Key points at a glance
- PwC R&D Specialist, Anna, provides two options for startups and emerging companies who are conducting research to seek funding
- One option is dilutive funding, involving capital raising resulting in diminished ownership
- Another more population option is non-dilutive financing - where the owner doesn't lose equity
- Two examples non-dilutive financing for startups in the research phase are the new Citizen Science Grant and the R&D Tax Incentive
How to fund research in your startup or emerging company
Australian startups are no strangers to shaking things up and approaching ideas differently — but the biggest question facing most startups is how to fund these ideas. Access to cash flow can be limited, particularly when you’re in the research phase and trying to test your hypothesis. Here's two options you can explore when seeking funding:
1. Dilutive financing
This involves raising capital that diminishes your ownership (e.g. angel investors, venture capital).
2. Non-dilutive financing
Unlike dilutive financing, this involves receiving funds without losing equity. It is generally the most appealing option for founders, particularly in early stages.
There are a number of government grants and incentives available to startups and SMEs. Not only do they help provide much needed financial assistance to your project without loss of equity, they can also strengthen your brand and visibility in the marketplace. Securing government funding helps promote your ideas and innovations as something worth investing in.
Government grants to fund your research project
Here are two options for non-dilutive finance that are well worth pursuing, as they’re designed to support innovation in Australia.
1. Citizen Science Grant
The Citizen Science Grant is an exciting new program designed to get the public engaging with science. Launched in November 2016, the grant provides financial assistance of $50,000 to $500,000 to startups collecting or transforming data for scientific research projects. The collection of data needs to include public participants and engage the wider community. The aim is to create ‘citizens of science’ and give people the opportunity to feel involved in a local science and innovation project.
This unique grant helps your startup to essentially crowdsource data that you require, with the support of government funding. Public participants can be involved in a range of ways, including:
- Collecting and analysing data
- Formulating questions
- Organising research teams
This gives people who don’t ordinarily work in scientific fields a chance to learn new skills and develop an appreciation for the importance of science and data in our community. Public involvement will also generate interest and build the profile of your project.
Applications are open now and close on 17 February 2017. To apply, you must have a scientific research project (involving either data collection or transformation) that members of the Australian public can be involved in. The project should also have at least $50,000 in eligible expenses to utilise the grant funding.
2. R&D Tax Incentive
Grant funding is competitive and application periods are often tight, which may leave your startup ineligible or missing out. If this is the case, you shouldn’t feel discouraged or put off being involved in research for innovation projects, as there are alternative incentives available. One of the best sources of non-dilutive cash flow for startups is the R&D Tax Incentive.
Unlike a grant, this incentive provides refundable tax rebates of up to 45% for any business conducting eligible research and development activities in Australia. That is, activities that seek to generate new knowledge to develop new or improved products, processes, or services for the nation.
More than 20,000 small businesses are currently eligible for the R&D incentive, yet only 7,000 currently apply for this program. That’s where we can help. If you’re unsure where to start or would like help with your applications, you don’t have to go it alone. Nifty R&D is an online platform that helps review your eligibility at any time, with no upfront fees or obligation. If we find that your business is ineligible to apply for financial incentives, we won’t charge you a cent.
Startups and emerging companies can visit Nifty R&D to determine if you're eligible to claim the R&D incentive. A specialist PwC consultant like me can assist with both grant applications and tax claims for your startup or small business, getting you the cash flow your project needs.