FINANCE
Funding innovation
BRIGHT
IDEAS
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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
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f
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 successful pitch takes time. "A lot of
has obtained two UK government business owners are attracted by the
sponsored grants. "The application for the prospect of grant support but they aren't
first one in 2003 went very smoothly," says prepared to put in the work," he says.
managing director Chris Barling. "But the As Boag describes it, the application
second one was much more difficult to process is similar to pitching a product to a
obtain. It took about two years of work." potential client. If you make a good case,
According to George Boag, chief then the reward is a lucrative contract. If
executive of Targeting Innovation, a you don't, then the money goes elsewhere.
consultancy that provides assistance for You have to demonstrate that your
firms seeking grants, putting together a project meets their criteria, namely •
growing BL/SIIMESS 47
 FINANCE
Funding innovation
CHRIS BARLING
that the development work in question is
innovative. It's often helpful to use an
adviser or consultancy to help you prepare
your pitch. "They know what the funding
bodies are looking for," says Barling. Local
Business Links and Chambers can also
help you find advisers and put you in touch
with grant providers.
AVAILABLE GRANTS
The main source of R&D funding in
England is the Grants for Research and
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
grants are available in Wales, Scotland and
Northern Ireland, with the various devolved
governments taking care of the process.
The GRD scheme breaks down into four
distinct flavours, each with its own level of
funding. At the foot of the financial ladder
is the Micro-Project Scheme. Aimed at
businesses with fewer than 10 employees,
it provides funding of up to £20,000 for low
cost, short-term research projects.
Greater sums are available under the
Research Projects grant, which supports
companies undertaking technical
feasibility - or early-stage - research. To
qualify, you must prove that the project is
innovative and that the research process
will last from six to 18 months. A
maximum amount of £100,000 is available.
The remaining two grants support the
development of technology that is either
approaching the prototype stage or being
48 g r o w i n g BUSINESS
prepared for the market. The Development
Projects Grant is intended to fund the
creation of pre-production prototypes, a n d
will pay up to £250,000. Meanwhile, the
Exceptional Development Projects Grant
provides up to £500,000 and focuses on
products that represent a significant
technological advance while being
strategically important to their industry.
The UK is not the only player. Europe's
Framework 6 initiative is a key supporter of
research projects, with the largest chunk of
money reserved for projects involving cross
border co-operation. This can also be
accessed through the RDAs.
It has to be said that grant funding is not
a free lunch. "All the grants assume a
contribution from the company itself," says
Boag. To qualify, you have to demonstrate
that you have additional finance in place.
TAX CREDITS
HM Revenue & Customs (HMRC) is also in
the business of supporting innovation
under the R&D tax credit scheme. "Tax
credits are available for companies carrying
out pure research, applied research and
development work," says Alan Marshall of
M IT ISN'T ENOUGH TO
BE PLAYING CATCH
UP WITH A TECHNOLOGY
ALREADY INVENTED "
Alma Consulting, a firm that advises
businesses on how best to take advantage of
the initiative. As with R&D grant funding,
the emphasis is on innovation. "To qualify,
you will have to demonstrate that what you
are working on represents a technological
advance," says Marshall. "It isn't enough to
be playing catch up with a technology that
has already been invented."
But the tax breaks can be valuable. If your
business is making a profit and employs less
than 250 people, you can get a 150%
deduction on your qualifying R&D
expenditure. Meanwhile, businesses not in
profit are entitled to a cash payment of 24%
of their R&D spend. Husco took advantage
of this, and while Hough concedes that a lot
of background work was required to
identify its eligible R&D and also cost it to
HMRC's satisfaction, he feels it was worth
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it. "You can go back six years and we
received a substantial payment," he says.
VENTURE CAPITAL
Private investment shouldn't be forgotten.
For instance, Stratophase, a spin-out from
Southampton University, funded research
into biological agent detection using a mix
of grants and private equity. "We found two
investors: the IP Group and Easthill,"
explains chief executive Richard Williams,
who adds: "With a good venture capitalist
(VC), you get the money you need to
commercialise the product." However, more
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
projects are often backed by so called 'seed
funds'. Some are run by VCs, others have
public sector involvement. Again, your local
Business Link or Chamber of Commerce
can help, while the British Venture Capital
Association has details on VCs interested in
specific technology sectors.
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. •
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