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Getting an R&D Equity Grant out of Enterprise Ireland

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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,

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)

Technical Assessment

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.

Financial Assessment

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 🙂

The Committee

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.

The aftermath

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.

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Written by Joe

October 9, 2007 at 4:12 pm

Posted in Uncategorized

18 Responses

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  1. A wealth of information, very well put together. Much appreciated.

    Niall Larkin

    October 10, 2007 at 12:19 pm

  2. Very nice Joe and bang on. I’d like to add a couple of things.
     
    CORD is given to the individual not the company and is generally half of your previous year’s earnings plus some expenses are allowed on top of this. It is open to almost anyone who was earning in Ireland and is not based on how much tax you paid. DaytaTree received €41k in CORD funding this year towards my salary and expenses. They were really flexible with me, as having been away I only had a few months salary to show in the previous year and they based their 50% on this giving me 35k and adding a further 6k for expenses. Whether CORD it is tax free or not is a grey area and in the past has been interpreted by Revenue in different ways so you should get some tax advice before making that assumption.
     
    EI do a shuffle of DA’s on a regular basis and it is possible that you have built a great relationship with a really good DA and then have to essentially start again because they’ve all moved around. And not all DA’s or TA’s are equal – remember you are dealing with a state body who can’t fire anyone so don’t go in with rose coloured specs. Try to talk to people who have dealt with your TA in the past. Some of them will try to put you off at the early stages.
     
    Also don’t forget about the County Enterprise Boards. They are more flexible than EI and some will give grants for working capital between the CORD stage and the larger EI grant stage so if for example you aren’t ready for a full EI technology audit then the CEB are a good funding stopgap. DaytaTree received €75k as an interest free loan which was provided through a preference share scheme where it is only paid back to them from profit We also received an innovation grant of €4k. Once the elder brother EI get more involved in your venture they may take over the CEB preference shares.
     

    Ian Snipper

    October 11, 2007 at 8:40 am

  3. Hi Ian, Thanks for that, a very useful addition to my original post. Agree with you about the shuffling of DAs, though I have to say (touch wood), everyone I have met to date within EI has been excellent. 

    Joe

    October 11, 2007 at 9:11 am

  4. Good post Joe. Thanks for the information.

    conor

    October 11, 2007 at 9:15 am

  5. Very nice summary & reflects our experience to date….Does anyone know if there is a list available of companies who have been awarded R&D grants? 

    marie carroll

    October 11, 2007 at 9:16 am

  6. I need to make a correction to my post – I was 44 on Tuesday and the few memory cells I have left aren’t firing too well (not sure if it’s old age or the hangover). The max allowed for CORD is €38k. I was adding in the amount received directly from the M50 programme which works much like a college scholarship. Many thanks to Patrica O’Sullivan the M50 manager who was on my case immediately!

    Ian Snipper

    October 11, 2007 at 10:38 am

  7. Great update, Joe!
    Just a small note on the total equity EI will take in an individual company…They will take a maximum of 10% of issued ordinary share capital – any excess will usually be taken in the form of convertible prefs.  So its not like there is an absolute 10% ceiling.

    Also, while EI don’t ususally take a seat on the board, this doesn’t remove any of the normal obligations to consult and inform a major share holder – something that can often get forgotten in the cut and thrust of business, believe it or not.

    Another potentially major pain point relates to EI’s requirement for matching finds. In the process of applying for EI funds, you will inevitably be drawing on your existing funds. Your matching funds for a grant won’t necessarily be the amount raised so far, but rather the amound LEFT so far! So, if there is going to be a time lag between your BES/angel round and the EI grant application, you need to bear in mind that your matching fund may be depleted.

    And… while EI won’t offer grant aid retrospectively, they will give you a time when the “clock starts ticking”. So, for example, a grant approved in September may cover spend from, say July 1st, provided this is the agreed start date for your project. Doesn’t help the cash flow, but at least it will speed up your draw down. I can’t overstate the value and importance of your DA in the process – they smooth the wheels and promote your company within EI. It sounds obvious, but it’s vital to keep them up to date and informed – their job is to help you, but they can’t do that in a vacuum.

    Katherine Lucey

    October 11, 2007 at 10:55 am

  8. Thank you for putting this blog up Joe, it is something a few of us have had on a ‘to do’ list for years!

     

    I have been the manager of the M50 EPP enterprise programme for almost 6 years and have assisted a large number of  companies prepare for CORD, EI equity investment and the other grants you mention. This experience allows me to add some comment having seen the workings a number of times. I hope they help.

     

    EI and Equity Investment
     

    Yes, the EI staff are on your side and they do want to give you the money in point of fact they are constantly trying new initiatives to get even more companies to approach them. EI however must work within their remit and are closely governed in what they can / can not do by both the Irish Government and by the E.U.. You must therefore ensure that your company meets all the criteria and that it is at a stage of development where there is enough evidence to show that the likelihood is that it will be generating the bulk of revenue from export, meeting employment figures, etc.. Above all they are not a charity fund – your company must reflect a good investment – whilst EI are softer than a venture capital company or even than many professional business angles they are still reviewed by their superiors and must account for their investment decisions so the risk / return must look acceptable (even if a little more risky than others might accept). And, remember that under their remit EI’s hands are tied and their investment is only allowed to cover a percentage of your R&D expenditure – not your sales and marketing activities much as they wish they could.

