Coalition's R&D tax credit proposal half-baked

Nat Torkington thinks phasing out the Callaghan Growth Grants is irresponsible.

There’s an open consultation about to end, on the changes MBIE would like to make to New Zealand’s R&D incentives. In particular, they’ll phase out the Callaghan Growth Grants and replace them with R&D tax credits.

As the FAQ says, "There are differences in the definition of eligible expenditure between the growth grant and the proposed R&D tax incentive (for instance, overseas expenditure on R&D). The proposed R&D tax incentive has no R&D intensity threshold, a much higher cap and lower minimum R&D expenditure threshold than the growth grant. Some firms may get less money but others might get more."

This policy is clearly aimed at large and profitable companies. If you’re a Fonterra or a Mainfreight or a TradeMe, you can receive a discount on the tax you pay on your profits. That’s good: We want these companies to increase their spending on R&D. Another 1% spend from them represents tens of millions spent on R&D. Good, we need it, New Zealand lags horribly.

However, there are plenty of other companies in New Zealand. In particular, I work with software companies and startups. It’s time for a side-track on startups …

A sidetrack on startups
A startup is a small company that wants to get big fast, generally to beat would-be competitors to the opportunity they’ve identified. To grow artificially fast, startups don’t make profits and reinvest some of those profits in building more product and opening new offices. Instead, they take investment money and spend it on salespeople, marketing and (most importantly) programmers to build the product and get more users.

Those startups on full burn are growing really fast. You may have heard of some: PushPay, Vend, Soul Machines … Until recently, Xero was in that list but it has finally reached the point where it's shooting for profitability and not simply pure growth.

The growth here is in users and not profit. Indeed, startups run at a loss while they burn like this: They’re spending more to obtain the next set of users than they are making from their existing users.

The way to make sense of this behaviour is to recognise that the company is the product. The startup wants to be bought either by a lot of people through an IPO on the stock market or by another company as an acquisition. Why would someone want to buy an unprofitable company? The best reasons are (a) the startup can just stop growing and then it’ll be profitable; and (b) the users are desirable to the acquirer (because you can sell them other things / they’re already users of the acquirer’s product / etc). There are other reasons companies are bought, including delusion and speculation but these are the more defensible ones.

Often the buyers are not Kiwis: If you’re a Kiwi firm and you are going to sell, you’ll sell to the people with the most money. If that’s a Kiwi company, great. If it’s Fairfax or Apple or Adobe (all of whom have acquired New Zealand tech startups) then that’s great too. Realistically, in the software area it’s generally international buyers.

Because the company is the real product, the ostensible business of the startup (building and selling some software products) is not profitable while the startup is growing. The profit comes when the company is sold.

Think about that for a second, it’s important: A startup generally won’t make a profit while it’s building and selling its accounting/AI/payments software.

Most importantly, you won’t know whether the company can be sold until the company is sold. The larger and older the startup, the more chance there is that it will be acquired but there have been eight-year-old startups that grew large and then blew up because they weren’t profitable and nobody bought them.

While they’re growing, though, they’re hiring people. If the startup is in New Zealand, it’s hiring Kiwis. if it’s in England, it’s hiring Brits. If a startup in England gets a better R&D incentive than its competitor in New Zealand, then the British startup has an advantage: the money the Brits get from their government can be used to hire more people to move faster and pull ahead of the Kiwi startup. A shitty R&D incentive policy in New Zealand makes Kiwi startups go under while their foreign competitors thrive.

Back to R&D
How do our startups fit into the R&D tax credit scheme? Short answer is: they don’t. Tax is a concern if you’re profitable. If you’re not profitable, tax is the least of your worries.

So the R&D tax credit does nothing for startups and high-growth firms.

Nothing.

Even worse, the proposal is half-baked. It’s clearly aimed at the kind of old-school physical product companies that dominated the 20th century in New Zealand: Gallagher, Fonterra, etc. It talks about R&D as following the scientific method, and there are lots of examples with dies and machine blanks.

