IP venture funding options
Two golden rules when seeking funding for a venture:
- never proceed underfunded
- allow for contingencies.
This is particularly true for IP ventures because of their novelty.
As the amount of required funding and associated risk increase, funding choices generally decrease. Ventures that prematurely run short of funds will be perceived as being higher risk.
Funding rarely occurs as a single lump-sum for commercialisation ventures and often it requires multiple sources. Some funding options are:
Private venture capital (VC) companies
VC funding is generally characterized as high-risk/high-return opportunities with strong growth potential. Specialised in this area, VC companies are rarely interested in funding under $1 million.
As well as funding, VC companies usually contribute managerial skills, but they may demand significant equity and control in return for funding.
Government commercialisation grants, loans and incentives
There are a number of government grants and funding programs available to assist Australian businesses to develop and commercialise their intellectual property (IP). Business.gov.au has a comprehensive list of these grants and programs, including the:
- Export Market Development Grant
- R&D Tax Incentive
- The Entrepreneurs’ Programme.
Export Market Development Grant
The Export Market Development Grant scheme is the Australian Government's major financial assistance program for Australian exporters. Grants are available to individuals, partnerships, trusts and companies that qualify with a turnover of up to $50 million.
The scheme supports a wide range of industry sectors and products, including the export of IP outside Australia.
The scheme reimburses up to 50 per cent of expenditure incurred in allowable export marketing activities. To qualify, at least $10 000 will need to have been spent over two years on eligible exporting.
The scheme is administered by Austrade.
R&D Tax Incentive
The Research and Development (R&D) Tax Incentive is the Australian Government's principal measure to encourage industry investment in research and development. It’s a broad-based, market-driven program that aims to boost company competitiveness, improve productivity and deliver economy-wide benefits to Australia.
The R&D Tax Incentive provides generous benefits for eligible research and development activities. It’s jointly administered by AusIndustry (on behalf of Innovation and Science Australia) and the Australian Taxation Office.
The Entrepreneurs’ Programme
The Entrepreneurs' Programme could be of assistance to you, and offers support to businesses through three elements:
- Accelerating Commercialisation, helping entrepreneurs, researchers and businesses address key challenges in the commercialisation pathway of bringing new products, processes and service to the market by matching the companies’ investments dollar for dollar and providing experienced Commercialisation Advisers to guide them through the commercialisation process
- Business Management, provides advice and facilitation services to improve business capabilities and networks
- Innovation Connections, helping small and medium businesses to access knowledge, engage with researchers and foster innovation.
These usually suit small-to-medium ventures. Typically, they provide cash subject to the recipient meeting various milestones and contributing matching funding.
Governments do not require any equity or on-going control of the venture, but the paperwork can be onerous for inexperienced applicants.
Individuals (‘business angels’)
‘Business angels’ are affluent individuals who provide capital for start-ups in exchange for equity or an inflated profitable return on their loan (‘convertible debt’). They may provide mentoring to start-ups.
Some angel investors are organised into groups or networks, so they can pool their capital and expertise to support the ventures in which they invest.
Some business angels are attracted to a venture by an emotional connection with its mission as much as by the prospect of financial gain.
This option can be an uncomplicated arrangement for small-to-medium ventures.
Crowdfunding is the practice of funding a venture by raising relatively small cash contributions from a large number of people. Worldwide, in 2015, it’s estimated that over US$34 billion was raised this way.
Although crowdfunding has long been executed through mail-order subscriptions, benefit events and other methods, it has recently exploded in popularity with the availability of online registries.
If you’re considering crowdfunding, it’s important that you have already considered how you are protecting your idea. We discussed with Ash Newland, founder of the Scrubba Wash Bag, his crowdfunding journey.
Crowd-sourced equity funding
Crowd-sourced equity funding (CSEF) is a new fundraising approach available to Australian public companies with a turn over and gross assets of less than $2 million.
This is being made available through the National Innovation Science Agenda.
Initial public offerings (IPOs)
An IPO, or float, occurs when a venture structured as a public company raises equity capital by offering shares to the public for the first time. This is usually only appropriate for larger ventures.