Funding Challenges

Government is Not your Enemy

Just because funding isn't trivial to obtain doesn't mean the government is your enemy.

It’s fashionable and popular to criticize government, and especially government funding programs. There’s a populist sentiment that if the government is really going to help companies by providing funding, the funding should be easy to get. Having to fill out long application forms and undergo scrutiny or audit, and possibly sign agreements to certain terms is seen as evil and invasive.

My partner in BC, Nick Pepin, recently brought such an article to my attention. titled: BC Startups: The Government Is Not Your Friend, by Ben Fox, Cofounder of Tapstream and Editor of Cloud Middleman. Ben’s article is thoughtful and passionately written. It’s clear he’s had some negative experiences and I respect his viewpoint and read several of his articles with great interest.

I felt this article in particular was well enough written to be quite convincing, so I felt it warranted a reply.

Here’s Ben’s article:

https://medium.com/@benjaminfox/bc-startups-the-government-is-not-your-friend-195ea432e40f

And here’s the reply I posted to it.

.......

I feel the article paints a needlessly pessimistic view. While the programs are structured to make it non-trivial to get funded, they are not as bureaucratic and onerous as the article implies. As is true of almost everything that has rules, the rules are usually far more complex and intricate than the way the game is actually played. This goes for business, taxes, accounting, sports, environmental policies and a host of other endeavors. The rules are there to be enforced if needed, not to be followed by rote.

Take for example the timesheet requirements. The author states: "Whether salaried or paid hourly, a research-engaged employee's every working hour must be provably attributable to one or more SR&ED projects to be eligible for credit." Over dozens of SR&ED claims, I've never experienced anything like this level of detail being asked for. A reviewer expects you to have some timesheets that map employees to hours. The level of granularity you need to supply can vary widely, and as long as you tell the reviewer that this is the way you track hours, they will be OK with it. The salient point is that there's a total that separates research time from non-research time. If you haven't separated out the components of research time by research activity, then you will just have a discussion about that with the reviewer. If you offer a reasonable breakdown, that will be fine.

Think of billing a client for hours worked on a consulting project. Of course you expect to have to do some basic time tracking and provide the client with a log of time and activities with your bill.

In my opinion, a great deal of the sense of onerousness comes not from the programs themselves, but from lack of preparation by the companies that apply for them. If you send a bill to a client for $200K, you will have had to do not only a great deal of work to get to that point, but you will also have had to track your time closely, and the bill will need to be carefully detailed. Because you anticipate this in advance, you'll be well prepared by the time you invoice. If you're not prepared, you'll soon go bankrupt. In spite of all the work and preparation, your profit on that bill will still be somewhere in the order of 20%, perhaps $40k.

Compare to a SR&ED return, where a $200K return goes 100% to the bottom line. Yet companies are usually underprepared or totally unprepared for the claim submission, and have to scramble at the last minute to assemble a haphazard set of documents and supporting documents, sifting from memory and trolling through reams of data.

Consulting preparation firms take advantage of this by coming into a situation where there is little or no hope of the firm filing a good claim on their own, and promising free money in return for a substantial percentage of the take.

What companies really need is less sensationalist style program-bashing and more education and help doing the simple but necessary steps required to administer and manage the programs. Not to be prescriptive without backup action, I and my business partner recently founded a company to provide just this type of help and education. We provide timely and ongoing help to companies that takes the mystery and onerousness out of these programs, and we provide tools, processes and support that makes them fun.

There's nothing like free cash, and compared to having to actually earn it, the amount of work involved in these programs is minor, as long as you're proactive and have some good guidance and help.

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