EU funding for Startups | Startup Definition
It is customary for an aspiring entrepreneur in Malta to think about external finance, particularly EU funding. Griffiths + Associates as a corporate service provider receives significant client requests relating to this matter. This was one of the reasons why we decided to present a series of clarifying articles devoted to startups and EU requirements.
A very common misunderstanding is to identify any new registered firm as a startup.
So, let’s run through the startup definition, within the context of EU funding.
The European Commission, which is the executive branch of the European Union, has defined a “startup” as part of its broader efforts to support entrepreneurship and innovation. According to the European Commission’s definition, a startup is typically characterized by the following key elements:
- Age of the Company: Startups are usually young companies, typically in their first five years of existence. They are often in the early stages of their development.
- Financial Independence: Startups should be financially independent, which means they are not subsidiaries of larger corporations or part of established business groups.
- Limited Revenue: Many EU funding programs for startups have restrictions on annual revenue. Startups are typically expected to have limited revenue, often below a certain threshold, as they are in their early stages.
- Innovative Nature: Startups are expected to focus on innovative products, services, or business models. They are often involved in activities related to technology, digital innovation, and disruptive solutions.
- Technology and Knowledge-Based: Some EU funding programs specifically target technology-driven startups or those based on knowledge-intensive sectors, such as information technology, biotechnology, or clean energy.
- High Growth Potential: Startups should demonstrate a high growth potential, indicating their ability to scale their operations, expand into new markets, and create jobs.
So, in short, “Startup” can be defined as a newly established independent company or business venture that is typically characterized by its youth, innovation, high growth potential, a small entrepreneurial team, and a focus on disruptive or technology-driven solutions.
Hence it is relevant to look at this definition but at the same time there might be other possibilities for assistance if your business does not meet the above characteristics and the new registered firm cannot be identified as a startup. An enterprise just the same time the firm may fall into the category of “small & medium-sized businesses” (SMEs). Hence, you may still consider alternative government financial support. In the following publications, we will delve in more detail on schemes.
When is a startup no longer a startup, criteria
The criteria for determining when a startup is no longer considered a startup, particularly for EU funding purposes, can vary depending on the specific funding program or initiative you are applying for. The European Union (EU) provides various funding opportunities and grants to support businesses at different stages of development. Here are some common criteria that may be used to determine whether a startup is still eligible for EU funding:
- Age and Maturity:
Startups are typically associated with newly founded companies in their early stages. As a general rule of thumb, a company that has been in operation for more than five to seven years is often considered to have transitioned out of the startup phase.
However, some EU funding programs specify a maximum age for eligible startups. For example, the European Commission’s Horizon 2020 program, which focused on research and innovation, often had specific age criteria for applicants.
- Scale and Size:
A startup that has achieved significant growth in terms of revenue, customer base, and workforce may no longer be considered a startup. Some funding programs may use the number of employees as a criterion. If a startup has exceeded a certain employee count, it may be deemed too large to be considered a startup. This count can vary but is often in the range of 10 to 50 employees.
As a company grows, it typically develops more formal organizational structures, hierarchies, and procedures. A startup may be considered no longer a startup when it has adopted a more traditional corporate structure, processes were standardized, operating procedures and have adopted more formal communication channels.
- Revenue and Financial Viability:
A startup may be considered no longer eligible if it has achieved a certain level of revenue or financial stability. This threshold can vary depending on the program but typically indicates that the company has outgrown the early-stage startup phase.
- Funding and Investment:
A startup often relies on external funding, such as venture capital, angel investment, or crowdfunding. If a company no longer relies heavily on these forms of funding and is self-sustaining or profitable, it may be seen as having graduated from the startup phase.
- Product Development Stage:
A startup may transition to a more mature company when it moves beyond the experimental and prototype phase, demonstrating a stable product or service with proven market fit.
- Market Traction:
A startup that has already gained substantial market traction or has a significant customer base may not be considered a startup in the early stages anymore.
- Exit Strategy:
If a startup has been acquired by a larger company, gone public with an IPO (Initial Public Offering), or achieved a significant exit event, it may no longer be categorized as a startup.
It’s crucial to review the specific eligibility criteria outlined in the guidelines of the EU funding program you’re interested in. The criteria can differ from one program to another, and they may evolve over time as well.
Additionally, the EU has several programs designed for businesses at various stages of development, so even if a startup is no longer eligible for funding under one program, it might still qualify for support under a different program aimed at more established companies or scale-ups. Always check the latest program guidelines and consult with specialists for the most up-to-date information on eligibility criteria for EU funding.
Do you have an innovative business idea and want to bring it to life?
