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 invest $10Bn+ annually in science and innovation. This is comparable to 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 increasing complexity across the innovation programme landscape.
Trend 2: Growth in funding for research collaborations
Collaborative research funding is becoming the primary litmus test to filter projects that secure grant funding. The theory is that projects that involve industry-university/research institution partnerships are more likely to address industry challenges that have greater impact and revenue opportunity. These programmes often require at least 50% matched funding commitment from the applicant or an investor.
Matched funding has become the standard for most grant programmes. The presumption is that projects are more likely to be completed and to succeed in the marketplace if the industry participant is financially committed to the project. This logic cannot be faulted yet does introduce a funding hurdle for businesses with marketable ideas that are cash starved.
Trend 3: Repositioning the R&D tax incentive
The trend is to refocus the R&D tax incentive to SME businesses that need funding to undertake R&D, and reduce support to larger businesses. 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 force ranked through a more rigorous selection process that has a clear sector or technology focus.
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 accelerating.
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 Government innovation policy 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). As funding programmes become more specific, they tend to focus on short term industry challenges with smaller funding pools that do not shift the dial strategically or on a sector basis. This is far from ideal.
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. Funding application timelines from inception to approval or rejection are attenuated and not commercially realistic. As more Government grant 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 stronger 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?.