The Government does provide several methods for financially supporting a startup, at various stages. We take a look at what’s available.
NEIS: The New Enterprise Initiative Scheme
This scheme has been running for decades, though the recent budget cut the scheme length from 12 months to 9 months. The idea for the scheme is pretty simple: pay people on the dole an equivalent amount to start their own business. It pays very little (~$250 per week), and it requires applicants to be collecting benefits at the start of the scheme (there’s no requirement to be collecting benefits for any length of time, however). We covered this scheme last year (here), and there are a few startups in the Perth community who have used it to bootstrap their first year. It’s a useful program that can provide a lifeline if you’re bootstrapping.
R&D Tax Credit
Once you’ve got past the initial bootstrap phase and you’ve incorporated, then R&D Tax Credit is a great way to fund the next stage. Basically you can claim the tax back on any losses you incurred while developing a new product or service. We covered this in detail already, head here to see the full story
This scheme used to be called “Commercialisation Australia” but it got streamlined in the last budget and that came with a rename. This scheme is for serious money, and takes serious amounts of time to get. You can apply for matched funding of up to $1million over 2 years for any project that is innovative. Let’s break that down:
- Matched funding: the scheme will only give you $1 for each $1 you’ve raised through some other means. This doesn’t necessarily mean other investors: if you’re doing consultancy on the side while you build your new product then you can use that as the matched funding source (but you can’t use revenue from your new product to match funding to build that same new product). If you have a refund coming from the R&D Tax Incentive scheme then that can also be used as matching funding.
- $1million over 2 years: if the project will cost more or take longer, it doesn’t qualify. Having said that, you can break the project down into smaller parts that qualify independently (they have a clear and convincing commercial plan in their own right). The $1m is a maximum, and aiming for lower amounts and shorter timespans is always easier.
- Innovative: the government has some particular ideas about what is innovative and what isn’t. Your project will need to fit within their boundaries. Things like creating a website or a new piece of software are not by themselves innovative. If the software is a service that isn’t currently available, that may be innovative. Preference is given to IP that can be protected by a patent or trade secret.
- You must have a strong chance of commercialising your product (you wouldn’t be doing it if you didn’t think there was) but you have to be able to show that there is market demand. The program is not called Accelerating Commercialisation for nothing – the focus is on Commercialisation, not the R&D phase.
Applications for this funding are a ton of work, and will take at least 3 months and usually more like 6 months. There are endless forms to fill in, and the government really will want you to tell it everything about your business, in triplicate, with certified copies of all your papers. The final approval is made by a committee in Canberra that meets at specific intervals, and is unappealable. You could go through 6 months of hard paperwork and end up with nothing.
However, WA companies regularly received funding under the old Commercialisation Australia scheme, and the first batch of companies to get funding under the new scheme includes Tap Into Safety, who we talked to a while ago. So it is possible, and can be worth it.
The state government provides some funding in the form of Innovation Vouchers that pay for professional assistance to SME’s. The list of this year’s awards is here and you can see for yourself the sort of thing that gets funded. The total level of funding for this program is <$500K over 25 applicants, and the media release boasts that it has provided $600K of funding between 2011 and 2013! There are severe restrictions on what you can spend this on; it basically has to be a single service provider, providing a professional service that will assist you in building your business. This could be a website or product build, but we’re not seeing any of those applications succeed (unless you know different…?).
Local Government Support
The City of Joondalup runs an Innovation Fund, details here. You need to have a physical presence in Joondalup (or relocate there) to be eligible, but there are a few startups getting funding from this. Again, the amounts aren’t huge, up to $20K, but it’s some help.
The City of Perth supports a lot of the local infrastructure and events rather than providing direct grants, an approach which probably makes more sense for their circumstances.
There may be other local City/Suburb initiatives on offer that we don’t know about (research a story? what’s that?), so check with your local government offices to see if they do anything.
Other Grants and Programs
Go here and have a look at government grants for WA startups:
there’s a load (74!) of them, but most are specific-purpose schemes that have very narrow eligibility criteria and take a lot of time and effort to apply for. By all means have a look, but here be dragons.
Conclusion – the //SN opinion
As usual, we’re seeing good Federal programs (NEIS, AC, R&D tax credit), good local government support (the City of Perth and City of Joondalup stand out as champions here), and utterly useless State government support.
Government support for startups is entirely at the politician’s whim, so it’s absolutely better to rely on customers for funding. It’s also not unusual to waste months applying for government funding and get nowhere, whereas spending months trying to get customers to pay for things is rarely wasted. But having said all of that, use the programs that make sense for you and your circumstances. In some cases, the application process itself will help clarify your needs and next steps.