Even weirder, the definition of R&D specifically excludes market research, design and social sciences work. The iPhone is a UX innovation, and indeed Apple’s whole market distinguishing feature is R&D around design. Facebook is doing R&D right now via social sciences, trying to understand the networks of conspiring bots and political actors (I know this as I went to Social Science Foo Camp at Facebook in January). Lean and agile software development starts with iterating with a customer, trying to design the feature or product that they want and will use. This is literally called The Design Process and it’s critical to building a new product. This is not covered in MBIE’s document.

Back to startups
In a high-growth software startup, every dollar spent on that startup is R&D … because the company is the product. You don’t know until you actually sell it whether it’s saleable.

That’s the Silicon Valley model of startups … five years of loss-making while you burn investment money to get big, then you start to worry about breaking even, and then once you’ve proved that you CAN make money (even if you’re not making very much), you’re sold.

Maybe it’s five years, maybe it’s eight years, maybe it’s three years. The pressure is on software startups to be profitable (or at least break even) ASAP to prove their viability. Investors got burned funding companies that were never able to be desirable to an acquirer or profitable enough for an IPO. Now they’re saying “prove you have a long-term future by being breakeven.”

Whenever it comes, whether at year eight for Silicon Valley or year three for New Zealand, there’s still a huge risky early-stage part of a startup’s life that this policy does nothing to address. Early-stage startups are not profitable, are almost exclusively doing R&D, and are utterly unsupported by this policy.

To be sure, there’s a way to cash out R&D tax credits. The consultation document says “The government is committed to providing a better policy option to support these
businesses. However, the policy issues are complex and will not be resolved in time for the introduction of the Tax Incentive in April 2019. […] The existing R&D tax loss cashout scheme may be reviewed as part of any further policy work but no changes will be made to it for the 2019-2020 income year.”

The consultation about the tax credit policy admits that it doesn’t know how to apply R&D criteria to software and this isn’t aimed at startups. Yet it will still phase out the Callaghan grants. This is irresponsible.

Instead of developing both the big company and the startup policies together, consulting, and then retiring the Callaghan grant, MBIE has opted to develop a BigCo policy and let startups pray the startup policy is (a) developed and (b) any good.

Perhaps I’m wrong. Perhaps I’m misreading this. But if I’m accurate, then this is a big MBIE finger in the eye to software and startups.

I used to question why we need NZTech and NZRise. This is why! We need people paid to box the ears of MBIE and remind them that they will never get another TradeMe, Xero, or PushPay if they don’t start taking the job of nurturing these companies seriously.

So What Next?
Have a look at the UK if you want to see some startup-friendly R&D policy. R&D is 100% claimable as expenses, and small-to-medium businesses can even get cash back. The calculations are astonishing.

The MBIE consultation is interested in “What are the effects on your business of this proposed tax policy?” Your company should complete that consultation if you’re a startup doing R&D.

In particular, visit MBIE’s R&D Incentive Online Submission App and answer Q2-5 (what is R&D, scientific method), Q7-8 (design, UX, etc.), Q12 (growth startups can sell product for less than the cost of producing it, to build customer-base), Q13 (software). If you don’t want to do this through their app, the MBIE site says how to do it via email and the end of the consultation doc has a short list of the questions. If you are very short of time, Q7-78 and Q13 are most important but you’ll want to read the relevant bits of the consultation doc (don’t worry, it’s a quick read).

MBIE should put the tax credit system on hold until it has a proposed solution that works. Creating uncertainty for startups while they figure out what the 21st century looks like is not good policy development.

I’d personally like to see MBIE do some open learning with the software industry about what R&D looks like here, and how they might define and measure it. The MBIE doc has a feel of “gosh, this software world is odd! We know we don’t know!” but it’s bloody weird that you’d admit you didn’t know but not seek out people who could help.

