After they’ve had R&D financing explained, many founders and company executives become ardent disciples of R&D finance. So why is the growing uptake of the R&D Advance now snowballing into skyrocketing popularity? And is it a type of funding your business could and should explore? We’re cutting through the recent hype surrounding R&D finance to unpack which businesses can include it in their capital stack and when. But first things first, let’s take a look at R&D financing and the R&D Tax Incentive (R&DTI) refund to explore what they are and what they do.
What is R&D financing?
R&D financing is a simple R&D loan or R&D advance. It enables businesses doing R&D to access their R&D refunds early and unlock a supply of non-dilutionary capital. The finance is usually secured against the company’s expected R&D refund. And when the company’s tax refund arrives, it repays the loan.
What is the R&D Tax Incentive?
The R&D Tax Incentive (R&DTI) is a government program designed to encourage Australian innovation. Depending on their turnover, businesses may be eligible for a refund or tax credit. Eligible ventures with an aggregated turnover of under $20 million can receive up to 43.5 cents for every R&D dollar they invest. But R&DTI refunds can take 12-18 months to arrive. So many businesses opt to apply for R&D financing to access their R&D tax refunds early.
The beauty of R&D financing is that businesses can access it from the earliest point in their start-up and innovation journeys. Juice Batteries, a Perth-based green energy innovator, had locked in its first Radium Advance within six months of launching.
Shane Meotti Director & Chief Operating Officer at Juice Batteries says, “Our first Radium Advance was transformative and served as a phenomenal accelerant for our innovation.”
Over and above supercharging the speed of the start-up’s R&D, Shane notes other significant benefits, “Thanks to Radium Advances, we’ve avoided early dilution, and brought forward our R&D on commercial Vanadium Redox Batteries by three years.”
Speed to succeed
Often, early-stage businesses don’t realise they can apply for R&D financing, when, in reality, it’s a source of capital that’s ripe for the picking.
Take Agritech innovator SSW Dairy. This venture almost passed up its opportunity to bring in much-needed capital during its formative months.
John Stewart, SSW Co-founder and Director explains, “We’d planned to use the R&D tax incentive, but thought we were too small for R&D financing. Then we heard about Radium Capital.”
Getting the right capital at the right time is important for any business with R&D. But having enough capital from the beginning helps start-ups stay one step ahead of the competition in the all-important race to market. It can make the difference between early success and failure.
“Getting a Radium Advance allowed us to fully fund our R&D in our first financial year — something we didn’t expect to achieve,” John says.
Capital to climb
It’s noteworthy that R&D financing isn’t just for start-ups. There are countless examples of larger, more mature businesses leveraging the many benefits of R&D loans. Northern Territory miner, Linecrest, had adapted sorting technology for diamonds to beneficiate iron-ore waste.
Linecrest’s Executive Chairman Anthony Short explains how R&D finance benefitted the business, “Using Radium Advances strategically has allowed us to reinvest in R&D from the outset, which meant we could scale up and get into production much faster.”
“If we didn’t have Radium Advances, we’d be spending less than half of what we currently spend on R&D.”
As part of its commercialisation journey ASX-listed biotech, Recce Pharmaceuticals needed
to scale up manufacturing of its antibiotics in readiness for future clinical trials. But the company was in a quandary. Recce’s Chief Executive Officer, James Graham, and his leadership team faced risking additional dilution to commercialise further or pause the scale-up process. Instead, Recce explored its R&D finance options with Radium Capital.
During the 2018-19 financial year, Recce locked in a Radium Advance every quarter allowing the business to increase its R&D expenditure for the period by 33% ($612,651) and boost its R&D tax refund by an impressive 25% ($205,243).
“We needed a capital injection that wasn’t risky or dilutionary and the whole process – from start to finish – was surprisingly quick and easy,” James explained.
Freedom to choose
As Recce continues its commercialisation journey, the biotech pioneer is making Radium Advances part of its capital stack again in 2023. And Recce is far from unique. By revisiting Radium Advances, Recce is part of the wider trend of ASX-listed businesses choosing to embrace R&D financing.
