'Soft' Funding
Grant Funding
Grants are particularly important to early stage businesses, in particular to support technology development and proof of market analysis. During this stage, grants can be supplemented by investment of cash from the founders of the business and 'family and friends' in return for a founding equity stake in the business.
All publicly funded programmes have strict eligibility criteria, and are typically targeted at specific themes and/or specific industry sectors or technologies. The appropriateness of each programme to individual companies will thus vary depending on the:
- Technology
- Target markets
- Stage of development (e.g. applied R&D versus demonstration)
- Requirements in terms of technical and commercial development (the key barriers the company is looking to address using the grant funding)
- Availability of partners (academic or industrial)
- Geographic location.
Each grant programme will have a specific application process, either a 'rolling' system with applications accepted all year round, or a timetable of restricted calls with published application deadlines.
It is important to check the application procedure when looking for appropriate sources of grant funding and to maintain regular contact with key funding agencies in order to get advanced warning of relevant calls. Many agencies have a system for businesses to 'sign up' to in order to receive information about up-coming opportunities.
Grant funding is typically available for discrete projects or programmes of work that are delivered within a pre-defined period of time, and against specific milestones. In general, access to public grant funding for early stage R&D, proof of concept and demonstration will require:
- A clear description of the technology and its USP
- An understanding of performance relative to competing technologies (functionally and in terms of cost)
- An understanding of priority routes to market and target organisations that will facilitate access
- A technology development route map
- A project team with the capabilities and availability to deliver against the proposed programme of work
- If appropriate, evidence of legal corporate structure and financial performance.
Potential sources of grant funding are provided in 'Where to Access the Different Sources of Finance'.
R&D Tax Credits
A key potential funding mechanism for young SMEs involved in technology development is the R&D tax credit scheme. This scheme is managed through HM Revenue and Customs (HMRC) and is designed to encourage companies to invest in R&D through either reducing the tax bill for a company, or potentially providing them with a lump sum.
Some SME companies not in profit can surrender their R&D tax losses for cash (in the form of a payable credit) of up to 24p per £1 of actual expenditure within specified categories. Companies undertaking R&D may also be able to claim 100% capital allowances for capital R&D expenditure.
Information on eligibly criteria and how to apply for tax credits can be found at: www.hmrc.gov.u/randd/.