What Britain’s return to EU science means for startups

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The UK’s return to the EU’s €95.5bn Horizon Europe programme is being hailed as a momentus event for the country’s startups, opening up funding avenues and international collaboration opportunities. 

The British government and the European Commission announced on Thursday that they had finally reached an agreement that enables the UK to rejoin in January after a post-Brexit political spat blocked early-stage tech companies from EU funding and collaboration for more than two years. 

“Research is an international pursuit so I am delighted that the UK has finally reached agreement on membership of Horizon Europe,” said Anne Glover, cofounder of Amadeus Capital, one of the UK’s most active deeptech investors. 

“There are only winners from this decision and the ability of UK researchers to participate in one of the world’s biggest single research programmes is very welcome.”

The UK formally left all three schemes when it exited the EU in January 2020. Under the EU-UK Brexit Trade and Cooperation Agreement, both sides agreed Britain should join the programmes without delay. But the bitter row over post-Brexit trade rules in Northern Ireland led the Commission to put the UK’s association on ice.

So what can startups expect now that the UK is back in?

1. Access to funding

Before being shut out of EU schemes, British companies and researchers were among the most successful at winning grants from Horizon Europe. 

The agreement allows UK startups to apply for and receive funds from the €95.5bn programme, specifically any funding call opening next year. Critically, funds are non-dilutive, which means that startups do not have to give up ownership in their company to receive funds. 

Epoch BioDesign, a London-based enzyme engineering startup, is a part of two projects that received funding from Horizon 2020, the previous iteration of the EU’s R&D scheme. Cofounder Jacob Nathan tells Sifted that the programme has allowed the company to pursue high-risk, high-reward research programmes that would be hard to justify with equity.

“This is access to one of the largest pots of funding out there — all of it non-dilutive,” he said. 

“At a time when the US is pumping billions into biomanufacturing and climate tech via the [Inflation Reduction Act], executive orders and [Department of Energy] grants, this will help maintain the remaining competitiveness of building R&D-intensive startups in the UK, creating more incentive for us to stay and build here.”

The deal with the EU also allows UK companies access to two key space programmes. The first of which is the Copernicus Earth observation scheme, data from which can be used in many different ways — such as fire surveillance or marine monitoring — and to bid for contracts related to those satellites. 

British companies will also be able to take part in the EU Space Surveillance and Tracking programme, which keeps a close eye on the orbit of objects in space that could collide with our planet or satellites.

As part of Thursday’s announcement, the UK government has also promised to come up with a UK fusion energy strategy, which will include a new funding scheme worth £650m until 2027, to compensate British teams for its decision not to join two key EU programmes in this area: Euratom’s R&T programme and the Fusion4Energy / ITER scheme, the world’s largest nuclear fusion experiment.

2. Access to major international projects

Science and tech is all about collaboration, and being part of Horizon allows UK startups to team up with other companies, large and small, and universities across Europe and other countries such as Israel and New Zealand, which have also associated with the scheme. 

This means they will be able to access their know-how and share their own advances, multiplying the impact of their work and developing products that can compete globally.

“Horizon Europe membership gives our startups the ability to collaborate without barriers across the EU and with other associate countries, to intensify innovation and identify new markets,” Amadeus’s Glover said.

Jamie Macfarlane, founder of early-stage deeptech investor Creator Fund, said the return to EU R&D schemes is “a great result for the UK”.

“Many of our best startups are born at universities. But at the early stages, it’s hard for scientists to find funding from people who understand what they’re trying to do. Horizon funding is critical for getting science that seems impossible off the ground, which in turn become the big British businesses of tomorrow,” he said. “The EU wins from this too: their scientists get to collaborate with the world leaders we have in the UK.”

3. Access to accelerator programmes

By comparison with its predecessors, Horizon Europe puts a stronger emphasis on helping companies turn scientific findings into products and services, and scaling up European startups.

The exclusion from Horizon Europe meant UK startups couldn’t benefit from initiatives to help small companies grow, such as the European Innovation Council’s (EIC) accelerator programme. This offers startups, SMEs and people intending to launch a small company up to €2.5m of grants, up to €15m of equity investments, coaching, mentoring and networking opportunities.

The EIC has struggled with delays and operational problems

4. Refund mechanism

According to the Commission, the UK will contribute almost €2.6bn a year on average for its participation in Horizon Europe and Copernicus. 

But the Horizon agreement includes a refund mechanism that provides for compensation if British researchers and companies win a lot less funding than what the government puts in. 

This mechanism will kick in if the difference is 16% or more, and is intended to compensate Britain for the “scarring effects” of having missed almost three years of the seven-year programme, a UK official tells Sifted.

During the time Britain was frozen out, dozens of leading UK-based researchers have moved to Europe in order to continue to participate in Horizon Europe, British startups have scrapped or downsized projects and Britain has been prevented from leading large Horizon Europe collaborations.

If the gap between what the UK puts in and gets back on a given year is more than 12%, the government will be able to bring this up with EU officials and seek measures to balance the situation.

The refund clause is a win for the UK negotiating team, although it will work both ways — the Commission will be able to claim back money if Britain is too successful. 

And although the government hasn’t spelled out what it would do with any money it claws back, it can expect fierce lobbying from the UK science and innovation community to make sure it is spent on boosting R&D.

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