Strict European Funding Rules Threaten to Starve Innovative Tech Startups
The Hague, Thursday 24 September 2026
An 11-nation EU coalition is demanding urgent state aid reforms, as rigid rules absurdly block funding for innovative scale-ups holding up to €120 million in cash.
The Friction of Red Tape in Deep-Tech Financing
Under current European Union state aid rules, fast-growing deep-tech startups and scale-ups are frequently misclassified as financially non-viable [1]. The core of this issue lies in the definition of an ‘Undertaking in Difficulty’ (Onderneming in Moeilijkheden, or OIM) [1][5]. This rigid quantitative classification within the General Block Exemption Regulation (GBER) restricts access to state-backed venture capital and public subsidies for healthy, innovative companies [1][6]. Because these scale-ups invest heavily in research and development, they often show temporary negative cash flows and balance sheet losses [1][6]. Consequently, the current framework labels them as failing, completely ignoring their long-term viability and solid market prospects [6].
The Absurdity of the OIM Formula
The OIM definition’s primary flaw is that it exclusively considers traditional equity on the balance sheet [1]. It completely excludes subordinated loans and quasi-equity from being counted as equity [1]. This creates highly paradoxical situations where financially robust companies are deemed to be in difficulty [1][4]. For instance, a chip-design scale-up holding €120 million in cash on its bank account can be classified as an ‘undertaking in difficulty’ simply because it has already invested €130 million in developing top-tier technology [4]. Under the current GBER framework, EU member states are legally blocked from offering even a single cent in subsidies to such companies, prompting warnings that over-regulation and bureaucracy are effectively forcing Europe’s brightest innovators to leave the continent [4][6].
A Coalition Demands Urgent Reforms in Brussels
On Thursday, 24 September 2026, the debate reached a boiling point in Brussels as the Council of the European Union (Competitiveness) convened [3]. Dutch Minister of Economic Affairs and Climate Policy, Heleen Herbert, led a powerful coalition of 11 EU member states—including Germany, France, Italy, Belgium, Latvia, Luxembourg, Austria, Poland, Slovakia, Czechia, and the Netherlands—to demand immediate changes to the OIM criteria [1][2][3]. The coalition formally proposed on 23 September 2026 that the European Commission amend the rules to allow subordinated loans and quasi-equity to be counted as full equity [1]. This push follows an initial effort in May 2026, when a group of eight countries first flagged the OIM definition as a critical barrier to the EU’s global competitiveness and innovation capacity [1].
Confronting the European Commission’s Insufficient Proposal
Although the European Commission has proposed a revised solution scheduled for implementation in 2027, the 11-country coalition has deemed it highly insufficient [1][5]. On 23 September 2026, Minister Herbert held direct discussions with EU Competition Commissioner Teresa Ribera to push for a broader, more flexible definition of equity [1][2]. Minister Herbert warned that current rules weaken Europe’s global standing rather than strengthening the internal market, emphasizing that fostering competitiveness must begin by tackling such ‘low-hanging fruit’ [2]. As the GBER undergoes a comprehensive revision targeted for completion by 31 December 2026, industrial bodies like the BDI are also advocating for qualitative assessments that factor in future business prospects, research intensity, and intangible assets [6]. Without these critical adjustments, European startups in sectors like artificial intelligence, software-as-a-service, and semiconductors may continue to find themselves starved of the public support needed to scale globally [GPT].