NZ Government’s $321m for technology fails to help

I’ll use three companies where I have equity and active involvement in to critique the announced $321m new funding for Research Science and Technology in business. In short the program will help none of the 10 or so NZ companies that I am involved with.

While it may work for larger companies this program does not recognise the significant role of tiny companies in driving research and in commercialising technology.

MyTours is a startup founded by Glen Barnes (@barnaclebarnes). We have spent a number of months developing our signature product, which allows museums, city councils and tour guides (and anyone else) to create their own tour iPhone application. You can create your own right now, or check out the Wellington City Council Welly Walks application.

Pacific Fibre is a much larger undertaking, where we are raising USD$500m, selling capacity and engaging with vendors to try to build and operate a 5.12 Tbit/sec cable connecting Australia and NZ with the USA. We will have no revenue until the cable is lit in 2013.

Texmate is an R&D driven company that specialises in developing control systems that go into other companies products. Our revenue is between $2m and $3m each year, and we spend over 10% of our revenue on pure R&D. We also perform bespoke design and contract manufacturing for a growing and very interesting client base.

None of these companies will qualify for any help under the Government’s new funding.

MyTours has no revenue, and so despite all of our efforts being R&D driven we simply do not qualify. There used to be a program called Enterprise Development Grants for Market Development, which would have supported our current efforts to sell at Museum conferences and the like, but this was canceled as NZTE was directed to focus on bigger companies.

Pacific Fibre has no revenue, and nor are we conducting any R&D. The cable will of course use new technology, but that technology is provided by the vendors, and we will select vendors partially based on that. Pacific Fibre will help Research, Science and Technology, but with no R&D going on there is as yet no case for these sorts of funds.

Texmate is just too small – failing to make the $3m threshold although our over 10% of R&D spend easily exceeds the 5% x $3m minimum. We spend more on R&D than qualifying firms will need to, and indeed spent a lot more on R&D in the past, but had to reduce spend and staff after we lost some NZTE funding. However at, say, $250,000 spend the maximum we would get under this program would be 20% of that, or $50,000. That’s a good amount of money, but much less than we need to employ an extra person, and pretty small compared to the pain of the process.

However that process is yet to be defined, and we could yet be surprised. We’ll pass the revenue threshold pretty soon given our recent growth:

There will be a short process to assess applications and award funding. Successful applicants will receive funding for a period of three years which should provide them with certainty around the level of support for their R&D investments.

The three year period is interesting, but this flies or dies on the bureaucracy required to obtain and retain the grant.

Successful applicants will be able to manage the ways in which the grants are used, provided they meet certain conditions.
The launch of the grants is planned for October 2010. More information on how the grants will work will be available closer to that time.

The devil will lie in the details on this one – I’d resist going for any money that has strings attached that allow the Government to direct whether to invest in one kind of research over another.

There is also a voucher program to match university talent with firms that do not have research capability, which is not useful in any of these situations.

My stock answer, I’m afraid to say, is to distort the tax system, and to allow benefits of some kind for R&D expenditure.