risk appetite?

We invest in deep tech startups, which are generally riskier than other types of startups.

We finance “market failures,” meaning innovations that the free market, left to its own devices, is unable to fund (even if it considers them important for society).

We invest in companies that will be loss-making for the next 3–5 years: if they are already on the market or profitable, they can already find resources from other VCs.

Similarly, we do not finance the construction of a second factory: banks are for that.   If a founder tells us, “We will be profitable within a year,” We shake their hand and reply: “That’s great, but then you don’t need us.”

We accept more technological risk, but we don’t take foolish risks: no CFO, no funding. No patents? no funding. Naïve business model? no funding.

However, we do fund companies that potentially will have an economic return.

The European Union is investing massively in startups and scaleups. How does the EIC fit in with the new Scale-Up Europe Fund?

The new Scale-Up Fund originated from an idea that started right here at the EIC. We saw companies that overcome the “valley of death” but then halt their growth or crash when they need to raise rounds of €30, 40, or 50 million, because our maximum tickets of €10 million are no longer enough.

The new fund is not a competitor: it is part of our ecosystem, it is the natural follow-on to the EIC Accelerator. It will support companies with less technological risk but greater capital needs. It will operate as a compartment of the EIC Fund SR, a Luxembourg-registered company.

The Scaleup Europe Fund (SEF) is established under the EIC Fund with an endowment of €1 billion and will be managed by a private management company.

How does the EIC interact with national systems?

Assuming that every company can apply independently, we work with the various national ecosystems on several points of contact: firstly, the National Contact Points (in Italy, APRE – Agency for the Promotion of European Research); secondly, institutional co-investors, such as CDP Venture Capital, which are fundamental because the EIC is always a minority shareholder (typically between 20% and 30%); and regional agencies like Sviluppo Toscana, which are useful for strengthening the local ecosystem.

We also have the Plug-in Scheme, which allows companies evaluated in qualified national programs to have a fast track for application (and skip the short application). There is a limit, however: the total of public investors and the EIC never exceeds 40–45%.

Let’s talk about Italy. How do you view our ecosystem?

Italy generates many applications but has a success rate of 2%, among the lowest in Europe, compared to 10% in the Netherlands and Belgium and a European average of 5–6%. Why?

First, there are few applications in line with the EIC’s deep-tech logic: many are incremental innovations, with a lot of software or industrial technologies.  The country is patchy.

Lombardy performs well, with about 75% of the companies we fund; there are economically strong but underperforming regions like Piedmont (no funded startups), Veneto, and Emilia-Romagna.

The South is almost absent; the southernmost company funded is from Ascoli Piceno, and below that line, we have no active projects. There is an economic reason: very generous regional funds, for example, €500 million in Puglia alone, with success rates far higher than those of the EIC. For many companies, choosing Europe is simply less convenient.

Finally, there is a cultural component: the Italian family business model makes it less immediate to accept a public investor in the capital.

Europe is strong in research but struggles to turn it into companies and scale them up. How much private capital does the EIC manage to mobilize?

The EIC was created precisely to solve the fact that we have excellent research and good patent results but poor scaling performance. I want to be clear: Europe does not have a startup problem. We receive a number of requests 15–20 times higher than we can fund. There is no lack of entrepreneurial culture. The problem is that scaling up in Europe is much more difficult because, for a long time, there was no Venture Capital market.

The EIC has changed things somewhat, and we see growing interest from private capital in deep tech: today, for every euro of EIC public funds, startups raise €3 from private investors. In Italy, you have foundations like Banca Intesa and San Paolo, which manage to engage family offices and other VCs.

There is also a problem of fragmentation: the majority of European funds are small, from €50 to €500 million, and cannot make substantial tickets.

Today, however, funds of €1, 2, or 3 billion are emerging, especially in France, and they are expanding abroad.

European companies have an innovation and productivity problem. Can startups be part of the solution?

We created the Corporate Partnership Programme, based on challenges launched by companies and “corporate days” where our 742 portfolio companies present their solutions. The format works, but it often does not go beyond the pilot phase.

Many corporates offer a free testing environment; but they give €10,000, never €1 million, because they do not consider the solutions central to their strategy. We also see several cases where corporate venture capital units are even closed down.

Some sectors, like defence, are not used to working with startups.

In general, the European industrial culture shows many barriers to innovation: a short-term financial management and little propensity for deep-tech risks; poor propensity for vertical integration (think of car manufacturers who have not invested in batteries!) and little risk appetite.

Is there also a problem of poor managerial skills in working with startups?

Yes, but it varies greatly. In Munich, Eindhoven, Delft, or Milan – areas with strong technical universities – the distance is minimal. Managers and founders often know each other from their studies. When you have managers with doctorates in the company, they understand deep-tech startups very well.   Then you go to Turin, and the gap is surprising: a lot of manufacturing expertise, less familiarity with emerging technologies.

There is only one solution: bring people together, create contexts for real collaboration, and have CEOs and CTOs send a clear signal from the top.

Interested managers and experts can apply to become Evaluators at the EIC.

The AI Act and other European regulations impact innovation. But how do we find the right balance between rules and disruption?

It’s complicated: regulation can be both a source of productivity and competitiveness and a barrier. The problem is timing: often it arrives late, other times too soon. The AI Act was an example of early intervention.   Let’s also remember that European regulations always arise from the impulse of the Member States.

An urban legend needs to be debunked: the US innovates, Europe regulates. American entrepreneurs complain greatly about a bureaucracy fragmented across 50 states, often more complex than the European one.

In the field of Artificial Intelligence, the US has far fewer rules than Europe, because we consider digital communication on par with publishing. But frankly, privacy is not an issue when you use AI on industrial machinery.

In the healthcare sector, for example, European citizens would not accept an insurance company using a predictive model to exclude them from a policy. And this protection is a competitive advantage, not a brake.

A more mature, less ideological discussion is needed.

What competitive advantage do you see in the European ecosystem compared to the American one?

Europe has advantages over the US. Firstly, we have a culture of international collaboration; Europe has been a network of exchanges for centuries: Italians, Germans, Dutch, and French work together naturally. In the US, you have to sign an NDA before you talk, with all the legal costs that entails.

Then we have very high-quality manufacturing. Europe is unbeatable in the production of small and medium series. If you need 100 machines in 20 different versions, the strip that runs from Eindhoven to Piacenza is a global unique selling proposition for the density of companies and industrial expertise.

I was quite surprised about six months ago there was a whole delegation of American companies coming to Europe and when I asked them why they were coming here, their answer was because “you have manufacturing skills”.

We have a highly skilled technical workforce; Europe has a solid intermediate segment between PhDs and unskilled labour. In the US, this segment is almost non-existent, and it makes the difference in the capacity to prototype, adapt, and improve machines and processes.

And then we have demanding customers, ready to pay for quality: think of the high-speed rail network, which does not exist in the US.

The flip side is fragmentation: different markets, different languages, different regulations. But this is also what makes Europe a unique ecosystem.

In conclusion, would you like to leave us with a final message?

Having held roles as a professor, entrepreneur, and now politician, I strongly believe in the importance of constructive dialogue and cooperation.   The key to progress is talking with others (researchers, companies, politicians) instead of talking about others, understanding mutual motivations.

And then a crucial point is direct action. Many people at conferences say what should happen but do not commit to making it happen.

The creation of the scale-up fund, for example, was not decided in a conference room but through private and targeted conversations with investors to secure their commitment to invest €250–500 million.

You can find more information on the European Innovation Council here [+]