FUNDING FOR HI-TECH STARTUPS IN AUSTRALIA (Greg Baker ) These are just some random notes I've made. At the moment it seems that the only practical option (and the only option which anyone uses) is self-funding and bootstrapping. This also seems to produce the most successful companies as well, but this might be just the sheer number of self-funders compared to everything else. Comments here are simply my opinions and thoughts. There are likely to be factual errors and biases here, so take everything I've written with a grain of salt and do your own research. ANGEL AND VENTURE CAPITAL QUT's CAUSEE study was supposed to tell us some of the differences between externally funded firms and firms which didn't get externally funded. They couldn't, because there weren't enough examples of externally funded firms. They found that 99.8% of start-up companies get neither venture capital nor angel investment. According to the Australian Bureau of Statistics, in the 2008 financial year, VC fund managers reviewed around 8,500 potential investments, and invested in 250 of them. Not all companies try to get VC funding, and many try several VC firms -- but 97% of approaches to venture capital firms never go anywhere. ASSOB $300,000 is a basic minimum. Even then it seems expensive and since there are no ASSOB index funds yet you still end up needing to present your investment case to large numbers of individuals. So you get all the time consumption of going around making the same pitch over and over again (as you would pitching to Angels or VC firms) but with the disadvantage that you are only selling much smaller chunks of equity each time your pitch works. Yet: there are quite a few companies listed on the ASSOB for whom it must have been effective and useful. It's a bit of conundrum to me at the moment which needs some more investigation. COMMERCIALISATION AUSTRALIA A lot of people had high hopes that Commercialisation Australia would bring together the various AusIndustry programs and that it would give an avenue for hi-tech firms to get a kickstart. In practice, it seems that Commercialisation Australia will be very good at providing grants to help universities and CSIRO commercialise their intellectual property. If you are an individual with a bright idea, or even a small business owner, you probably won't get a cent from them. They are not particularly upfront about this, but the merit criteria for funding include (paraphrased a little to emphasise the problems): - Demonstrate that you can raise matching funds -- but also demonstrate that you cannot fully fund the project. You need to demonstrate that this level of funding will occur regardless of business conditions. - Demonstrate that you have chosen your idea so badly that there is intense competition in this area and that you need to commercialise it urgently. - Show that you have extensive experience in commercialisation already. - Write a persuasive case that it is in the national interest to funding your proposal, e.g. that there are spill-over benefits to Australia as a whole such as increasing collaboration between businesses and research institutions. They are only some of the merit criteria, but anything which is not a university and not CSIRO is going to get heavily marked down on these criteria. The funding is based on how you compare against all other proposals, so unversities and CSIRO are immediately at the head of the pack because they can get points on merit criteria that small businesses and individuals can't. RESEARCH AND DEVELOPMENT TAX DEDUCTIONS AND OFFSETS In the past this was almost unusable -- you had to have at least $50,000 per annum to even apply. That is now down to $20,000. All it gave you was the option to pay less tax. If you weren't profitable that year, you could apply to pay less tax the following year or the year after that, or whenever you started making profits. However, you were very likely to lose all those credits if you sold a the company or even a significant equity stake. In the 2011 financial year some new rules will be in place which means that you will be able to get a small amount of R&D expense claims back from the tax office at the end of the financial year. But, the new rules will probably make it much more difficult to claim software development as research and development. STATE-LEVEL SUPPORT (Not fully written and researched yet.) NSW has some very low-value funding to help in exports (which is great if you already have an established business, but is kind of irrelevant to a start-up). There is also help paying for capital raising, but it seems you have to have been through some quite expensive courses first before you can get access to it.