Founders and executives are often surprised to discover that they are free to choose how they spend their Radium Advances. For example, NeedleCalm used two Radium Advances as cash injections. Not for R&D, but to finesse production, find product advocates and set the company up for a successful product launch.
Now, more businesses of all stages and types are choosing to add R&D financing in the form of Radium Advances to their capital stacks. Driving the trend are rising interest rates, lower valuations and scarcer venture and angel funding that mean founders need to give up more equity for less capital. Read our article, How to build the best R&D capital stack for your business to find out more.
NeedleCalm also found having Radium Advances in its capital stack had the added benefit of ensuring its founding round through Birchal, the equity crowdfunding platform, was a success.
NeedleCalm Founder and Managing Director Lauren Barber says, “When you use R&D finance, investors look at it favourably and realise that you’re being quite smart with your money and not just giving away equity.”
Voice interaction pioneer iCommand had a similar experience with the company’s Chief Executive Officer Kent Opie noting that by accessing Radium Advances every quarter, iCommand not only stabilised its cash flow but also became more attractive to investors and other sources of funding.
How R&D financing benefits all types of innovators
While different types of innovators use Radium Advances in different ways and get different benefits from the financing, there are some advantages all innovators enjoy with Radium Advances. Two major drawcards of Radium Capital are that they are fast and easy to access. We can approve your application and have your funds in your nominated account within a few business days of you applying and signing your loan documents. And our seamless platform process means we can help you have your application completed online in just 15 minutes, once we have the documentation we need to support your loan. Our streamlined service is a benefit all of our clients attest to including, SSW Co-founder and Director John Stewart, “The online application process is slick — simple, straightforward, logical and fast — everything Radium asks for makes sense.”
Cash flow positive
Beyond speed and ease, Radium Advances are also cost-effective, dependable and cash-flow friendly too. Radium Advances have fixed interest rates, which means you know how much your loan will cost from the get-go. We know how challenging cash flow can be for businesses with R&D. That’s why we structure Radium Advances so there are no upfront fees and nothing to pay until your R&D Tax Incentive (R&DTI) refund arrives. With a maximum loan-to-value of 80%, you have the additional peace of mind that your tax refund will more than cover the full cost of your Radium Advance.
Innovators can use Radium Advances in various ways. NeedleCalm used its Radium Advances as a cash injection, while other businesses reinvest in more R&D or use their Radium Advances to reduce how much capital they need to raise. Our clients can access as many Radium Advances as they need throughout the year. There are no limits to how often, how little or how much you can borrow. Your loans can be scaled up or down in size and frequency to match the growth stage of your venture and your R&D programs. That said, there are several tried and tested financial models that some of our clients follow or modify to make the most of their financing. To explore the different models for using Radium Advances, check out our article, Funding your innovation: Which R&D financing model suits your business goals?
Who can apply?
Basically, if you’re eligible for the R&DTI refund you can apply for a Radium Advance, it’s as simple as that. So it’s crucial to explore this tax incentive first and register your R&D with AusIndustry. Many innovation companies wrongly assume that they don’t or won’t qualify. It’s worth exploring eligibility both for your business and your R&D as doing so could unlock significant funding and associated financing opportunities for your venture. To find out more, see our article Company v. research project: are you eligible for the RDTI? Spoiler alert: it’s not just blue-sky research and scientists in lab coats that qualify.
Accessing capital you can count on
So, you’ve registered for the R&DTI, and you want to apply for a Radium Advance. What’s next? As we (and our clients) have already noted, the process is fast, easy and streamlined. But we do require some documentation, for example, comfort letters to confirm your R&D and your tax position, so we can approve your loan with us.
We also require all our clients to work with an R&D Tax Consultant. We make no apology because we’ve always had strong due diligence as a cornerstone of our success which creates a transparent and reliable process for our customers.
If you’d like to find out more about working with an R&D Tax Consultant and choosing an R&D financier, read our articles, Three golden rules for choosing an R&D tax consultant and Seven important areas to probe when choosing an R&D financier. Then, schedule a call with one of our R&D finance experts today to see how our R&D finance could benefit your innovation.