EIC Fund becomes fully operational as external manager takes investment decisions

Brussels, September 29th 2022

Summary

›The European Innovation Council Fund appointed AlterDomus as external AIFM to take investment decisions for selected EIC Accelerator companies.
›The EIC is now delivering blended finance: grants administered by EISMEA plus equity investments managed under the EIC Fund structure.
›150 grant agreements are signed and the Commission removed a College‑level approval step to speed payments toward a five month target.
›The Fund will follow EIB due diligence and EIC investment guidelines but past delays and a backlog of investment decisions remain a risk.
›The EIC reported large demand and activity since launch: thousands of applications, hundreds of interviews, 236 companies selected and over 300 Seals of Excellence.

EIC Fund set to be fully operational after appointment of external fund manager

The European Commission moved a key piece of the European Innovation Council architecture into place on 29 September 2022 by appointing an external alternative investment fund manager to take investment decisions for the EIC Fund. The Luxembourg firm AlterDomus Management Company S.A. will act as the AIFM for the EIC Fund compartment established under Horizon Europe. The change completes the Fund restructuring that places equity investment decisions outside the Commission and inside a market regulated AIFM structure while keeping grant and acceleration services in the hands of EISMEA.

What this change means in practice

The new AIFM will be responsible for final investment decisions on the start‑ups and SMEs preselected for EIC equity support. That portfolio includes the 139 companies already selected for EIC Fund investments at the time of the announcement. Investment decisions will follow due diligence performed by the European Investment Bank and must conform to the EIC Fund Investment Guidelines. The Commission also reported progress on the grant side with 150 grant agreements signed and administrative steps to speed first grant payments toward a five month target.

AIF and AIFM explained:An alternative investment fund (AIF) is a pooled investment vehicle used across Europe for private equity, venture capital and other non‑UCITS assets. An AIFM is a regulated manager authorised under the AIFM Directive to run such funds and to make investment and divestment decisions on their behalf. Moving the EIC Fund into this structure aims to provide a market standard governance and regulatory framework for EU‑backed equity investments.

How the EIC Fund will operate alongside grants and business support

Under the restructured model the EIC Fund implements the equity component of the EIC Accelerator while the European Innovation Council and SMEs Executive Agency, EISMEA, continues to manage applications, evaluations, the grant component and business acceleration services. The EIB performs due diligence on candidates and the external AIFM takes the final investment decisions according to the Fund’s Investment Guidelines and an expert advisory committee.

Blended finance defined:Blended finance in the EIC context means a combination of grant funding and equity or quasi‑equity investment. Grants finance technology maturation and non‑dilutive R&D. The investment piece is intended to de‑risk the company and to catalyse co‑investment from private capital.

The Commission said first investment decisions by the AIFM were expected in October with more to follow in subsequent months. The public statement also noted a further administrative simplification: from the following day the Commission would generally remove the requirement to clear EIC Accelerator funding through full College‑level decisions. That step is intended to shorten the time between selection and payment of the first grant instalment.

Selection, due diligence and criteria

Companies considered for EIC Fund investment are first selected via the EIC Accelerator evaluation process ran by EISMEA. Selection focuses on breakthrough projects, deep tech in particular, scale up potential and risk profiles that private capital alone will not accept. The EIB performs due diligence and the Fund Manager must follow published Investment Guidelines. The EIC Board provides strategic oversight and the EISMEA remains the interface for applicants.

Due diligence approach:The EIB performs technical and financial due diligence to assess technology readiness, market opportunity, management team quality and legal and financial risks. The Fund Manager complements this with commercial and compliance checks before committing equity or quasi‑equity instruments.

Scale and recent activity figures

Since the EIC pilot and the full launch under Horizon Europe the Accelerator route has seen very high demand. The Commission and EISMEA provided metrics to show the pipeline and selection activity that feed the EIC Fund:

Metric	Number (reported)
Short applications assessed	Over 7,000
Full applications evaluated	Almost 4,000
Interviews with shortlisted companies	Over 800
Selected for funding (total)	236
Seals of Excellence awarded to help find alternative funding	Over 300
Grant agreements signed (as of announcement)	150 (up from 100 a few weeks earlier)

The Commission also noted that the EIC Fund was the most active public European deep‑tech investor in 2022 and cited an early equity commitment announced on 14 June 2022 to SiPearl, a microprocessor start‑up backed by the EIC as part of a broader financing round.

