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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.
Confused?
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
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View Comments
Matthew Griffiths
July 6th, 2010 at 8:41 pm
Some more information that may be of use…
1. CA is about addressing “commercial risk” not “technical risk” – it is not an R&D Program, and it is not a direct replacement for Commercial Ready.
2. Conceptually, activities that would be covered by the R&D Tax Offset/Credit are not commercialisation activities and thus unlikely to be supported.
3. A wide variety of commercialisation activities can be supported. However, anything that could be viewed as a subsidy of on-going operations (sales, marketing, etc.) is unlikely to be supported. I believe this is outlawed under the Free Trade Agreement with the US.
4. Currently, you need to be able to match fund within 30 days of getting the grant. Therefore, you need to have the money. We're hopeful that this criteria might be relaxed to 90 or even 180 days which would allow companies to go out and raise capital against their grant – this would be a boon for capital raising, angel groups, and VC's.
5. One of the key criticisms of Commercial Ready by the Productivity Commission was the fact that a lot of companies that received funding probably didn't need the support. Thus, the “Need for Funding” criteria is a fundamental underpinning of CA. If you can't prove you need it, you won't get it (there's a whole lot more attached to this that I can go into if anyone is interested).
6. Repayment of an ESC grant is on a “best efforts” basis by the company – do not think of it as a project specific scheme. The company is on the hook to pay.
Regards,
Matthew Griffiths
(formerly) Case Manager, Commercialisation Australia
[Reply]
Glenn Grinsted
July 7th, 2010 at 5:00 pm
Typical Beauracratic Shit – where learned men tell the entrepreneur how they can fund what he doesnt need and not what he does need.
I'll bet on a review of CA expenditure, more is spent on the process of selection and administration by so called experts than what actually gets to the entrepreneur.
If you want to move forward , dont tie the dead weight anchor of bureacracy to your boot laces. Its hard enough commercialising a product without getting in to bed with them.
What clown makes up these varying criterias
By the way, we've got the best wall panel system on the planet http://www.constructionsystems.com.au and I'll do it without them.
Glenn Grinsted
CEO
Construction Systems Australia
[Reply]
Peter
July 7th, 2010 at 5:23 pm
Hi Matthew – I'm interested in clarity on your point 5.
After reviewing the program it would appear at a glance that the 'need for funding' criteria is a definite catch 22 and that for a company to qualify based on the grant requirements they would need to either mislead or lie in some way within their application. Is this yet another Government funded initiative specifically designed for companies to gain access to interest free money with a vague repayment schedule which they don't actually need to spend on commercialising things they don't necessarily want?
[Reply]
Matthew Griffiths
July 7th, 2010 at 6:25 pm
Peter,
Perceived need for funding is a critical issue for the Program, particularly for the larger ESC grants. As you note there is a potential catch 22 between needing and matching funding.
As a general rule of thumb, I'd base the size of your application on the scale of the matched funding you actually have available, and build a commercialisation case around that. This also fits with the general thrust of successful applicants to date where there has been a strong focus on imminent and achievable commercial outcomes, as opposed to broader “take on the world” objectives.
Regards,
Matthew.
[Reply]
Matthew Griffiths
July 9th, 2010 at 2:57 pm
All,
I've set up a blog to deal with all the questions related to CA…
http://commercialisationaustralia.blogspot.com/
I'll add to it as the queries come in…
M
[Reply]