This is supplied content and not commissioned or paid for by NBR.


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43 Comments & Questions

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How very entitled of you.

People decide to start businesses. Just because they start businesses doesn’t mean the government should fund their cash burn and losses. Companies should be grateful for any help they get. The guy starting his new trucking company gets nothing and doesn’t moan. Yet he has just as much chance of becoming the next Mainfreight as Joe Blogs Saas Company becoming the next Xero

Just lower the overall tax rate

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Dear Derek,

You cant lower tax below zero...hence the needs for grants for start-ups.

Si.

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I meant lower the overall tax rate. For everone. All good businesses and start ups get funded by private money if they are good and have good management. Free governments money is not a right. It’s this attitude that has lead to almost total failure in this sector

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The girl starting her new trucking company will have a better chance of becoming the next Main Freight if she invests in R&D. Most likely software. Perhaps some blockchain, IoT and AI. The NZ govt can either encourage this by cutting her some slack or not.
She would be better off at the moment trying this in Australia.

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It will be her decision. She will make decisions based on what is likely to make her the most money in the future. She will not go to Australia based on better R + D grants. She will do business where she can generate the most sales. When your sole focus in business is chasing R+D money you are doomed from the beginning

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Yes, but her startup competitor in Australia will have a massive advantage and be much more likely to receive investment. She will also face even stiffer competition from Main Freight, who will receive the tax credits.
There are enough odds stacked against NZ startups already.

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Salaries and living costs probably higher in Aussie, so tax advantage might be lost. I think Derek is saying no tax breaks for any business including Mainfrieght.

I have little issue with the tax credit taking out the grant but the policy needs to think about start-ups and how they might be funded.

But I do think it is crazy to lift the avaliable credit for larger companies who can afford to fund their own R&D.

Under the tax credit Fonterra can claim $15m, under the grant scheme $5m (less tax) so say $3.5m.

So there is a shift from smaller firms towards a handful of larger firms. My guess is that will result in a loss of R&D spend. Bigger firms spend no more, smaller firms cannot afford to spend as much.

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Her business will likely be shifting goods from one place to another.

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Correct. We agree on something.

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Yes it will, but I think what Simon is driving at here is freight delivery is predictable and old hat. If she wants to gain an advantage in the modern world she will need to invest in R&D such as research in social science, market trends, innovative pods or warehousing ideas not yet thought of, requiring large R&D investment in IT intangibles. As a small business start up she will not be able to leverage that under this proposed regime.

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Yes but why would anyone lend her the money to get leveraged before she had proved that she had advantage of some sort?
Still people believe all sorts of things.

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What happened to the NZF policy of a graduated company tax rate that favoured small businesses? That might be more helpful?

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Nat, you gave a very wise and detailed reasoning there...

The only slight, tiny problem with all of that reasoning was a perfect argument for why we need more VC's and angle investors in NZ, NOT government grants!

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Most of the companies Nat is talking about struggle to get funding because most will fail. The failure rate is too high hence the government subsidy is required. Of course our system could just let a lot of very marginal businesses not get started and put limited resources into better quality ones.

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A government subsidy should not exist to prop up bad businesses

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Agree..... thats my point angels and VCs are not interested. Although to be fair more successful companies will have had grants than NZVIF money.

