Getting an R&D Equity Grant out of Enterprise Ireland
At the FOWA Demo Bar Conor O’Neil and I were exchanging notes on getting funding out of Enterprise Ireland. We are in the process of completing the R&D Equity grant process with Enterprise Ireland so here is our story.
This information related specific to our application (which is for a R&D grant associated with a software company) your mileage may vary in other sectors. The process is not adversarial and the EI staff are on your side. They (by and large) want you to get the money.
You should also be aware that EI offer a host of other incentives to businesses and I encourage your to trawl the EI web site with your sector in mind.
Do EI know you exist?
The first step in this whole process is to get on the EI radar. You have two goals 1) achieve HPSU status and 2) Get a Development advisor assigned. HPSU = High Potential Startup. A HPSU is a a company likely to generate employment or exports in the near term (next 3 years). The best way to get this (in Dublin at least) is to join an EI endorsed incubator program there are several to choose from, we participated in the HotHouse Program based a East Wall.
On the HotHouse program each batch of ten companies was a assigned a group DA. The DA (DA=Development Advisor) is your mentor and guide and you next job is to get your own personal company DA assigned. This will happen when you start to make overtures regarding any one of several grant schemes that EI operates.
The first grant available to us was CORD (commercialization of Research and Development). This is strictly speaking designed for commercialization of university research but we got this pretty much because we were participants on the HotHouse program. You have to submit a two page business plan and some three year financial projections, but as long as you meet HPSU criteria (Exports and Employment) and sound reasonably credible you are in the gang (I think 8 out of 10 in our program got the CORD grant).
A CORD grant will net you up to 31k euro tax free, but you must be an Irish national and must have paid at least that much in tax in the previous year i.e. this is essentially a refund of your tax. They will go further back, but it gets tricky. Word to the wise, this is where that note on the top of your P60 that says “this is a valuable document” comes home to roost.
As I was investing in my own startup I started to engage with EI directly towards the end of the HotHouse program (around Sept 2006). At this point EI assigned me my own Development Advisor. Bingo, now I was in game.
What’s Available to early stage startups?
So once you have a DA there is a bunch of grants available. Now there is some subtlety here that often eludes people. EI loosely allocates around 65k in startup funding to each HPSU. This can be drawn down as,
- Feasibility Studies
- Market Research
- Strategic Consultancy
- A host of others with more specific markets in mind
However, they will not “double fund” an initiative. So for instance while I was drawing down CORD I couldn’t apply for feasibility or any of the other grants.
We did use a strategic consultancy grant to get our final application into shape, but the key thing to remember for most of these grants is that they are nearly all (with the exception or CORD) offered on a “spend it to get it” basis. So if you are a penniless startup they are about as much use as a chocolate teapot.
To really crack open EI’s coffers you need to apply for R&D and/or Key Hire funding. These are often bundled together (as was the case with us) into a single grant application.
Applying for the big money
EI will help fund the growth of your business if you can demonstrate the ability to raise matching funds yourself. This typical grant for software startups like PutPlace is offered as a
50% 35% subsidy on your total R&D spend over a period ranging from one to three years. EI expect you to demonstrate the ability to hold up your end of the project for its duration, typically by demonstrating you have cash in the bank to cover the costs of the project over its duration (along with the EI cash). So the first you have to do is raise (or plan to raise) a pile of cash. The Business Expansion Scheme has been used by ourselves and several other companies to give angel and early stage investors an opportunity to to get a 40% rebate on their investment.
Its important to note that EI will not value your company for you. So, in the absence of a third party setting your valuation (e.g. a VC) EI will invest using a financial instrument known as a Cumulative Participating Preference Shares. These are shares that convert to ordinary shares at a discount to the final price set by a third party investor (typically at the next round of investment).
The first step in the process is to fill out a R&D application form. This gives an overview of the project and is the base document that will form a launch pad for a host of other submissions. Don’t be obsessive about getting your EI submission documents perfect, its much better to get something in early as they can all be revised right up to final committee stage. You champion and the person who will eventually pitch your idea to the funding committee is your DA so its important to keep them informed and onside. (We didn’t do a great job of this at the start, but we got better as time went on).
The R&D application will typically be followed by a meeting to discuss the project and if you and the DA are happy with the application at that point you can proceed to the next stage. Your DA may also propose a feasibility study to analyse any gaps perceived in the initial R&D application. EI will often grant fund this study.
They key things to outline in the R&D application are,
- Novelty: What makes this different. new, unusual, deserving of R&D funding. You don’t want to pitch incremental improvements to an existing service.
- Difficulty: Does this initiative require significant effort to resolve serious technical problems?
- Cost: A detailed breakdown of the costs and associated headcount
- Benefits: What will the be the key benefits to accrue from completing this R&D (remember, employment and exports are what light EI’s fire)
If the DA likes your R&D application he will assign a technical assessor. The technical assessor is there to establish,
- Your technical credentials
- The actual novelty and or difficulties associated with the project
- Your ability to deliver
- The key challenges associated with the project
- A validation of the costs and headcount
The interview takes a few hours and will typically range all over the project.
After technical assessment you will need to produce a detailed financial data sheet that detailed your costs using an EI supplied template. This is essentially a rework on the initial costs submitted and needs to be aligned with a complete set of financials for the business typically out to three years in the future. The financial assessment is initially reviewed by your DA, but the final assessment is done by an assessor who is based inside the EI commercial evaluation unit. A key goal of this phase is to provide external assessment of the overall project viability and to minimize the effects of DAs who have gone native 🙂
If you make it this far then your DA will prepare a presentation for review by the EI funding committee. The committee meets twice a month so you need to align yourself with one of those dates. You should meet with your DA and technical assessor a day or two before the presentation to do a final review so they are fully briefed. Make sure to keep them up to date with what is happening both with your business and in your sector (Twango got bought just before our presentation which helped price our proposition in the minds of the committee).
Its extremely rare for the committee to bounce a proposal (I’ve never heard of it), which is why so much preparation goes into the process. The answer will come on the day the committee meets, so stay on the phone.
If your successful (of course you were successful with all this help!) then you will need to amend your company articles and memorandum to reflect the new share holding and draw up a new share holders agreement to reflect the EI provisions for shareholding.
Other Points to Note
EI will never hold more than 10% of a companies issued stock so make sure you proposal represents 10% or less of the issued share capital.
EI often offers key hire grants along with R&D equity. They rolled our grants into our equity package but if you can keep them separate that would be peachy, ‘cos then their a straight cash grant and not equity.
They will not take a board seat, but the audit requirements over the lifetime of the project can be a bit burdensome. For instance you will need paper copies of signed time sheets for all time that is eligible for EI grant assistance.
Only full time PAYE employees are eligible for cover under the R&D scheme.
EI will only fund against future spending, you cannot get grant aid retrospectively.