All about innovation

We all have a rich uncle or inlaw and in my case his name is Con, he's a successful business man and a wealth of knowledge contacts and experiance, given the chance I run pretty much every important decision regarding money by him.

Con's got my best interests and future in mind so I'm lucky, he's also a s708 exempt investor, which basically means he is wealthy and his accountant says so. It also means he gets the 200k ESIC rebate not the $10k normal retail investors get (all things equal).

Con's been good enough to let me 'in on' a few of his investments and by and large I can't complain.

So what's the point, well it's unsefull to note that Con and I used an trust structure for our investments, better asset protection, planning and flexibility. Well now we are looking at ESIC's we'll probably use that vehicle as well.

So what gives? The 200k or the 10k threshold? And what happens when you are investing in a less family way?

We looked it up, and it seems that Con as trustee sets the rule, i.e. He's exempt to the trust gets a 200k rebate threshold, which is a relief as I'd be out of the loop otherwise!

The moral or the story! Stick with the pro's and you'll avoid the con's (unless they are one and the same),

Take heed of the E in ESIC! Only early stage companies are eligible. You don't have time to wonder if that's fair or reasonable, you need to get cracking! The points are not going to fall into your lap, and without them you may struggle finding new investors. 

Why the rush? Well the chances are you have already set yourself a deadline, you incorporated and registered an ABN. The tests look at both of these dates, and so do we. We can use them to confirm how old the company is, and secondly to find out when you run out of time.

If you have advanced your business via R&D, Investment, Patent etc, you may well have sailed past the 3 year curfew, Do not despair! You can still qualify if the company was incorporated within the last 6 income tax years (the latest being the current income tax year at the test time).

Say that again?

Well the test time is a fancy way of saying the date of the share sale, so lets rephrase the tax speak to; your out of the action if you incorporated more than 6 tax years prior to the share sale.  For example;

INNOTECH incorporated on 1st of June 2012, applied for a patent that is granted in 2015, takes on 50k from a 3rd party investor and spends 50% of last years taxable income further R&D. All sounding promising, though the clock is ticking! Tax year 1 is the 2011-2012 year, so 2016-17 will be the final year the company shares are  eligible for a rebate!  

INNOTECH know how long it takes to on-board investors, confirm ESIC eligibility and wrap up all the paperwork, so the 9 months to 30 June 2017 is looking pretty skinny! 

What are you waiting for?

I may be quite odd, though it's not the first time I've pondered the fine line between lifting enough of the lid to show off the goodies to win someone over v's playing it cool (or too cool) and hiding behind confidentiality / commercial need to know principals.

It gets even more interesting when considering the principals test, I mean just how new or significantly improved is your innovation if you don't have some special sauce to spice up the same old dish?

Its a good reason the points test uses registered IP, so you've got it all out there and it's protected (technically at least). So what about the innovators with special sauce, deficient IP protection and the more subjective test to pass?

I like the KFC analogy, you can talk about the famious 11 herbs and spices, fresh cooked chicken and so on, just be sure not to give away the recipe.

It's an agonizing balancing act that every entreprenur must navigate in there own way, though we hope you find the right balance and ultimately investment that will help secure your business and the IP you are commercializing.

Lastly, remember that virtually all IP is public knowledge sooner or later so you'd best make tracks fast.

Cheers,

Tom

KFC recipe attached; http://www.food.com/recipe/11-secret-herbs-and-spices-kfc-copycat-133784

We had an interesting enquiry today that was refreshing and thought provoking. It went along the lines of 'can I still qualify as an ESIC, even though I'd fail the principals test?

Its was food for though, firstly as we wondered if anyone else was thinking the same thing, and secondly if the policy or applied regulations would consider this a problem area.

The legislation and guide (ED) emphasise the innovation aspects that are central to the assessment, yet the objective test is designed as a pass fail, so surely it wouldn't be considered part 4A tax avoidance to advance via objective measures, or would it? 

Lets assume that your pretty innovative, though not confident or well read enough to pass the principals tests, could you scrape up the 100 points you require? 

As the table indicates,this type of company may have fewer options, though could perhaps pass through the objective tests, but for practical issues and any ATO intervention.

We couldn't comment directly, however one might assume that policy makers would not be concerned with this outcome given the potential for job creation etc.

Perhaps its a little left of field for this early stage company (ESC), though we are curious as to the implications, particularly given regularity or pitches that begin with 'its like Air B&N' or 'Uber & Shopwings combined', not offence intended, though I'm sure you'd agree that innovate enterprises rarely need a 'its like' tacked on the tagline. 

Its safe to assume nothing, so we highly recommend you seek professional advice before promoting yourself as an ESIC.

For now,


Tom

After a great response to our soft launch, we've gained some valuable insights;

- ESIC applicants consider the points test quite difficult to pass
- Start-ups generally consider they pass the principals test, without due considerations of record keeping, innovation and applicable hurdle rates.
- Incorporation dates matter. Many companies older than 3 years have applied for review, and found the going more difficult as a consequence.
- Investors trust companies that qualify via the points test.
- The word is out, ESIC consultants are gaining valuable referrals and kudos from listing with us.
- Our directory page is the most popular, followed by pre-assessment and FAQ.

Thank you so much for trusting us with your data, and helping drive investment in innovation.

Cheers,