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I think there is a fair bit of blind ideology and lack of real sector knowledge at play here. NZ has sod all $$$ being invested in early stage companies (vis the rest of the world), so we need to leverage that limited capital with whatever support we can muster. All other countries do, through grants, rebates and other support programs. So just cutting things off is basically saying we should wind down tech innovation because it will mostly move to other places around the world where it is valued and supported with real $.
Ideologically you would also then have to ask yourself why the Gov't supports any CRI, university research, or education at all for that matter. Why not just go full private user pays for everything? Because that clearly works...well...remind me where again?
The other fact is that there are invisible supports in place for all the other poor productivity, low prospect businesses in NZ so it's hardly a level playing field. Farmers (meat, dairy and hort) get to pollute our environment and leverage monopoly structure regulations to get their product to market, plus they make big tax free capital gains on the land - clear subsidies and all paid for by taxpayers. Tourism businesses get to leverage all the tourism promotion, airport, roading, parks etc infrastructure in the knowledge that the costs are also borne by taxpayers overall. Education businesses have long had the subsidy of being able to offer work visas at the end of the programmes, the costs again borne by taxpayers. None of these industries create new high paying jobs or have the ability to generate new industry clusters in NZ (the education + visa businesses theoretically could but most commentary I have seen is that they really serve to flood supply and depress wages in existing low to moderate-skilled jobs).
NZ currently does "OK" in tech development. We have the odd one or two that make it big the hard way (Xero, Pushpay, Rocket Lab) and the returns for the early backers in those are spectacular - they got big because they received lots of capital (in each case NZ$100M+ of funding while they were loss making and burning cash). But the reality is very few good business actually get funded, and they don't get that much. That is our issue - far too few get the chance to take their world leading tech and win with it. The occasional winners succeed in spite of the poor funding landscape here (normally after nearly going bust, or having to navigate brutal options like an early public listing or a rejection-heavy schlep up and down Sand Hill Rd), not because of the myth that "all good businesses get funded by private money".

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In a mix of state and socialism we have what we deserve, a 20th Century approach to the new world. Is it asking too much for both of these organisations to start thinking in 21st Century terms? Probably.

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While I like the idea of a TTR reduction in NZ, fairness is an issue in the current--overly complex--tax system. The system itself needs work.

In the meantime, I'd prefer an R&D tax credit to the direct bureaucratic interference in the innovation cycle caused by grants agencies.

As for start ups--they are are myth of the old world--there has been nothing new about them since the Dot Com era. 20th Century nonsense.

Let them fail on their own dime or money earned through clear articulation to investors. They've had more financial and structural support than most - and still think it is normal to fail more than you succeed.

Most ICT start ups in New Zealand are boring. Watching their 3 minute pitches is like watching the same NZ Post dance ad over, and over and over.

Funding repetitive drones bouncing around using words they don't understand in the start up space in NZ has become a disease.

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Fascinating reading such nonsense from people who have no idea what the sector is like - Hi-tech is the third largest export sector for NZ at over $7b, so it's not just a few like Xero, Vend and Pushpay, though those are notables and heroes. We have hundreds of companies growing in this space and yes, some will fail, but hey, they're giving it a shot.

R&D grants aren't hand-outs - the money goes to people... s/w developers, engineers, designers. I could name 20 companies that are exporting widely and therefore employing highly paid, skilled staff that would tell you they wouldn't be where they are today without R&D grants..... I ran one of those.

It's also true that we severely lack capital to support these companies - it works well at Angel level (start-up's) but we struggle when those companies need to expand - we don't have good VC capital available in NZ.

Great article Nat. To those like Derek that don't support grants/tax credits/govt. support, I'm afraid you don't understand the ecosystem that these companies work in, and the huge and growing contribution they are already making to New Zealand. This will be considerably lessened by the removal of such support. You might want to get out there and try it - the people that are are heroes in my eyes, and we need more of them

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Why should a software developer's job be subsidised by the NZ government verses say someone working on an oil rig or on a dairy farm?

Let's get some facts into the mix ---- Hi Tech is not hi tech, a lot of the stuff NZ does is low tech, but of course saying it is Hi tech makes us feel more important.

The tech sector is a convienent catch all that covers a lot of different indutries and sectors, many totally unrelated. So maybe time to break up tech into sub sets.

Most of the biggest players in NZ tech are in fact Gallaghars, Fisher &Payels, Datacom etc - none of which are "recent" startups.

