#grantprograms

Commercialisation Australia has effectively been on gardening leave since the change of government.  No new grants have been issued in 2014 with around $20M only issued since July 1.   I won’t delve into moral or legal issues around this inaction as founders were led to believe that the program was still active with some committing up to six months to complete an application for a grant that in effect was not available.  This should be considered unacceptable by anyone with a modicum of business sense and/or sanity.

My focus is on why founders should in fact be relieved that Commercialisation Australia is no longer there to muddy the waters of their enterprise.  For me there were enough issues with the program that would give me second thoughts if I were a tech founder:

Time needed allocated by founders

It was recommended that a single person manage the application process from within the company.  On a good run, this person will have to allocate 60 hours to adequately complete a POC or Early Stage Commercialisation Grant.  Anecdotally, this could be double. This time could be spent on finding investors, commercializing the technology, finding customers, securing the supply chain or one of many other things that a founder could be doing to create long term value in the company.

Opportunity cost of completing the application

From commencement of the Stage 1 application through to contract agreement and the first tranche of funding was 6-8 months.  Given the application process is relatively rigid in terms of projects, spending and outcomes, a company may be hemmed in and unavailable to capitalize on opportunities that arise.  Especially opportunities around generating sustainable revenues quickly. 

Invalidation of companies with revenue

Rightly or wrongly, one of the key criteria for the grant was for the company to be pre-revenue.  It is understandable why this criteria is in place as the grant is meant to facilitate to commercialization.  However, as the process takes six months plus you are in a position where you need to fund the costs of the project, plus a valley of death until the project commences.  In many cases the cost of this would be comparable to the amount sought in the grant. 

Requirement to recruit locally

Only 10% of the project funding by CA was able go to overseas recruiting.  With POC grants maxing out at $500K, only $50K can go overseas.  It is understandable that the government wants to create local jobs but many of the programming jobs required have now been commoditized.  A company should be reticent to get a grant for $200K to fund the employment of two programmers locally when it can probably get the same job done for $50K overseas.  The creation of jobs should be on highly skilled labour and commodity roles should be completed for the lowest price possible.  This creates a false project budget as the government/investors financing a project that could be considerably cheaper.

Format of projects

The format of the grant creates the need to generate suitable projects that ideally fit the merit criteria in order to win the grant.  Often, the ideal project is not sought as it would make the application less competitive or worse still invalidate it.  The projects were meant to create a new benchmark that allows the company to pass to revenue but the reality is the market situation is too fluid and dynamic for these projects to have any significant validity.

Limits investors

Personally, a big issue (which is a big plus in many people’s eyes) is that it provides leverage to investors.  This is not an issue by itself but investors were progressively seeking projects that were CA co-funded.  I know of several who would only invest exclusively if CA were involved. There are many technology companies that are seeking capital, were not eligible for CA and therefore these investors would not consider them for investment.  CA’s abolition creates a level playing field.

For the issues above I think that the abolition of Commercialisation Australia will prove to enhance the prospects of startups and technology companies over the long term.  If a project cannot be funded through investors alone either the project (no matter its scope) doesn’t have enough merit, the valuation is incorrectly priced, the team doesn’t have the ability to present their case properly, or the investors don’t believe in the ability of the team, or the distribution of their deal is limited. 

Instead of funding a limited amount of projects, initiatives like the R&D Tax Incentive and trade missions through AusTrade scratch the surface of what government can do.  A total review of the way Employee Share Schemes are handled and taxed would also create value by incentivizing people to participate in innovative projects without penalizing them unnecessarily.