Podcasts about early stage innovation companies

On this episode, we talk about our portfolio performance, SOTW, Colin Nicholson’s three market stages, Jack Bogle’s fourth law of motion, if SSG is a sell, the value of private banking, the idea of using increasing equity per share, and investing in Early Stage Innovation Companies.

Investors in ESICs receive generous tax concessions. Here is Simon Dorevitch of A & A Legal Tax Consulting with more.

Investors in ESICs receive generous tax concessions. Here is Simon Dorevitch of A & A Legal Tax Consulting with more.

Corporate governance mentoring helps small/medium enterprises. The new legislation for Early Stage Innovation Companies and Crowd Sourced Funding Equity Raising Companies has highlighted the need for directors of companies to review their knowledge of the company director’s duties.

The recent announcement of the first group of Crowd-Sourced Funding Intermediaries has clearly signified to the small/medium enterprise community that, at long last, Crowd-Sourced Funding Equity Raising has commenced in Australia. Crowd-Sourced Funding has joined Early Stage Innovation Companies as the two very significant corporate vehicles for small/medium enterprises to be able to raise capital from the public for their businesses. As part of the capital raising process, many of these companies will be asked by potential investors "who is your Chief Financial Officer?" A significant number of these companies will probably not wish to employ a fulltime Chief Financial Officer, thus opening a significant window of opportunity for accountancy businesses/business advisers, who have embraced the concept of providing a broader range of commercial services, to be able to offer a virtual Chief Financial Officer service to the companies raising capital as well as other clients who are operating businesses which aspire to grow and other businesses with turnovers over $3M.

Today I want to talk to you about innovation.  Innovation is important in Australia.  The Australian government has recognised this by introducing an Innovation Statement and a range of legislation to support innovation.   The first new law to be introduced related to Early Stage Innovation Companies.  That will apply to: entrepreneurs inventers companies; and business people who are developing new products, processes or services and other new types of products.   This legislation commenced from 1st July 2016; yes, it's already operating.  Unfortunately, the government, for whatever reason, has not fully promoted and publicised that this new, exciting legislation is now operational.  That's unfortunate, because this legislation will give many small/medium enterprise operators, inventors and entrepreneurs the opportunity to present your business to potential investors who, hopefully, will then be encouraged to make investments in your types of companies.   Why don't you undertake some research to see whether you fit some of the key characteristics that are going to be required to be deemed to be an ESIC? Was your company incorporated in the last three years? There are some rules that allow companies incorporated up to six years ago to be eligible for ESIC, but the main emphasis is on companies that are under three years of age.  Does your company undertake research and development expenditure? Have you participated in the Accelerating Commercialisation Grant Programme? Have you been a participant in an Accelerator Programme? Was your company's total expenditure for your company and any wholly owned subsidiaries in 2015/16 under $1M? Was your company's income, including any wholly owned subsidiaries, in 2015/16 under $200,000? Has your company developed a registered patent or a plant breeder's right that has been registered anywhere in the World? Has your company processed an innovation patent or a registered design anywhere in the World? Have you already raised more than $50,000 from "arms-length" investors in 2015/16? Have you developed a new product, process, service, organisational or marketing methodology for your business?   If you have undertaken these types of activities (not all of them by any stretch of the imagination) then you are potentially eligible to be deemed to be an Early Stage Innovation Company.   Our recommendation is that, if you're going to be able to satisfy the requirements of investors, you will require professional assistance to complete the various statements and to assemble all of the supporting documentation to be presented to investors.   If you'd like to talk to an accountant who is able to assist you to determine whether you're an Early Stage Innovation Company, why not go to our website - www.esssmallbusiness.com.au - and then click on "Find an Accountant/Adviser" and then all you have to do is to insert your postcode and you will then be able to read the names and a summary of the services that those firms offer, who are subscribers to ESS BIZTOOLS (our other major product) and who are able to deliver you advice and assistance on the due diligence process to assist you to become an Early Stage Innovation Company.   If you have any enquiries, why not send me an email - peter@essbistools.com.au and we will get back to you with suggestions on what your next steps should be.   Australia really needs companies that are committed to the innovation process.    The team at ESS BIZTOOLS and ESS Small Business look forward to supporting you on your endeavours.