Do you consider doing so in Malta and wonder what Griffiths + Associates may have to offer?
We offer expert and personalised support for innovative startups.
Download our STARTUP TOOLBOX and learn about the opportunities available for your startup!
EU Funds available for Maltese Businesses
We continue to introduce to our business partners and potential clients with the recently announced finance schemes for the startup companies and business development.
As part of Malta’s Structural Funds Programme, EU funds will provide an opportunity for local enterprises to unlock their potential for growth. The main goal of the financial incentives schemes is to charge the startups making Malta one of the world’s best places for the entrepreneurs.
The newly start business is encouraged to performance the innovations in different sector of the economy as well as to attract investments for the better growth.
Business grants and other incentives work for the new or substantially improved products and/or services compared to the state of the art in the local industry, which then may be distributed including the international market.
Malta Enterprise introduces the startups to the Government and can help with its Business Start and development schemes.
Business Grant for «Business Start»
This is a funding to small start-ups having an innovative and feasible project, the maximum support of undertaking is amounts to €200,000.
For the startup, which is still in its early development phase, however the business plan is not issued yet, it might be eligible for a grant of up to €10,000 which you can use to develop your business proposal.
If the startup presents a Business Plan, which is recognized economically viable by Malta Enterprise, it may be supported a maximum grant of two hundred thousand euro (€200,000).
This incentive is available until the December 31st, 2023.
Repayable Advance for «Start up Finance»
Scheme is open to the following legal forms of undertakings: self-employed; partnerships; limited liability companies; and cooperatives.
The assistance is repayable and may not exceed €400,000, which may be increased to up to €800,000 if the startup is an innovative enterprise.
This incentive is available until the December 31st, 2022.
Scale Up Grant for «Business Development»
Those, who want to expand or consolidate their business activities, or undertake new project considering of the new ideas, still need the investments to do the next step to the future growth.
Such business can be supported in the form of tax credit or cash grants of up to €200,000.
Business grants are only considered to support projects that lead to future development of the following activities:
- Management of waste and environmental solutions;
- Research and development activities;
- Provision of industrial services and solutions to manufacturing operations;
- Digitisation of processes;
- Maintenance, repair and overhaul of aircraft and other electromechanically equipment;
- Artisanal works.
Projects that do not address specifically the above activities, but which may lead to increase in business performance and innovation may still be supported through tax credits.
More detailed information of this financial support can be found here:
Through our proficiency in EU funding and specific programme requirements we can support you to identify the right funding source for project ideas and apply on your behalf for business grants and other incentives.
In view of these developments, we would like to remind about another addition in the Maltese legal framework, the creation of shipping and aviation cell companies. Malta has introduced new regulations, the Companies Act (Shipping and Aviation Cell Companies) Regulations, 2020, into Maltese law on 16 June 2020, under Legal Notice 248 of 2020. This amendment permits the use of the new structure for companies operating in the shipping and aviation sector, mirroring the model employed in insurance where company assets are ring-fenced via the creation of cells.
— A distinctive feature, unique to cell companies shall be the inclusion of the words ‘Mobile Assets Protected Cell Company’ or the acronym MAPCC in the company’s name.
— The concepts were introduced to allow a single corporate legal entity to benefit from the statutory segregation of assets and liabilities between segregated portfolios or accounts.
— Some jurisdictions also introduced the concept of incorporated segregated accounts company (“ISAC”), which is similar to an SAC however each segregated account in an ISAC has separate legal personality.
— The appropriate segregation structure depends on the needs of the parties to that structure and the particularities of the transaction and the assets involved (some transactions may consider separate legal personality a necessity).
Possible Benefits of Cell Companies:
— Assets and liabilities for each cell constitute a distinct patrimony for that given cell and are segregated from the core cell company as well as other cells (the ring-fencing of each cell).
— Following the establishment of the cell company, the setting up of new cells is easy and relatively quick.
— One board of directors and one set of memorandum and articles of association for the cell company and its cells.
— Streamlining of administration and fewer governance concerns.
— Insolvency of one cell will have no impact on the remaining cells.
— A creditor of a particular cell will only have recourse to the assets of that particular cell.
— Cells are easier to wind-up in comparison to companies.
General Fiscal and Tax Considerations
The main benefit of the cell company creation comes from the Maltese tax system:
— The refund system would apply in a cell structure, insofar as the necessary conditions are met, even without a holding company structure.
— From a VAT perspective, the cell company and its cells are considered as one. One VAT return is therefore required to be filed by the cell company covering all returns in respect of the cell company and its cells.
— This reasoning applies with regards to the provision of services from one cell to another; a cell company and its cells are considered to be one entity.