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Govt earmarks $321m in R&D grants, allocates $50m

Science and Innovation Minister Wayne Mapp has this afternoon announced $50 million in new Technology Development Grants.

The grants are part of a $321 million budget boost for research science and technology activities (the first round of grants, in December last year, saw $92.6 million go to 26 businesses.

While many would support the programme's broad goal of creating new jobs and wealth in the tech/knowledge economy areas, some of the specific choices may raise eyebrows.

Among the new crop of or recipients are the NZX-listed Xero, which recently bragged it had $16 million in cash, and NextWindow - now in the hands of Canadian owners - which gets just under $6 million.

Mitigating circumstances: Xero now employees around 100 staff, most of them based in Wellington. NextWindow's new owners seem to have left the company's Auckland office intact.

The grant was announced after the market closed. Xero shares [NZX:XRO] were flat at $2.40 today.

The full list (grants are handed out over a three year period and contingent on the recipients matching them with their own R&D spending):

Actronic:Electronic measurement and control products and software-productivity solutions such as hydraulic weighing systems.

Auckland

$1,901,514

Agility CIS:Advanced customer management systems for major utilities supplying electricity, gas, water and telecom services to retail customers

Auckland

$300,000

Ancare Scientific:Animal health products,  expertise in API sourcing, drug formulation, clinical testing, regulatory affairs and manufacturing

Auckland


$5,000,000

Argenta:Innovative products to improve the welfare of animals

Auckland

$4,682,000

Atlantis Healthcare Group:Design and implementation of patient support and adherence programmes

Auckland

$1,946,600

AuCom Electronics: Motor and machine performance; soft starters, motor control centres and medium voltage switchgear

Christchurch

$2,356,000

BBC Technologies:Specialist sorting and packing equipment for the small fruits and vegetables industry globally

Ohaupo

 

$741,704

Buckley Systems: Precision electromagnets, ion beam physics hardware and high-vacuum equipment used in silicon chips and touch screens

Auckland

$3,500,000

Core Technology:Software solutions for business and IT departments

Wellington

$629,400

Energy Mad:Energy-saving light bulbs that replace incandescent and halogen bulbs and fittings

Christchurch

$1,150,000

Mako Networks:Network management solutions for small businesses and branch offices

Auckland

$4,321,000

Nautech Electronics:Electronic equipment for aviation, marine, military, security and emergency services

Auckland

$532,253

NextWindow:Optical touch screen technology for major electronics manufacturers

Auckland

$5,931,667

Open Cloud:Real-time Telecom Application Server (TAS) for the management of person-to-person communications services

Wellington

$2,394,920

Rissington Breedline: Genetically superior sheep & cattle breeds and reliable supply chains for the farming and food industries

Rissington (Hawke’s Bay)

$661,165

RJ Hill Laboratories:Laboratory tests for domestic and international markets

Hamilton

$1,376,700

Technopak:  Hygienic bulk dry powder packaging lines for the dairy and pharmaceutical industries

Auckland

$729,791

Wherescape:Data warehouse planning software and support

Auckland

$650,000

Xero:  Online accounting software

Wellington

$4,040,000

 

More by Chris Keall

Comments and questions
14

What a joke

How can Xero or Next Window justify these grants. That's without knowing what position the other successful companies are in.

I thought the Government was cutting unneccessary budgets - doesn't appear they have touched the Ministry of Science and Innovation yet.

What gets me, and as someone that has attempted to apply twice and failed, how did the likes of Xero manage to justify what they are doing as R&D from a Science and Innovation perspective.

In the past everything Xero are doing would be classed as Business as Usual ...

I think I will try again

Agree MSI have in my experience not funded software because it is not enough of a technology challenge.

To fund Xero either they have changed their "rules" for one company or Xero is about to embark on a $20m R&D project (MSI fund 20%) over three years that is not business as usual. That is something of a "real" challenge, whcih by definition means a chance of not working. This would have to be over and above their "normal" R&D.

Personally I do not think Xero is that dumb to risk everything on such a project. I suspect this is their normal R&D activities, so MSI has changed the rules for them.

Really is a case of who you know.

Totally agree. Got to give it to Rod for trying though. Perhaps John Key would like to comment?
As a test - perhaps the MYOB NZ business could apply for a grant to fund their cloud solution 'R&D' out of NZ. Thus creating more jobs. And arguably a much better return given the latest sale to Bain at 13 x EBIT

Yes - one has to ask.... If big Rod is taking from the tax payer... will he pay it back when he sells out? If we're backing companies like his, who put out there that they're worth $100's of millions - then perhaps the govt should make it a public private partnership and get a return fore the hard earned tax payer $$ instead of lining Rod's pockets?

What needs to be asked is if the above funding is for incremental R&D funding and not a subsidy on investment that would have been made regardless. If the later then this is a waste, simply transfering funds from the taxpayer to the shareholders of these companies.

If it is new or additional R&D then one wonders what the returns would be on this, as these companies will be funding the most valuable R&D out of their own resources. MSI will not measure its success from the incremental funding but from the overall programme.

MSI and NZTE are becoming risk adverse - as they say no one got fired buying IBM. But is safe what we want from these agencies? Or should they be taking risks with earlier stage businesses who will really benefit from this type of investment.

Good on them but has anyone else noticed what cash Xero holds in reserves?? They call on more funding and a share issue yet last year were able to take nearly $1m in interest income on term deposits.

I can't help but question if their capital is used as effectively as possible, because I would expect a technology company to try to outperform market interest rates, not rely on it.

anon @ 6.23pm - They have a significant cash burn. To ensure confidence in their long term viability, they need to hold enough cash reserves to prove they can survive until the next capital raising or cashflow positive.

$92.6 million goes to 26 businesses - the equivalent of transfering wealth (tax) from 11575 average wage earners to 26 businesses. The Minister said this was all about "picking winners".

What a waste of tax dollars - Xero could have issued $4million of shares to taxpayers - instead taxpayers GAVE $4m to Xero shareholders. Friends with benefits IMHO.

I think these funds are being used to for the big overseas expansion, isn't that exactly where we should be putting money? Into proven organisations with the right kind of management creating high value product and high paid jobs selling product overseas?

I would be happy for the government put money into this type of activity, if they do so as an investor - that is buy shares, not as "free" money.

There are investors who will and are backing Xero's expansion, so why should the taxpayers of NZ use limited R&D funding for what amounts to business as usual expenses.

Perhaps Rod will donate the proceeds when he eventually sells to the SME's he supposedly supports from the bottom of his heart.

Dammit. This is money that could have been allocated to Welfare recipients or it could have been used to fund a program to provide medicinal meth to P users.

How dare they invest it in a world class company that has created over 100 jobs for NZrs and has the potental to bring in significant revenue to its large NZ shareholder base!