Welcome to 2016/17!   A new financial year – what are you going to try to achieve this year?   Are you happy with your financial performance?  Are you happy with the support that you’re receiving from your accounting/advisory firm?  Are you getting feedback?   I’m going to ask you six questions to undertake a review of your preparation to be an outstanding business during 2016/17.  If you would like some further advice on the questions that I’m going to raise, I will have suggestions on where you can turn to for support.   Debtors’ Days Outstanding “Is the debtors’ days outstanding in your business less than 40 days?  If not, my recommendation is that you have a debtors’ due diligence system review undertaken for your business.”   Personal Property Securities Register (PPSR) “Are you aware of the PPSR?  Do you know that approximately $300M has been lost by businesses in Australia since this legislation commenced about 3 years ago?  Have you considered the risks that you’re running by not registering assets?”   “If you’re registering assets on the PPSR, have you asked your accountant/adviser to conduct a review?  Recently, I was told by a solicitor of a problem that had occurred to one of their clients that, inadvertently, there had been a mix-up on terminology between “grantor” and “grantee”.  This caused the business to lose around $400,000.  Perhaps that could’ve been avoided if there had been a follow-up review of their systems.”   Succession Planning “Do you have succession planning operational within your business?”   “Succession planning isn’t just for the owners or CEOs but can apply to all positions within a business.  An accountant/adviser who is offering business advisory services can undertake a review for you.”   Business Plan “Do you have a business plan?  If so, is it up to date?  Are you using it?  Should you have a business plan?”   “Business plans are like maps for tourists.  If you haven’t got a written plan, how are you going to know where are you proposing to go?  More importantly, how do you compare your current performance against your predetermined strategy?”   Financial Position “Do you understand your financial position?  Do you understand the terminology that is used in financial accounts?  Are you receiving accurate monthly, departmentalised management accounts that you and your team of managers can use to really understand what’s going on within your business?  Are the KPIs that you’re receiving appropriate?  Do they help you run the business or could you think of some better KPIs that might serve your purposes better?”   Early Stage Innovation Companies (ESIC) “Have you developed a new product, process, service, marketing or organisation method?  Are you interested in raising capital to help you with this new venture?”   “If so, I’ve got some great news for you.”   “The Federal government has finalised the legislation for the ESIC.  By the time you listen to this podcast, that legislation will be operational so you could form a company and, as long as it complies with the requirements to be called an ESIC, you could raise capital in excess of $2M if you wish.  This would probably make you happy and would also make the investors happy because they can receive some significant taxation benefits by investing in an ESIC.”   “Accountants/advisers who are committed to offering business advisory services for clients can assist you in these processes of, not only confirming that you’re potentially eligible to be deemed to be an ESIC, but then assisting you to get investment ready.”   Accountants/Advisers Can Helps ESS Small Business and our associated company ESS BIZTOOLS have developed detailed packages to assist accountants/advisers to deliver each of these services to their clients.   We’re more than happy to introduce you to accountants/advisers who are committed to supplying business advisory services to small/medium enterprises.   ESS Small Business has a directory of accountants/advisers who are interested in supplying a wider range of services, commonly known as “business advisory services”, to small/medium enterprises.  This directory is called “Find an Accountant/Adviser”.   Visit www.esssmallbusiness.com.au and click on “Find an Accountant/Adviser” menu tab.  All you need to do is to type in your postcode and the system will then show you accountants/advisers in or near your postcode who offer a wider range of commercial services to small/medium enterprises.   To welcome 2016/17, we’re presenting a special webinar, free of charge.  This webinar will evaluate Early Stage Innovation Companies legislation and advise you on the process that will have to be undertaken for you to self-assess, possibly with assistance from your accountant/adviser, then to assist you to become investment ready.   This webinar will be held on Wednesday 6th July 2016 at 4pm AEST.  If you would like to register, please click here.   I look forward to presenting this webinar to you.   If you have any questions in relation to how accountants/advisers can assist you to add value to your business, please don’t hesitate to contact me on 1800 232 088 or send me an email at peter@essbiztools.com.au.   Once again, happy new financial year and, from the team at ESS Small Business, good luck for a highly successful 2016/17.     Peter Towers Managing Director  

