Grants Taxcredits Startups

FINANCE

Funding innovation

BRIGHT IDEAS witawiTsiMt»tii!s«i!iiaisiiH[ai[tig[gaMisiiinnitg

but they will need to persuade more conservative minds to part with their cash. GrowingBusinesstak.es a look at the options available for companies involved in research and development • • • H I M orking at the cutting edge I I I I of new technologies B A fl means there is a constanl mr pressure to develop new products. Whether the name of the game is hydraulics, nanotechnology, biotech or software, research and development (R&D) is a labour-intensive activity with no guarantee that a particular project will find a market. Indeed, while a true innovation could make you a fortune, the development process can burn cash at a frightening rate and, ultimately, the product may fail to find its way out of the laboratory. R&D is part and parcel of the way engineering company Husco operates. "It's essential," explains financial controller Steven Hough. "We are in a market where customers want us to continually push for better performance while still providing lower cost solutions." Husco supplies hydraulic parts to makers of machinery, such as JCB, and its customers not only expect cost-effective quality, but also bespoke rather than 'off the shelf products. It's not surprising then, that of its 30 engineers, around half will be engaged in product development at any ONLINE w w w . g r o w i n g b u s i n e s a . c o . uk

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given time - and it's a scenario that many companies will recognise.

LEGWORK The good news is there's a lot of support available tor R&D. From seed finance through to UK government, European Union administered grants and even tax credits, businesses can access support for their ideas. That means you can get funding for early-stage science right up to the prototype and commercialisation stages. The bad news is that any company seeking to access funds provided by the taxpayer faces a significant amount of work if the application is to bear financial fruit. E-commerce software company Actinic has obtained two UK government sponsored grants. "The application for the first one in 2003 went very smoothly," says managing director Chris Barling. "But the second one was much more difficult to obtain. It took about two years of work." According to George Boag, chief executive of Targeting Innovation, a consultancy that provides assistance for firms seeking grants, putting together a

successful pitch takes time. "A lot of business owners are attracted by the prospect of grant support but they aren't prepared to put in the work," he says. As Boag describes it, the application process is similar to pitching a product to a potential client. If you make a good case, then the reward is a lucrative contract. If you don't, then the money goes elsewhere. You have to demonstrate that your project meets their criteria, namely •

growing

BL/SIIMESS

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FINANCE

Funding innovation

prepared for the market. The Development

it. "You can go back six years and we

Projects Grant is intended to fund the

received a substantial payment," he says.

creation of pre-production prototypes, a n d will pay up to £250,000. Meanwhile, the

VENTURE

Exceptional Development Projects Grant

Private investment shouldn't be forgotten.

provides up to £500,000 and focuses on

For instance, Stratophase, a spin-out from

products that represent a significant

Southampton University, funded research

technological advance while being

into biological agent detection using a mix

strategically important to their industry.

of grants and private equity. "We found two

The UK is not the only player. Europe's

explains chief executive Richard Williams,

research projects, with the largest chunk of

who adds: "With a good venture capitalist

money reserved for projects involving cross

(VC), you get the money you need to

border co-operation. This can also be

commercialise the product." However, more

It has to be said that grant funding is not a free lunch. "All the grants assume a

that the development work in question is

contribution from the company itself," says

innovative. It's often helpful to use an

Boag. To qualify, you have to demonstrate

adviser or consultancy to help you prepare

that you have additional finance in place.

than one investor means managing different exit expectations, which can be tricky for an early-stage business. The investment you attract will depend largely on where your business is. VCs and angels are looking for investment opportunities, and early-stage technology

your pitch. "They know what the funding bodies are looking for," says Barling. Local

TAX

Business Links and Chambers can also

HM Revenue & Customs (HMRC) is also in

funds'. Some are run by VCs, others have

help you find advisers and put you in touch

the business of supporting innovation

public sector involvement. Again, your local

with grant providers.

under the R&D tax credit scheme. "Tax

Business Link or Chamber of Commerce

AVAILABLE

GRANTS

The main source of R&D funding in

CREDITS

Development (GRD) scheme. It's overseen by the Department of Innovation, Universities and Skills, but the application process is handled by the nine regional development agencies (RDAs). Similar

can help, while the British Venture Capital

out pure research, applied research and

Association has details on VCs interested in

development work," says Alan Marshall of

specific technology sectors.

M

IT ISN'T ENOUGH TO BE PLAYING CATCH UP WITH A TECHNOLOGY ALREADY INVENTED "

grants are available in Wales, Scotland and Alma Consulting, a firm that advises

governments taking care of the process.

businesses on how best to take advantage of the initiative. As with R&D grant funding,

distinct flavours, each with its own level of

the emphasis is on innovation. "To qualify,

funding. At the foot of the financial ladder

you will have to demonstrate that what you

is the Micro-Project Scheme. Aimed at

are working on represents a technological

businesses with fewer than 10 employees,

advance," says Marshall. "It isn't enough to

it provides funding of up to £20,000 for low

be playing catch up with a technology that

cost, short-term research projects.

has already been invented."

Greater sums are available under the

But the tax breaks can be valuable. If your

Research Projects grant, which supports

business is making a profit and employs less

companies undertaking technical

than 250 people, you can get a 150%

feasibility - or early-stage - research. To

deduction on your qualifying R&D

qualify, you must prove that the project is

expenditure. Meanwhile, businesses not in

innovative and that the research process

profit are entitled to a cash payment of 24%

will last from six to 18 months. A

of their R&D spend. Husco took advantage

maximum amount of £100,000 is available.

of this, and while Hough concedes that a lot

The remaining two grants support the

of background work was required to

development of technology that is either

identify its eligible R&D and also cost it to

approaching the prototype stage or being

HMRC's satisfaction, he feels it was worth

g r o w i n g BUSINESS

Finally, don't forget potential customers. Stratophase is being paid by the Home Office and the Ministry of Defence to develop devices to sniff out harmful agents. If you have a technology that a government department or a corporate buyer needs, they may fund work on a prototype.

Northern Ireland, with the various devolved

The GRD scheme breaks down into four

projects are often backed by so called 'seed

credits are available for companies carrying

England is the Grants for Research and

48

investors: the IP Group and Easthill,"

Framework 6 initiative is a key supporter of

accessed through the RDAs. CHRIS BARLING

CAPITAL

•

USEFUL CONTACTS Business Link vranv.biifincfslink.goo.uk General information on sow/res of funding British Chambers of Commerce wzvw.hritislwluimbrrs.org.uk Also provides help finding funding Alma Consulting wivio.abnncg.com Specialist financial and strategic advice Targeting Innovation uncxv.targetinginnovation.com Advice on accessing grants and taking technology to market BriHsh Venture Capital Association iVunv.hvca.co.uk Will provide details ofVCs and seed funds. Seedcamp www.sce.dcamn.coni Matching companies, investors and advisers

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