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How to Apply for R&D Funding Grants

By on January 10, 2012
FlickrCC Eric Wustenhagen

This is the second of a series of three guest posts about R&D funding for games companies, by Andrew Richards, CEO and founder of Codeplay Software, a company providing acceleration solutions that optimize performance for graphics semiconductor designers and AAA game developers.

In our last article, I hope I persuaded you that public-sector R&D grants are worth applying for. The next issue is when and how.

When to Apply for Funding

You need to apply early. All public-sector funding is matched funding, which means you must put in funding to match the public-sector funding. Also, each grant has different rules governing what percentage must be matched, and what expenditure can be funded. So, if you are a start-up with £20,000 in the bank and you get a grant which funds 50% of expenditure, you will apply to do a £40,000 project with £20,000 of your own cash and a £20,000 grant. On the other hand, if you spend your £20,000 first, then apply for a grant, you will get nothing. If you have no funding left over to match, you will get no funding from the public purse.

The second reason to apply early is that the earlier-stage the technology, the higher the percentage of matched funding will normally be. The rules are usually that very early-stage technology development (usually called “proof of concept”) can be funded to a high level (sometimes up to 75%). In the middle there is often funding of 35%-50%. Whereas technology that already has a customer usually can’t be funded at all. So, unlike other forms of funding, you are better off not having a customer!

Your last option with R&D funding is R&D tax credits. You apply for these at the end of your financial year as part of your tax calculation. You just need to get your accountant to help you with this claim.

How to Apply for Funding

Andrew Richards

Each different funding project is different, but there are some common principles. You need to convince a funder of the following:

  • You are likely to commercialize the results of the R&D in some way.
  • You are producing something exciting, new and risky.
  • You would not be able to produce something exciting, new and risky without their funding.
  • You will be hiring people full-time and the R&D will help preserve those jobs.
  • You are financially capable of surviving the project, but not so rich that you don’t need their funding.

In a videogame context that means: you are producing some new games technology that has not been done before. It could be a new graphics effect, or it could be tools that would improve your productivity in games production. Whatever you come up with, you have to make it sound exciting. But you also need to explain it to people who may not understand the games industry or games technology. And you also need to say you will use it in your own games, which you will market.

You also need to show that your business is likely to be stable enough to take on the research project. This could either be that you have a big investment, or that you have (or have had in the recent past) publisher contracts. Some grants require you to show a cash-flow forecast. Having an accountant that has done these types of applications before really helps here. Funders will be very wary of funding failure, so they won’t want you to say “fund us and we won’t fire everyone”. You need to find a different way of putting the commercial realities of your company.

It is usually important that you say you are taking on mostly full-time permanent staff for the project, rather than using contractors.

Finally, it is important to show that you (and not a publisher) will own the IP.

Most funding agencies have people who will talk to you about the application. Don’t be scared of speaking to them. We did, and they told us not to apply because we weren’t doing something risky enough! But it was still helpful to speak to them to understand what they are looking for. What we did after that conversation is go away and say to ourselves: we will listen to what they said and make an application based on that. We knew they would send our technical proposal onto an expert, so we needed to provide enough information for that expert to make it look part-way between risky and likely to succeed. We also wrote a simpler version of what we were doing and made it a story about how exciting the project would be.

What to Ask For

Ask for the maximum amount of funding that the grant stage you are going for allows. Even if you can’t quite see how to spend it all now, you will find a way later on. Remember that new technology projects are always late, so extend out your deadlines as long as possible. The funder will want to spend all their cash once the project is signed, so don’t under-claim, but you may need to delay claiming if customers need you to move staff off the project, or you fail to hire good enough people in time. Public funders will usually be very flexible about allocation of the funds to different tasks once the project has started (although may not be so flexible when the project is planned). But the public sector has deadlines for spending the money, and due to stupid public-sector rules, they will lose the money if it isn’t spent fast enough. So, give yourself time in the project plan. It takes a long time to sign these projects, so keep them going as long as you can.

You probably can’t fund the development of a game. But it is often reasonable to be able to demonstrate the technology. So you may need artists or musicians to help you with that technology demonstrator. As long as it isn’t a full game, you may be within the rules. Demonstrations are considered a good thing for these projects. Finished products are against the rules.

Always remember that public servants can guide you when speaking in person, but they have to be strict with the rules when you write something down. They will be keen to fund a project in a way that works well for you. But they also have to watch what they say in writing, and how they respond to what you put in writing. A phone call is better than an email for some questions.

Finding a Consortium

Some grants go straight to companies. Other grants require a consortium. Funding from the European Commission or TSB often requires a consortium, especially for larger grants. There are some advantages to the consortium approach: you get relationships with other companies (which can help with sales and partnerships) and with universities (which can help with recruitment). In the case of European grants, you get relationships all across Europe, which can be a benefit, especially with recruiting, but also with new ideas.

Universities will be very keen to get small companies involved with these projects, because it will really help them get funding. The research funding bodies are now very keen to get small companies involved in these projects, because it increases the chance of a project having a commercial benefit. It is therefore perfectly reasonable for you to email an academic that does research in an area of interest to you to say you are interested in doing collaborative R&D. Because it will help them fund their research, they may be very interested. They may know other academics across Europe that want to do a project proposal, and your participation may really help them get it together. At certain times of year, there is a process that goes on a bit like a mating ritual in a wildlife programme, where groups of academics join together, split apart and assess each other’s suitability for partnering.

What you need to watch out for with any academic collaboration is whether you are likely to get useful work out of it. Academics tend to do lots of projects at once, which can mean that it is not the academic that matters to the success of your project, so much as the student or researcher that gets put on your project. So, you really need to focus hard on who gets put on your project. It can be 3 years or more before you can pull out of such a project, so if you get someone who isn’t that keen, it can be a real problem. You need to approach it as a very serious hiring decision.

It really is possible to have an academic collaboration that goes on for 3 years with nothing to show for it. Or, it can bring in new ideas, publicity, funding, recruitment and commercial opportunities. Spend some time getting it right at the start, because once it’s signed, you have virtually no power to change it.

When and how to apply for funding

If you are a new company, start thinking about R&D funding now. Whatever stage you are at, be prepared to shop around for the right funding, the right partners and the right project. Some funding levels don’t make sense financially for some businesses or projects. But there is more than one option. It is worth getting into all the networks for funding, to find out opportunities as they come along. This will pay off in the long run, not just through funding, but also through networks of potential recruits and partners. In my next article, I will talk about how to manage a grant-funded project.

About Andrew Richards