     

    Something Joe did not mention and which I am not sure if it is still essential but in every case that I have experienced the DA has visited 3 or 4 customers or potential customers at least two of which had to be abroad (UK did not qualify) to confirm that the product or service will sell. Another point worth noting is from the date of application to the day the cheque is in your hand can be longer than people expect – typically between 8 and 12 months in my experience due to the time for all the various steps Joe outlined so clearly and to the necessary revisions of documents not to mention silly summer / Christmas seasons and vacations of key people. This point catches many people out because as Katherine Lucey so wisely said the matching funds are not what is in your bank the day you apply or what was invested in the past but rather what is there after some point in the EI process which tends to occur before final approval. This critical point catches many people out because they have their BES or other funds spent too early. You need good financial management to ensure that you do not get caught out this way and end up having to raise more private funds and lose yet more equity – BE WARNED.

     

    Your EI Development Advisor (DA)
     

    These people are critical to your success in obtaining grants and equity and most of them are very good BUT from what I have been told each of then can have up to 65 companies allocated to them at any one time so they can not keep up with them all. That is before we take into account the need to attend internal meetings, external events and the usually bureaucracy that goes with a large organisation. So you MUST help your DA by keeping them in the picture with regular updates. I suggest a short monthly email with a short list of bullet points under a couple of headings e.g. ‘Achievements this month’ and ‘Issues we are facing’. Then a few days later follow up with a quick phone call to see what they think – to get them thinking how they can help you they need to know what is going on. It is too late after an event if you are told “we could have paid for that�.

     

    Incubator Programmes
     

    Yes, I recommend the incubator programmes. There are many of them around the county and participation on many of them entitles you to ‘apply’ for CORD funding. Other reasons for attending incubator programmes are (1) to mix with others in the same boat; (2) to benefit from the advice and experience of others who know the ropes; (3) to be made aware of various things i.e. grants and other supports you would not have known about (see Ian Snipper’s reply about CEB); and (4) this is the reason quoted by successful entrepreneurs who have sold a previous business, and it is to have a discipline placed on you to get out of your comfort zone and do some of the not so pleasant but necessary things for success.

     

    CORD Funding
     

    CORD funding, if you qualify for it, is effectively 50% of your previous year’s salary to a maximum grant of €38k (there has been talk of increases in this figure for some time but no sign yet). The grant may have an expenses element if 50% of your previous salary is less than €38k to take you up near to or to that max figure. If you are on an incubator programme that pays you a stipend then the value of the stipend ‘may’ be deducted from the CORD grant. The CORD money is paid monthly in arrears like a salary. There is a lot of confusion about whether it is taxable or not. A number of my former participants have got letters from Revenue saying it is not, another was told it was but later got a refund, many take the view it is a grant and say nothing (sort any potential future consequences at the time). The advice of EI is that you should seek direction from your accountant. The EI staff are not tax advisors and are reluctant to give any advice on this matter for obvious reasons.

     

    Feasibility Grants
     

    Whilst it is rare you can actually qualify for a Feasibility grant and the other grants Joe mentions whilst in receipt of CORD. I have had a number of participants do so successfully. However you should note that EI will not double fund the same activity so it must be for a different activity. Let me give you an example of a recent case. A participant was granted CORD in January this year to “investigate the feasibility of a software services business and prepare a business plan�. During the research activity he conducted in the early months on the incubator programme he discovered that the usefulness of his offering would be seriously limited unless he did some R&D in the field of electronics to widen the market for his software service. In early summer he applied for and received a feasibility grant which is 50% of total expenditure (50% of €60k if I recall), used it with his own cash to pay a third party to undertake the work and is currently integrating the hardware and software prior to launch. This was clearly a different activity and therefore qualified. I have seen others get key person and other grants whilst on CORD – the activity to be funded and status of your company are what is important.

     

    Sorry about the length of this post but this is a complicated area and I hope that my post has helped a bit.

     

    — Patricia

  9. […] Copacetic Ace King, Check it Out! « Getting an R&D Equity Grant out of Enterprise Ireland […]

  10. Regarding CORD I have received a letter from Revenue to confirm its tax free. This was after a letter saying it wasn’t, after a phone conversation that confirmed it was. If you’re confused, you should be. I challenged it and after subsequent checking they finally confirmed its tax free in writing.  

    John Ward

    October 11, 2007 at 6:04 pm

  11. […] post from Joe on Getting an R&D Equity grant from Enterprise Ireland. Brilliant comments after the post too. Loving Joe’s transparency about his […]

  12. This echos very much the experience we have had. The only thing I would add would be to emphasise that EI will insist on talking directly to customers. We had everything in place including a large distribution partner, we have customers and we have money in the bank from those customers BUT EI wanted to talk directly to those customers. Our partner was not willing to facilitate this for a number of reasons which I could understand but EI could not. At the end of the day, the funding effort has been suspended pending our ability to get EI in front of end customers. At the end of the day, rules are rules, however, the way things are looking, we may end up getting funding when it’s not as critical as when we started….in other words, we will be given the proverbial umbrella when it’s not raining (or possibly only drizzling !).

    John Power

    October 26, 2007 at 4:10 pm

  13. Very helpful blog. Confirms our experience with EI.

    John Findlater

    October 30, 2007 at 11:17 am

  14. Does anyone know if there are any EI incubator programmes in the south east (Waterford)?

    boardtc

    January 21, 2009 at 5:55 pm

    • Doesn’t appear to be. Very surprised that Waterford Institute of Technology doesn’t run one.

      jdrumgoole

      January 21, 2009 at 6:15 pm

  15. Question to anyone who was getting CORD.
    In terms of claiming mileage, how to do it properly and what is the process? I’m at the stage where I got acceptance letter, but they didn’t ask me for my bank account.
    If you claimed mileage (€0.60 per km), what did you claim it for exactly (I mean where were you going by car, what kind of trips?). What’s the simplest way?

    Robert

    June 6, 2011 at 2:43 pm

    • Robert,

      Your best bet is to as your DA. My expectation is they track IT51, the Revenue guide to travel expenses.

      Joe.

      Joe

      June 6, 2011 at 8:23 pm


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