One of the most persistent misconceptions in applications to theInnovation Fund is to assume that an internal rate of return (IRRA high level of funding strengthens the project's credibility. This seems intuitive: if a project is financially attractive, it should be well-designed, well-positioned, and therefore more legitimate to receive funding.
In practice, it's often the opposite.
From an evaluator's perspective, an abnormally high IRR is rarely seen as a sign of strength. It is much more often interpreted as a signal that there is a problem (either in the financial model itself, in the underlying assumptions, or in the overall rationale for the financing request). Far from strengthening the case, it introduces doubt, sometimes from the very first stages of the evaluation.
Understanding why is essential if you want your project to be taken seriously.
A structural misunderstanding surrounding the IRR
This confusion stems from a mismatch between two perspectives. In a private investment context, a high IRR is naturally associated with performance and attractiveness. Investors seek returns, and the IRR is one of the key indicators for comparing opportunities.
L'Innovation Fund operates according to a different logic.
Its aim is not to reward the most profitable projects, but to support those that are innovative, capital-intensive, and still exposed to significant technical, market, or financial risks. These are projects that would struggle to secure funding under normal market conditions. The grant is specifically designed to bridge this gap, reduce risk, and enable large-scale deployment.
When a project displays a very high IRR, especially without public support, it immediately creates tension with this logic. If the project is already highly profitable, the need for public funding becomes difficult to justify. The application then contradicts one of the program's fundamental principles: additionality.
What do evaluators actually see when faced with an excessively high IRR?
When an evaluator is faced with a particularly high IRR, the reaction is rarely positive. It usually triggers a series of questions, often implicit but crucial.
The first interpretation is that the financial model lacks reliability. Revenues may be overestimated, operating costs underestimated, or certain expense items simply omitted. In some cases, pricing or market penetration assumptions are too optimistic and insufficiently substantiated, leading to projections that look good on paper but are hardly credible.
The second interpretation is more structural. A highly profitable project may simply not need public support. This doesn't mean the project is weak (quite the opposite), but rather that it doesn't fit the type of projects the Innovation Fund aims to support. In this case, the evaluator might question the appropriateness of public funding, which could distort rather than facilitate the investment.
The third issue concerns consistency. High IRR levels often reveal discrepancies between different parts of the case. The figures presented in Part B do not always perfectly match those of the financial model, or the narrative does not adequately explain the financial results. Even minor inconsistencies can undermine credibility, particularly in a highly competitive environment.
Credibility takes precedence over performance
Ultimately, assessing financial maturity is not about identifying the most profitable project. It aims to determine whether the financial structure is robust, consistent, and credible.
The evaluators seek to understand whether the project can actually reach its deployment phase, whether it is based on a sound economic model, and whether it actually requires public support to move forward.
In this context, a moderate but well-justified IRR is far more convincing than a high but poorly explained one. What matters is not the level of profitability in absolute terms, but the story it tells. A credible financial trajectory, even a constrained one, demonstrates that the project sponsor has a firm grasp of the risks, market conditions, and operational challenges.
Where high IRRs pose a problem
In many cases, the problem doesn't stem from a single error, but from an accumulation of small discrepancies. Assumptions are slightly optimistic, costs are simplified, and risks are insufficiently translated into financial terms. Gradually, this results in a model that appears coherent internally but is disconnected from the reality of a First-of-a-Kind project.
Another common problem is the discrepancy between technical uncertainty and financial projections. Projects still in an early stage of industrial maturity are sometimes presented as if they were already completely secure. The financial model reflects stable and predictable operations, while the technical aspects highlight significant uncertainties. This inconsistency is quickly identified during the evaluation.
Finally, the narrative doesn't always support the figures. The IRR is presented as a result, but not as the consequence of clearly stated assumptions. In the absence of a solid explanation, evaluators must interpret the data themselves, which rarely works in the case's favor.
How to bring your IRR back into a credible zone
When an IRR appears too high, the goal is not to artificially reduce it, but to realign the model with the project's actual risk profile. This begins with a thorough review of the assumptions. Revenues must be tested against realistic market scenarios, and the cost structure must reflect the true complexity of operations, including contingencies.
It is also essential to ensure consistency between financial projections and the project's technological maturity. A first-of-a-kind installation, by definition, involves uncertainties that must be reflected in the financial model. Ignoring them may improve the indicators, but weakens overall credibility.
Consistency between documents is another key point. The financial model, the business plan, and Part B must tell the same story, with the same assumptions and conclusions. Any discrepancy, even minor, can raise doubts.
Finally, the narrative must clearly explain the role of the grant. It must show how public funding improves the project's viability, reduces risks, and enables decisions that would not otherwise be possible. It is at this level that the rationale for the Innovation Fund must be demonstrated.
Building a compelling financial story
A strong application to the Innovation Fund is not based on impressive figures, but on a consistent and credible financial history.
This story shows that the project is viable, but not yet fully financially viable under current market conditions. It demonstrates that the risks are understood and properly integrated into the model. It explains why public support is necessary and how it influences the investment decision.
When these elements are aligned, the IRR becomes one indicator among others, serving the overall narrative. It integrates naturally into the project's logic and strengthens its credibility.
Within the framework of the Innovation Fund, a high IRR is not an advantage if it cannot be justified within a credible and coherent financial framework. On the contrary, it can quickly become a source of doubt and weaken an otherwise solid application.
The evaluators are not looking for the most profitable projects. They are looking for projects that make sense (technically, financially and strategically).
If your financial model seems too good to be true, chances are it is from a valuation perspective. And that's precisely the problem.
A solid project is not enough. It also has to pass the evaluation!
We analyze your proposal like an evaluator would, to detect invisible weaknesses and secure your proposal before submission.
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