Corruption scandal in Poland puts dozens of startups on the verge of bankruptcy

More than 100 Polish companies, including dozens of startups, haven’t received €175 million in EU grants they were awarded at the end of last year. The reason is anti-corruption investigation of one of the National Center of Research and Development (NCBR) program, Sifted reports.

What happened

• Poland’s anti-corruption authorities have been investigating a program run by the National Center of Research and Development (NCBR). It is a public body responsible for distributing EU-funded grants ranging from €500,000 to €26.5 million to research projects and early-stage companies in Poland.
• Therefore, payment of all program grants has been on hold since February 2023, with the issue not resolved until the end of the investigation, which is due to be April 28 at the earliest. In the latest cut-off in November 2022, 117 companies, including 99 startups and small businesses, were awarded grants worth €117 million in total.
• The investigation began after Polish media outlets reported that grants had been awarded to two companies of doubtful eligibility with alleged links to the right-wing Republican Party politicians.
  • One of the two companies was awarded €11.8 million as a 10-day-old company run by a 27-year-old bartender. According to reports, it is registered at the old address of the party.
  • And the program’s biggest grant, €26.5 million, was given to a company that had personal links to NCBR’s advisory board.

How the startups were affected

• The ministry that the NCBR sits told that two companies have withdrawn from the program already, but the damage is already irreversible. In order to stay afloat, some founders laid off a third of their employees and taken out personal loans to cover the funding gap.

“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,”

the anonymous founder told Sifted.

• 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.

Why is it interesting?

In Poland, the state grants are the main source of capital in the early stages for many startups. On the one hand, this is a great opportunity to get back on your feet without sacrificing equity. For the state, the return of the investments occurs after the succeeding businesses file for taxes.

On the other hand, any abuses by officials can lead to the situations in which NCBR grantees found themselves. In the private sector of VC investments, such cases are less likely, because investors are interested in bringing money to companies that can multiply it.