SiPearl example:SiPearl, a French spin‑out from the European Processor Initiative, received a combined EIC package in June 2022 that included a grant and a direct equity commitment. The case was presented as a demonstration of how EIC support can bridge the gap between public research and commercial scale‑up.

Areas flagged for improvement and outstanding risks

The Commission and EIC Board acknowledged shortcomings and delays during the first year of full implementation. Investment decisions were slower than anticipated and a backlog had developed. The appointment of an external AIFM is explicitly intended to accelerate investment decisions and address that backlog. Several structural and policy risks remain and deserve scrutiny.

Key risks to monitor:1) Continued delays in making equity disbursements will frustrate scale‑up plans and damage credibility with entrepreneurs and co‑investors. 2) Public equity investments must crowd‑in private capital rather than distort markets. That balance is delicate and depends on deal terms and co‑investment success. 3) Geographic and diversity gaps remain. Participation from 'widening' countries was low and progress on women‑led startups stalled in 2021. 4) The governance choice of an external AIFM helps professionalise decisions but raises questions on how public policy objectives will be protected in commercial decision making.

The Fund’s Investment Guidelines set rules on investment size, instruments and exit approaches. They define scenarios from convertible instruments at early stages through equity at series A and later rounds. The guidelines also allow the Fund to acquire blocking stakes where justified to protect strategic European interests, and to perform secondary purchases in certain circumstances. Those are sensitive powers. They are necessary for industrial security in some cases but require clear safeguards against misuse and undue market distortion.

Context on governance, compliance and safeguards

Because EIC investments use public money, the Fund and EISMEA operate with multiple compliance layers. EIB due diligence, AIFM regulatory oversight, EIC Fund Investment Guidelines and the EIC Board provide checks. The Commission also plans to move the EIC Fund from direct to indirect management to align legal bases. That step is described as technical and not expected to change the Fund’s risk appetite or objectives, but it will matter for transparency and accountability.

Compliance and transparency mechanisms:The EIB carries out contractual and financial due diligence. The AIFM must comply with the AIFM Directive. The Commission and EISMEA retain control of the application selection and grant administration. The Investment Guidelines also include exclusion lists and rules intended to prevent support for activities that contravene ethical or legal standards and to manage cases with national security or strategic concerns.

Implications for the European innovation ecosystem

If the external Fund Manager can accelerate equity decisions and effectively bring in co‑investors, the restructuring could unlock important pools of private capital for risky deep tech companies that struggle to reach scale. The combination of grant, business acceleration services and equity is an attractive proposition for entrepreneurs and is unique at EU scale. That said, outcomes will depend on deal execution, the Fund’s willingness to use flexible instruments and the credibility of its co‑investment pipeline. The Fund must also show it improves distribution of funding across member states and supports underrepresented founders.

What to watch next

Short term indicators of success will be the timing and number of investments the AIFM signs in the following months, whether the Fund can reduce the backlog, and whether first tranche investments catalyse meaningful co‑investment. Watch also for updates on the Commission’s pledge to reduce approval steps and on publication of the June 2022 cut‑off results. The Commission planned a 5 October 2022 cut‑off for full applications; publication dates and funding decisions will show operational progress.

Definitions and technical concepts

EISMEA:The European Innovation Council and SMEs Executive Agency manages Horizon Europe delivery for the EIC. It runs calls, handles evaluations, signs grant agreements and provides business acceleration services to companies chosen for EIC Accelerator support.

EIC Accelerator:The Accelerator is the EIC’s flagship instrument for high risk, high impact start‑ups and SMEs. It offers grants and equity in blended or separate formats plus business acceleration services. Selection is competitive and technical panels assess breakthrough potential and scale potential.

Seals of Excellence:A Seal of Excellence is a quality label awarded to proposals that pass Horizon Europe evaluation thresholds but cannot be funded because of budget limits. The scheme is intended to help firms access national, regional or other funding sources.

Bottom line and cautious assessment

The appointment of an external AIFM is a necessary operational step to move the EIC Fund from pilot mode toward a fully operational, regulated investment vehicle. It aligns the equity component with market practice and should speed up decisions if the AIFM, Adviser and EIB due diligence processes run in parallel and to schedule. However the EIC faces two linked challenges. First, it must show it can translate the large pipeline of evaluated projects into timely equity disbursements that match start‑up speed. Second, it must prove that public equity is leading to sustained private follow‑on funding and real scale‑ups rather than short term headline transactions. The Commission has tools to manage both aims, but success will depend on execution and on how well the Fund balances public policy goals with market realities.