The Australian government has finalised the legislation for the Early Stage Innovation Companies (ESICs) prior to the Parliament being adjourned for the Federal election.  Unfortunately, the legislation for Crowd Funding Equity Raising entities was still being debated in the Senate when the Senate adjourned.  Hopefully, this legislation will be finalised after the election when the Senate reconvenes.   The ESIC legislation has benefits for small/medium enterprises, sole traders, entrepreneurs and inventors who have some new innovation products, processes, services, organisational or marketing methods that wish to raise capital.  There are also significant benefits for investors via a tax rebate, based on an investor’s investment and potential CGT exemption on that investment in an ESIC.   To be an eligible ESIC, the company must have been incorporated in the last 3 years, although there are some ways that a company incorporated 6 years ago could be eligible.  The company must have incurred total expenses of less than $1M in the income year before the current income year.  The company must have earned total assessable income of less than $200,000, excluding any grant income from an Accelerating Commercialisation grant in the income year before the current income year.  The company must not be listed on a stock exchange anywhere in the world.   After the company has passed this preliminary test, the company then has to satisfy one of two further tests:   The Gateway Test The company must earn over 100 points from a series of questions relating to: Research and Development expenditure. Whether the company has received an Accelerating Commercialisation grant. Whether the company has participated in an approved Accelerator Program conducted by an appropriate organisation. Whether the company has already received $50,000 or more investment from arms-length investors. Whether the company has already registered some Intellectual Property such as patents, plant patents, innovation patents or registered designs. Whether the company has agreements with certain organisations to co-develop and commercialise a product, process or service.   The Principles Based Test This test is only needed if the company was unable to pass the Gateway Test.   The Gateway Test and the Principles Based Test are self-assessment tests.  Companies would be wise to obtain independent verification of eligibility as an ESIC to satisfy investor due diligence requirements.  Most investors will require some independent verification that the company is going to be accepted by the ATO as being an ESIC because of the importance for most investors for the tax offset and the CGT avoidance.   The company must be able to positively answer 5 questions relating to the potential to commercialise a new product, process, service, marketing or organisational method.   Companies will need to develop an outstanding investment ready presentation for investors, which would include details of: Market Research Marketing Plan Management Team Board of Directors Business Plans for the next 2-3 years Budgets/Cashflow Forecasts for the next 2-3 years Share Pricing Report showing how the share pricing was calculated Information Memorandum Investment Pitch Presentation   Investors can obtain a tax offset calculated at 20% on their investment, up to a maximum of $200,000 per annum for sophisticated investors and $10,000 per annum for retail investors.  The maximum investment for a retail investor is $50,000 per annum.   An investor can also obtain a CGT exemption if shares are held for more than one year and less than 10 years.   A sophisticated investor is outlined in the Corporations Code basically states that to an investor who has earned more than $250,000 in assessable income in the last two year or has assets a value of a net amount in excess of $2.5M.  A sophisticated investor who is able to produce a letter confirming those items from a practicing accountant will be deemed as such.   ESS Small Business and ESS BIZTOOLS have developed a range of products to assist accountants and business advisers to be able to advise small/medium enterprises on their eligibility for the ESIC status.   If you would like to have a discussion with an accountant who is utilising our special ESIC Product Package, ESS Small Business has a directory of accountants/advisers who are interested in supplying a wider range of services, commonly known as “business advisory services”, to small/medium enterprises.  This directory is called “Find an Accountant/Adviser”.   Visit www.esssmallbusiness.com.au and click on “Find an Accountant/Adviser” menu tab.  All you need to do is to type in your postcode and the system will then show you accountants/advisers in or near your postcode who offer a wider range of commercial services to small/medium enterprises.   We’re presenting a special webinar, featuring “Early Stage Innovation Companies”, on Wednesday 6th July 2016 at 4pm AEST.  If you would like to register, free of charge, please click here.   A copy of a complimentary article, “Early Stage Innovation Companies”, is attached with this transcript.   If you have any questions in relation to ESIC, or how accountants/advisers can assist you to add value to your business, please don’t hesitate to contact me on 1800 232 088 or send me an email at peter@essbiztools.com.au.     Peter Towers Managing Director

