For deeptech startups, which are at the forefront of innovation, public funding can be a critical enabler of growth. However, navigating this complex landscape can be challenging. In this article, we’ll explore the main public funding options available for Spanish deeptech startups, as well as the key challenges founders face when applying for these resources.
1. Funding Challenges for Deep Tech Startups
Deep Tech represents scientific and engineering breakthroughs that address global challenges like climate change, resource scarcity, food security, energy transition or healthcare. These technologies have the potential to reshape industries and create entirely new markets.
However, the commercialization journey for Deep Tech startups comes with its own unique challenges: Deep Tech ventures require longer development phases, often facing substantial R&D efforts before reaching product-market fit. On average, the time to Series A for Deep Tech startups is 18 months longer than for software startups. These ventures also require around 50% more capital than traditional startups until they start to generate revenues. On top, Deep Tech startups face heightened technology risk, as cutting-edge technologies do not always function as intended and as regulatory hurdles need to be overcome.
Because of this, Deep Tech startups need to navigate through the “Innovation Valley of Death” – the critical phase between early-stage research and commercial viability during which many promising ventures struggle to secure additional funding as investors shy away due to the high uncertainty and long timelines required for technological validation.
For Deep Tech ventures to overcome this funding gap, they need to identify private investors that have the specialized expertise to evaluate the market potential of their still unproven technologies. Equally important for the startups is to tap into public funding sources. Not only is there dedicated public funding available to help Deep Tech startups overcome this Innovation Valley of Death. Also, by de-risking breakthrough innovations, public funding makes the startups more attractive to private investors.
2. Key Public Funding Sources for Deep Tech Startups in Spain
- ENISA Entrepreneurs – Aimed at supporting small and medium-sized startups less than 2 years old during the early business stages. Participative loan of up to EUR 300,000 with payback periods of 7-9 years; requires no personal guarantees.
- PID (CDTI) – Aimed at supporting non-initiated innovative R&D-projects, that create or significantly improve a production process, product or service. Partially (67-80%) refundable loan of up to EUR 175,000 with payback periods of 7-9 years.
- NEOTEC (CDTI) – Aimed at supporting startups less than 3 years old during the early stages of research-based, high-impact technology development. Non-refundable grant of up to EUR 325,000 disbursed in 2 tranches, no guarantees required.
- TORRES QUEVEDO – Aimed at encouraging the hiring of personnel with a PhD degree for R&D projects. Non-refundable grant of up to EUR 55,000 per year over a period of three years, covering 45-70% of personnel costs for maximum of 3 employees.
- EIC ACCELERATOR (Horizon Europe) – Aimed at supporting startups in the development of highly innovative products that could disrupt markets globally. Non-refundable grant of up to EUR 2,500,000; only 2% of applications successful.
- Tax leases – Non-dilutive funding method for R&D-projects with costs above EUR 250,000 per year. Instrument utilizing company tax base for 35% of expenses to be refunded as revenues. IP cannot be commercialized during duration of tax lease.
- Tax deductions and incentives – Tax deduction of up to 59% of costs for R&D-projects. Tax incentive with 40% rebate on social security contributions for R&D-employees. Both require Innovative SME-seal and Informe Motivado.
3. Main Obstacles for Deep Tech Startups to Seek Public Funding
While these funding sources present significant opportunities, securing public funding is not without its challenges. Here are some of the hurdles that deeptech entrepreneurs commonly face:
- High Competition – With so many startups vying for limited resources, the competition for public funding is fierce. To stand out, deeptech startups must not only have a promising technology but also demonstrate a clear path to commercialization. Startups must provide solid financial projections, a detailed business plan, and proof of a capable team.
- Complex Application Processes – Programs like NEOTEC and EIC Accelerator involve complex and time-consuming application processes that require extensive documentation. This includes technical feasibility studies, market research, and financial models. For founders already juggling the demands of growing their business, managing these applications can be a daunting task.
- Lack of Financial Expertise – Many deeptech startups lack the financial expertise to manage public funding effectively. This includes understanding cash flow management, expense forecasting, and financial reporting.
4. Recommendation
Securing public funding is a critical step for deeptech startups looking to scale their operations. While the process is competitive and can be challenging, with the right preparation and expertise, it is entirely possible to navigate the complexities of public funding programs. Here are our main tips to secure public funding:
- Prepare Solid Financial Projections – Ensure that you have clear and realistic financial projections for the next few years. This includes forecasting revenues, expenses, and the impact of the funding on your growth trajectory.
- Engage Professionals for the Application Process – Given the complexity of the application processes for public funding, it can be worthwhile to engage experts who have experience in navigating these systems.
- Leverage Multiple Funding Sources – Don’t rely on a single source of funding. Consider combining different loans or combining them with equity injections or other financial instruments. This approach can reduce financial risk and provide the capital needed to scale operations.
With 20+ years of experience in deep tech companies with own manufacturing, we help entrepreneurs like you to secure the funding you need while providing the financial expertise to ensure that your business remains on track for success. If you are looking to take the next step in scaling your startup, don’t hesitate to seek our support!
