The European innovation panorama is undergoing a fundamental shift.
For decades, grants have been the primary tool for supporting research, startups, and technological development across Europe. However, a growing recognition of the need for more sustainable, scalable financing models is driving a transition towards blended finance, combining public and private resources in new ways.
This shift has profound implications for innovators, regions, and policymakers alike.
The Era of Grants: Strengths and Limitations
Grant-based funding has been essential for nurturing early-stage innovation. By offering non-repayable capital, grants enable startups, research projects, and SMEs to take risks, experiment, and push boundaries without the immediate burden of repayment or equity dilution.
However, relying exclusively on grants presents several limitations:
- Projects may become dependent on public subsidies without building long-term financial resilience.
- The transition from grant-funded research to market-ready innovation is often fragile and underfunded.
- Grants alone cannot cover the scale-up phase, where substantial investment is required to bring innovations to wider markets.
Recognising these gaps, the European Union and many Member States have started rethinking their financial toolkits.
The Rise of Blended Finance
Blended finance introduces a more diversified model, combining public funds (grants, guarantees, first-loss capital) with private investment (equity, loans, venture capital).
It aims to achieve three objectives simultaneously:
- Leverage private sector capital by reducing perceived risk
- Sustain projects beyond early research into commercialization and growth
- Create more efficient use of public funds, supporting a greater number of initiatives with limited budgets
Instruments such as Horizon Europe’s blended finance pilot, the InvestEU Fund, and national initiatives in Central Europe are already demonstrating how blending public and private financing can build stronger, more resilient innovation ecosystems.
Opportunities and Challenges Ahead
While blended finance offers promising advantages, it is not without challenges. Ensuring accessibility for SMEs, maintaining fair risk-sharing between public and private actors, and preserving innovation focus (rather than purely financial returns) will require careful design and governance.
Regions must invest in building capacity—not just among financial intermediaries, but also among startups and SMEs themselves, who must learn to navigate a more complex funding environment.
Lessons for Regions and Innovators
The future of innovation funding in Europe will be less about one-off grants and more about creating flexible financial journeys.
Startups, SMEs, and projects will increasingly need to combine different types of support across their growth stages, moving from grants to convertible loans, equity, and repayable instruments as they mature.
At FI4INN, we support this evolution by helping regions rethink their financial instruments to better match the realities of innovation ecosystems.
The future belongs to those who can blend creativity—not just in ideas, but in financing.