As for your comment around angel investment - maybe the $s being invested are large, but the quality of angel investors is piss poor unfortuantely and that is why the poor success rate of the NZ eco-system.

As Trump says maybe time to clear the swamp and start again at that end.

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Of course dairy farm workers are being subsidised by NZ taxpayers. Do you think that if farms had to face the cost of their pollution byproducts, or didn't have regulated monopoly marketing structures, they would survive as they do? And who is paying for all this?
Oh, and we subsidise the oil industry too: http://www.scoop.co.nz/stories/PO1710/S00304/opportune-time-to-end-petro...
And where do you think the Gallaghers, F&Ps and Datacoms came from? And the Xeros, Vends, Pushpays etc? Start-ups?
Let's face facts, NZ's future prosperity is not going to come from selling houses to each other financed by offshore borrowing, or harvesting rain through a cow, drying it out for export and then rehydrating it in another country. The rest of the world is moving on and we need to get on the bus.
Investment $$$ have improved in recent years but are poor across the board. $87M into angel investment in NZ last year: https://itbrief.co.nz/story/new-report-details-rising-international-inve...
What is that, $20/head? With basically no actual venture investment on top.
What does the USA do? About US$80B / NZ$110B at the VC end, which is about $340/head. https://pitchbook.com/news/articles/13-charts-that-show-the-state-of-the...
Australia raised A$1.3B last year for VC; that's about A$50/head on top of their annual angel investment $'s which I suspect are in line with ours or higher.
https://www.smartcompany.com.au/startupsmart/news-analysis/venture-capit...
We need to stop quibbling about nonsense and focus on the big picture. The rest of the world is investing (apples-apples) about 10-20x more than us per capita on new tech start-ups. This is the competition we are up against as a nation, in a tech world which is increasingly winner-takes-most.
If people can't get their heads around the scale of the challenge we face then we should all give up, leave school and instead focus on how we can reduce our national wages so we can be competitive with other low-skilled, commodity focused exporting countries.

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I stand by my comment to Al - why should we subsidises one part of the economy at the expense of others (Derek's original point).

If we are gong to subsidies we better get a retunr and we don't. NZVIF has invested millions of dollars in angel and VC and is losing money once you take into account cost of operating that office. So that says that the businesses being backed are not adding value, other than to the employees pockets.

NZ apparently has one of the highest levels of angel activity in the world.....my comment is that is fine but it is super DUMB money.

VC is a problem for NZ, but maybe relfects that we don't really produce global quality businesses.

My comment on Datacom etc - is to point out the companies that are making the big $$$s in terms of revenues are not start-ups they are established businesses. So again the theory that we have to fund all therse start-ups is fine if we get results and I suggest we are not. So something has to be done differently.

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Not sure where the idea that we have such high angel investment levels comes from. A quick google comes up with US$24B p.a. for the USA in 2016. http://angelcapitalassociation.org/data/Documents/ACAatAEBAN09-26-16.pdf
What's that, NZ$100/head vs our $20 record year?
Maybe a case for NBR to do a deep dive into the state of early stage tech in NZ to dispel some of the myths that keeping popping up.
Maybe the angels also aren't celebrating their successes as loudly as they should if the perception is that it's just dumb money, because they are fuelling and mentoring literally hundreds of young companies in NZ many of which are doing exceptionally well. There will always be misses in early stage investing but the issue isn't failure rate, it's how you capitalise and magnify success - surely that's the lesson from Xero, Rocketlab etc - to build a $Bn company you need to feed it $100M+.

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I believe NZVIF, NZ Angel Association, Bill Reichart - Garage Ventures have said that NZ angel activity is on par with Boston. No its not Silicon Valley etc but nowhere else in the world is.

NZVIF which historically invested alongside angel groups publish data on performance. Angel Groups do not because the numbers are not good.

