Post-election we distilled four key trends that are reshaping Government funding of innovation. And suggest in a very practical way how can business profit from them.
Trend 1: More money and more complexity
Federal and State Governments invests $10Bn+ annually in science and innovation and is on a par with other developed economies as a percent of GDP (Ferris, 2017). Government support for incubators and accelerators backed by VC’s occupies one end of the spectrum. At the other end funding is available to support established businesses collaborating with research partners. We see more money being invested from Government and more complexity across the programme landscape.
Trend 2: Growth in funding for research collaborations
Collaborative research funding and matched funding pools are becoming the primary litmus test to filter projects more likely to be completed and to then succeed in the marketplace. Most programmes require some matched funding commitment from the applicant or an investor. This is not unreasonable but does introduce a funding hurdle for businesses that are cash starved.
Trend 3: Repositioning the R&D tax incentive
The trend is to refocus funding to SME businesses that need funding support to undertake R&D, redirecting R&D tax support away from larger businesses to targeted funding programmes better aligned to priority sectors that will drive future growth and better aligned to forging research collaborations to develop or deploy new technologies. This effects a transition away from self-assessing R&D activities administered through the tax system towards a direct grant process that is competitive and where every grant application is force ranked in the evaluation process.
Trend 4: Rise in debt and equity support
The Medical Research Future Fund is the best example. In early 2019, the Government legislated a $2Bn Australian Business Securitisation Fund to assist business lenders (excluding the four big banks) to improve access to and reduce the price of loans to SMEs. The Government has also been investigating an Australian Business Growth Fund to allow banks to make long term equity investments in Australian SME’s. This trend follows overseas trends. We see this trend continuing.
We also identified two emerging trends.
Emerging Trend 1: Growth in sector specific funding
We see the growth of sector specific funding as the next wave in line with overseas experience. This is clearly evident in energy (mainly renewable energy) health and medical research, and to a lesser extent in agriculture and manufacturing (for example in Victoria). But as funding programmes become more specific that also come with smaller funding pools often inadequate to service potential demand or shift the dial.
Emerging trend 2: Increasing program overlap
Federal and State funding of innovation directly through central agencies or peripheral agencies often overlap. Funding criteria are largely uncoordinated, the message to industry is convoluted, and evaluation of funding applications is seen as arbitrary, not transparent, and take too much time from inception to approval or rejection. As more Government funding is released into the system this trend is likely to accelerate. The challenge is to develop integrated programs that coordinate better across State borders and invite public-private partnerships.
What is the opportunity for business?
Navigating the Government funding universe has never been easy. Yet many successful exporters have secured government funding over multiple years. This relieves the financial pressure when investment decisions are made, when capital is most constrained, and uncertainty of market success is at its peak. These businesses secure Government funding because they plan to secure it and recognise the value of securing it. For them the process of planning how they fund their R&D and product development is liberating. For them planning creates clarity about what they want to achieve (target), how they are going to achieve it (the pathway), how they are going to fund it, and how they are going to measure progress (milestones). Everything grant assessors need to know to have confidence that they will succeed.
Everyone, even grant assessors, want to back winners. Are you planning to win?.