The Commercialisation Australia program, the successor to the Government’s COMET scheme, has proved a boon to many and a bane to others. Inevitably it was going to have a few teething problems. As with any new incentive program, it can involve navigating the industry-specific details to work out whether it’s right for your business. Here, Adrian Spencer explains the pros and cons that the grant can provide for those in the technology sector.
Commercialisation Australia – The Facts and Falsehoods
Commercialisation Australia (CA) has caused a flurry of activity in the technology sector this year, lifting the hopes of innovators to new levels.
Launched in late 2009, it seemed that there was nothing the new grant program wouldn’t support. Much needed assistance had finally arrived for the sector that has struggled more than most throughout the recent financial crisis, and CA has been hailed for offering accessible cash to businesses.
Unfortunately, many executives have misunderstood the program requirements, eligibility and priorities, and they have invested a great deal of time in an application that will never be competitive.
If you are considering CA for your business, it is crucial you have a basic understanding of the program requirements before commencing your application. Doing this could prevent you from jumping on the bandwagon when it is heading down what is potentially a very unhelpful path.
In an effort to clear some confusion, I have outlined below some of the main misconceptions regarding CA.
Myth 1: CA supports Research and Development (R&D) and Commercialisation activities
Unfortunately, if you are solely focused on either R&D or Commercialisation activities, you will not be eligible. However, if you are working in that grey space of pre-commercial activities you are off to a good start. This includes activities that improve R&D outcomes and propel them into a saleable commercial version.
You should be able to demonstrate the results of the R&D stage. There should also be minimal technical risk in the activities you are seeking support for.
Most importantly, when you are writing your application you must show that you have matured from the R&D stage and can demonstrate a clear path to market with minimal technical risks. This will give you a greater chance of securing a slice of the pie.
Myth 2: Aim to Double Dip
Although it is usually a good thing to show that multiple stakeholders back you. In the case of CA it is important that government support is sought only through CA. Double dipping from government must be avoided. Companies are required to demonstrate their ability to match the grant (dollar for dollar) from commercial sources such as revenue, investments or loans.
And what if you are currently accessing the R&D Tax Concession? This is an indication that you are not yet ready to apply for CA; you must first complete the R&D. However once you are ready to progress, money received through the ‘R&D Offset’ can be used as matching funding for the CA program.
Myth 3: You can make anything seem like Pre-Commercialisation activities
Although eligible activities are relatively broad, you cannot make anything fit the guidelines. Any activity (not just technical) that is aimed to improve the outcomes of the previous R&D activities to a saleable product, service or process is likely to be eligible, however to secure CA funding you must demonstrate a link with pre-commercialisation. This may include:
- Upgrade of hardware or software for the purpose of supporting manufacturing or scalability;
- Integrating supporting systems such as billing, security, communications, or distribution; and
- Internal documentation of codes, IP protection and compliance expenses.
Developing capacity for commercialisation may be considered as an eligible expense, such as forming sales teams and travel expenses.
Commercial activities are not eligible, including sales contracts, negotiations and tradeshows.
Myth 4: Good ideas are better than financial security
When it comes to Commercialisation Australia, matching funding is necessary, no matter how good your idea. If you do not have the matching funds secured you cannot expect to win the grant and raise additional funds later. In most cases, CA will not support a project that is unable to clearly demonstrate the ability to match the funding.
Myth 5: The ‘Need for funding’; a Catch-22
Don’t go overboard in demonstrating your ability to match the CA grant. CA will not fund projects that the company can fund with its own resources.
CA’s objective is to support companies that have promising projects and are committed to fund 50% of the project cost, however you must still demonstrate a need for further support. If you can easily access loans, investments, or if you are backed by deep-pocket shareholders, CA will question your need for funding.
Your should be able to clearly present your need for funding when applying, while still conveying confidence in your ability to fund 50% of project costs.
Myth 6: Early Stage Commercialisation (ESC) is a grant that converts into a loan
It is exactly the opposite.
If you receive funding under the ESC category, your company will have to repay the grant from revenue generated by the project. The payment rate is 5% of revenue, every six months. The first payment is required after reaching revenue of $100,000.
The company is expected to repay the grant within 5 years, but if you cannot repay in that time frame the debt is then written off.
On the other hand, if you have consumed the grant but failed to commercialise the project the company will still be expected to repay the grant from other sources of revenue. In effect, the ESC grant is an ESC loan. It will convert into a grant only if the company fails to create enough revenue after commercialising.
At GrantReady, we recommend for all CA candidates to review the CA Agreement.
Adrian Spencer is a dedicated grants specialist who assists organisations across Australia to access State and Federal Government grants, rebates and concessions. Prior to establishing GrantReady, he worked for leading international accounting and mining firms. www.grantready.com.au