All about innovation

I'm not afraid to admit I was a bit of a show pony in my late teens, the fancy shoes, big hair and swagger that I though was the 'winning' formula with the lady's, and I digress.

ESIC status is far more interesting and critical for the life and blood of an early stage venture. It not only sets out enticing taxation concessions, it establishes a that the company has been able to attain something special, hard won and a sense of accomplishment. 

Its by no means an assurance of success, though it does prove the company has what it takes to overcome some serious early hurdles, compliments of the tax man.

It's in that light, and under the law of the land, that we review and upgrade assessments on the directory. We are not expressing a negative view on 'pending', 'self assessed' or other less than verified status, quite the contrary, its just that full ESIC status is only granted at the express wishes of the platform, upon receipt of vital supporting documentation. 

We are not auditing the applicant, we are taking an assumed ATO position and applying the gravitas the listing demands and the resources available to the company.

For the purposes of clarity, we've set out some of the status listings you may find whilst browsing and how best to interpret them;

• Pending
• In Assessment
• Self Assessed ESIC Pending Verification
• Later stage innovation company
• ESIC (confirm **)
• ESIC

Pending;

A pending application is one that has been lodged and published. Preliminary review of the company has been undertaken regarding its ACN, officeholders and website. A qualified tax practitioner has undertaken a basic review of the questionnaire and any omissions, and conversed with the company officeholders. 

In many cases the applicant may simply have simply wanted more information regarding the ESIC process and requirements. In others the need is more pressing. 

Many pending applications are not published.


In Assessment

This status indicates that the pending ESIC status is under review and likely to be amended upon receipt of additional documentation, although this is not a certainty, and long delays may apply, e.g. when IP registration is involved.


Self Assessed ESIC Pending Verification

When a Status upgrade occurs, this could result in Full or 'Self assessed' status and this is not an absolute reflection on the quality of the applicant, far from it. 

An applicant may select 'self assessed ESIC' to safeguard IP, save time, take alternate council etc.


ESIC 

A full ESIC status applies on receipt of key verifiable data, for example, fully registered patent documents, accountants income tax return(s), ASIC annual statements, Cap table, Investor schedules etc.


ESIC (confirm **)

We may confirm ESIC status, subject to material documentation, e.g. licence agreement/patent/3rd party investor documentation. Naturally review of the status would require additional work in this area (application of an NDA, confidentiality agreement etc).

We conduct the above assessments in a professional manner, within the limitation of an outside advisers role. We do not vouch safe the status, and expressly advise users, the company and 3rd parties to contact the appointed tax agent and or their solicitor to conduct the necessary personalised review that can only be conducted by someone engaged to that task. Where that service is not obtainable, or a competitive quote desired our directory offers excellent referral resources, which we encourage you to use.

Many companies come to us unprepared for ATO and investor enquiries, whereas few progress in that regard.

I only wish I had that kind of guidance in my late teens, cringe as you imagine the haircuts!

Happy upgrading,


Tom

Some say the price of good advice can only be truly measured when, in the absence of it, a loss is sustained, which is kind of depressing when you think about it.

​I'd suggest that you pay for what you get, unless you're complexly unsure of the context, e.g. the mechanic's adage 'one price for the fella's and another for the ladies', wink nudge.

As its early days for ESIC's, you might assume that the value & risk ratio puts a premium on legal and accounting advice, which is probably true.... except we are giving a lot of that away for free (thanks to digital automation). But that still leaves some serious questions unanswered and the all important investor assurance.

Now that's a different story. So exactly what price is ESIC advice?

​Well, we will not name names, however we've been told by ESIC's that anything from $1,000 to $10,000 per certification + GST applies.

Ouch, so lets break that down into an hourly rate. We are talking about between 4 and 40 hours of a suitably qualified and insured advisers time, which could regrettably be about right, depending on complexity, the risk and the relationship.

It's probably safe to say those fees will stay high, so long as we wait for further ATO guidance and a small number of experienced advisers have the pick of the referrals.

What can an ESIC do about it?

​ - Run our pre-assessment first
 ​- Learn up on the qualification requirements
​ - Prepare your documentation and investor pack 
​ - Consider a DIY ATO ruling request, & 
​ - If all else fails, shop around

As always, I hope this above helps shed some light on your path to qualification.

Best Regards,


​Tom

I've had some really good chats with a lot of founders lately, though a couple have stood out that I thought I'd share, not exactly the content, but the context, so you'll see in a moment.

You'll not find these founders / ESIC's on the directory, even though they've been through multi-staged assessments. But why?

Well that's the context, they didn't want to 'go live' just yet, as the don't want the distraction of investors and are happy to bootstrap. Knocking back the money? Risking a late exit from ESIC? What the? Yep, and the interesting thing is that these are gun listings. Serious repeat founders with credentials and exits.

So what happened to 'get your ESIC' before you miss out? Well its a matter or context, know how and commitment.

If you've confident in finding funding, familiar with the requirements, and fixated on scaling fast, then an early  ESIC listing may not be for you.

That said, our gun pre-listings also confirmed things might be different if people seek them out. 

So go figure, everything has changed, and nothings different.

Keep at it,

Tom

If your like me, you try to think several steps ahead, making predictions, assessing risk, and playing devils advocate.

As an optimist, you'd like to think you can spot an opportunity ahead of time and back your skill (and instincts) to be a part of something great, though in reality its not all that easy, and when it is sometimes the proverbial bus has left the station.

So now you've found the ESIC rules and our little directory, things appear to be looking up; tax savings, orderly criteria, collaboration and best of all, defined timelines.

Don't bet on it!

Lets look at that 6 year timeline... plenty enough to proof a good concept, secure the IP and close the right investment. Wrong!

For a start, 6 years tax years is the maximum,  and after tax year 3, the income test amalgamates the prior 3 taxable incomes (making it harder to qualify). Then consider the yearly income and expenditure test, which is probably ok for years 1 to 3, however points are hard to come by as access to programs, awards or R&D takes time. Perhaps the Commercialisation Australia grant is the go as that income is exempted from the income test... though the grant process as the name suggests is only viable once your concept has had time to flourish.

The picture is starting to look a little less predictable now, and that's before you allow for other investors, VC's and funding alternatives.

We've already seen quite a lot of potential ESIC's skip, fail and fall foul of qualification due to mistiming and misinterpretation, and I'd hate to be the one explaining how I'd lost 20% of an investors money and doubled the tax bill, even before I'd had a chance to launch the business.

As it was, and always has been, there are known, knowns, and known unknowns, though we cannot know the unknown unknowns, and ESIC incentives are not hear to fix that.

Good luck, 


Tom