More than 100 Polish companies, including dozens of startups, haven’t received €175m in EU grants they were awarded at the end of last year as the institution in charge of paying them out has been embroiled in a corruption scandal. It’s brought many of them to the brink of bankruptcy.
Poland’s anti-corruption authorities have been investigating a programme run by the National Center of Research and Development (NCBR) — a public body responsible for distributing EU-funded grants to research projects and early-stage companies in Poland. The grants in the programme range from 2.7m to 122m złoty (€500k-€26.5m).
The inquiry started after Polish media reported that grants had been awarded to two companies of doubtful eligibility with alleged links to politicians.
Payment of all programme grants has been on hold since February. The delays have severely affected the operations of dozens of startups in areas like AI, drones, cybersecurity and advanced healthtech. The issue won’t be resolved until the end of the investigation, which is due to be April 28 at the earliest.
Once startups do eventually receive their delayed grant money, they will have to spend it by the end of this year to meet EU deadlines — or lose it.
“These entrepreneurs will have to end their projects within this month, some of them might have already given up,” says Krzysztof Brysiewicz, a partner at law firm BBS Legal, who is in touch with many of the impacted founders.
The ministry that the NCBR sits under tells Sifted that two companies have withdrawn from the programme already — but without giving specific reasons. Asked if the NCBR will compensate founders for any additional costs startups had had to bear during the delay, the ministry says that the companies taking part in the programme are supposed to have their own financial means and not rely on the grant to survive.
'Biggest mistake of my life'
Sifted found and spoke to several of the founders affected by the delays — all of whom wanted to remain anonymous, as they still hope to eventually get the grants.
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One founder, who has already laid off a third of his employees and taken out personal loans to cover the funding gap, says that applying and accepting the grant might have been “the biggest mistake of my life”.
“I might end up with a debt that I will be repaying for the next 20 years,” he says.
“We’ll run out of runway. We had our own financial resources but we weren’t prepared for financing half of the project,” says a second founder, who knows of other companies in a similar situation. “They have around one month to decide if they continue the project or if they have to cut costs and close the business.”
Accepting the grant funding is likely to be far more costly for many of these entrepreneurs than not having accepted it in the first place.
“Some of these entrepreneurs put other projects aside, some others took loans to secure their own contribution. They have started to work on these ventures, they have spent very concrete money on it, they carried out research, hired staff and bought infrastructure,” says Brysiewicz.
Other startups have had to turn to their investors for help.
“First Covid, then the war, and now this scandal,” says the director of operations at a third startup, which has had to take an unplanned convertible note loan from its investors to bridge the funding gap.
“It puts us in an uncomfortable situation; we planned to have a different cashflow than we have now, and to have more money in the bank when we fundraise later this year,” she adds.
“We’re on Plan H now, which is being drafted on the go,” says a fourth founder, who’s already had to spend two and a half times more money on building his startup than planned.
If he wants to keep going, he says he will have to “double down” on finding new ways of financing, which will be tough. “Right now it’s impossible to find an investor who would decide to invest in a company in such a situation,” he says.
Even if the funding comes through soon, founders will be hard-pressed to spend it all by the end of the year. Since the money comes from the EU budget for 2014-2020, EU rules say all expenses have to be filed by the end of 2023.
“We’re in mid-April. We have to finalise the project by the end of the year. On January 1 we were meant to get the first tranche of money and we were going to spend it at rocket speed. But soon we’ll be midway through the year,” says the second founder.
“There are two paths that we can take,” says the first founder. “If we believe that we’ll sign this contract, I should’ve already started to hire people and generate costs, to produce as much as possible and to expense as much as possible. The other strategy is 180-degrees different: firing people, changing contracts, and keeping the costs low.”
Established in 2007, the NCBR has been one of the main institutions in Poland for distributing EU funding for innovation and research.
Under the “Fast Track — Digital Innovation” programme, companies received grants to finance ventures in the field of cybersecurity, digitisation of industry and digital creative technologies.
In the latest cut-off in November 2022, 117 companies — including 99 startups or small businesses — were awarded grants worth 801m złoty (€117m) in total.
Some planned to use the funding for an innovative side project. For others, especially the smaller companies, the grant was extra runway for their core business.
At the start of the year, NCBR started to sign contracts with the selected companies. But in February, media reported that two of the successful businesses had links with the right-wing Republican Party, a member of Poland’s ruling coalition, which has political influence over appointments to the NCBR.
€11.8m was awarded to a 10-day-old company run by a 27-year-old bartender. It was registered at the party’s old address, according to media reports. The programme’s biggest grant, €26.5m, was given to a company that had personal links to NCBR’s advisory board.
The country’s anti-corruption bureau is now investigating the grant-giving process. Some of the politicians involved have already resigned or have been moved to other departments.
Some of the grant recipients are now planning to sue NCBR. “[The delays] shows a complete lack of administrative culture, and the lack of trust in entrepreneurs in Poland,” says Brysiewicz.