The Parliament has passed the legislation for Early Stage Innovation Companies (ESIC).  This is a great opportunity for small/medium enterprises that have developed a new product, process, service, marketing or organisational method, to be able to raise capital.   To be an ESIC, the company needs to have been formed in the last 3 years, however it could’ve been formed in the last 6 years, subject to some additional tests relative to expenditure.   The total annual expenditure of the company has to be $1M or less and the total assessable income has to be less than $200,000.  If a company has obtained grant funding from the Accelerating Commercialisation Grant, that grant is not included in the assessable income.   There are 2 ways that companies can satisfy the requirements as an ESIC:   The Gateway Test This is a 100-point innovation test relating to: Research and development expenditure. Has the company been a participant in the Accelerating Commercialisation Grant? Has the company participated in an accelerator program? Has the company already raised $50,000 in equity capital from arms-length investors? Has the company registered any patents or plant patents in the last 5 years? Has the company registered any innovation patents or registered designs in the last 5 years?   The Principles Based Test This test applies if the company is generally focused on developing for commercialisation one or more new or significantly improved products, processes, services, marketing or organisational methods and the business relating to those products, processes, services, marketing or organisational methods have a high growth potential.   The company should also be able to demonstrate that: It has the potential to be able to successfully scale that business. It has the potential to be able to address a broader than local market, including global markets, through that business. It has the potential to be able to have competitive advantage for that business.   Retail investors (who are not sophisticated investors) can invest up to $50,000 per company per annum.   There’s no restriction on the amount of investment that a sophisticated investor can make.  A sophisticated investor is a person who an accountant certifies has net assets in excess of $2.5M or, for the last 2 financial years, has earned in excess of $250,000 income per annum.   There’s a CGT exemption for investors in ESICs if they hold the shares for more than one year and less than 10 years.  There’s a 20% investment rebate to a total of $200,000 available.   The investor must disregard any capital loss from its investment until after the 10th anniversary of the issue of the shares.   To be able to successfully raise capital, companies that aspire to be deemed to be an ESIC will need to prepare for investment readiness.  This involves understanding the market, summarising the Intellectual Property that’s owned by the business, preparing a business plan, budgets and cashflow forecasts, a commercialisation strategy and a share valuation.   Companies will need to make key appointments, including Company Directors, Company Secretaries, CEOs and CFOs.   There are number of people who can help companies classified as ESICs and then help with the capital raising process.  These are entities including Bistorque Pty Ltd, a company that has a team of experts who can assist in the principles based test for the company.  Business Angels Group and Founders Forum are interested in assisting companies to raise capital.   Accountants who are proactive in involvement with assisting clients with business advisory services will be able to assist entities in the planning and getting investment ready process.   Find an Accountant/Adviser If you would like to find an accountant who can offer the types of services mentioned in this edition, generally known as business advisory services, please utilise the Find an Accountant/Adviser directory within the ESS Small Business’ website.  Please visit www.esssmallbusiness.com.au and click on “Find an Accountant/Adviser” menu tab.  All you need to do is to type in your postcode and the system will then show you accountants in or near your postcode who offer a wider range of commercial services to small/medium enterprises.   ESS Small Business contains other free articles and articles for sale, prepared by approximately 20 other businesses, on a wide range of small/medium enterprise matters.   ESS Small Business also presents webinars, free of charge, covering a wide range of small business matters.  These webinars are also recorded and are available for viewing.   We will be releasing a new product package for sale within ESS Small Business' website in about 2 weeks' time, titled “Early Stage Innovation Companies for SMEs”.  We will be finalising material on the other new company, Crowd Funding Equity Companies, as soon as the legislation is passed by the Senate.   Whilst you are on the ESS Small Business’ website, why not have a look at the offerings from a wide range of business people who are able to assist small/medium enterprises?   If you have any questions on any aspect of ESICs, or services that accountants can offer, please don’t hesitate to contact us.     Peter Towers Managing Director