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I should add that low investment $$$ isn't a reflection on the quality of the tech, teams and companies in NZ. The very fact that we produce world class companies from start-up, and that the tech sector is now such a big part of our GDP, despite the funding, says we can win.
What we need to do is focus resources more, win more and win bigger!

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This is the problem - people believe the PR that we are producing world class companies - if you buy 1 million lotto tickets I suspect you might have a few that win something.

Second the big number of $7 billion exports is being driven by older companies not the start-ups that we so love to throw money at.

Agree we need to focus resources more, that means becoming harder on what gets funded. I suggest of ther 250 odd companies funded by NZVIF etc that maybe 50 deserved to be funded - if that.

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Thanks Nat. It looks like some of the commenters have completely missed the point. A tax credit does nothing for an industry sector which doesn't pay taxes. Ironically i other news Google see https://www.nbr.co.nz/article/google-nz-paid-next-no-tax-2017-ck-216080 in this very paper.

At the very least the government needs to have a policy for R&D incentives to generate new technology based businesses and that simply cannot rely on a tax credit because we already know why that is.

I work with a business that is commercialising graphene. It has invested millions on finding ways to use the material and exploring ways to use it that will provide a commercial return. It was funded in part by scientific research at universities and in part by a whole group of startups all trying out different industry scenario's.

I might add that none of this is in New Zealand it is in Australia and other countries. R&D incentive policies from other countries should be compared and contrasted. Singapore, Australia and others are all thinking about this and it is not all games and software.

Many of the same startup dynamics happen to these companies as well.

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The government acknowledges the issue of loss making companies and says it will address that in the future. They have a transition plan in place for those that will be impacted by the loss of the growth grant pending the new regime.

So in fact Nat's article in part is misleading and missing the point.

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....and while we're at it, the young man/woman starting the freight company will be looking for competitive advantage when he/she's competing with Mainfreight.... they'll want fleet tracking and management software from the likes of EROAD, Coretex or TracPlus, they'll be looking to the future to lower their use of fossil fuels, so companies like Enatel, with it's battery/battery management systems for EV's will be important. All good NZ companies with strong focus on R&D... and sorry for the many others I've missed.

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The trucking company will survive and flourish if it offers better value compared to its customers. The person moving 5 pallets of glass bottles from Whakatane to Whangarei does not care if the trucking company uses all the tech in the world or pen and paper as long as the goods get there on time every time at a good price

Solutions looking for problems should be Callaghan and NZTEs motto

NZ should concentrate on great businesses whatever they do. Then encourage the use of ‘tech’ to make them more efficient. Not encourage ‘tech’ then ask them to go and find a customer. This model is a proven failure

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The taxi industry simply moved people from A to B, and they have been decimated by tech enabled ride sharing.

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Station wagon were brilliant but well only drive SUV
Grants good but useless how run in NZ
Labour changes all National did
Back to 70's nanny state credits - keeps full control. Not about outcomes

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Congratulations Nat for an excellent piece that has stimulated an important discussion.

There is plenty of peer reviewed research that shows most value in our economy is generated from IP but investment in IP generation has large amounts of leakage for the investor. Employee's knowledge goes with the employee, customer usage likewise, IP protection is not absolute and competitors benefit together with the investor but if only the investor pays, returns are diminished hence why in all developed economies governments fund R&D. It is wrong to see government support as a 'gift' to start-ups it is a reimbursement to cover the broader benefits to all of NZ.

Commercialising early stage science and all forms of technology start up is an extremely risky business. Success rates all around the world are low usually 2 or 3 out of every 10 succeed and 1 out of 100 hit the ball out of the park.

Those who wish to politicise this debate have the easy job of hurling canon balls from the grandstand at the 7 out of 10 start-ups that fail. My observation is very few of the spectators hurling rocks from the grandstand have ever put a single dollar of their own money into a start-up because they never provide actual examples to support their political bias!

Governments are tasked with building roads and infrastructure upon which the economy operates. In today’s global technology based world the most important infrastructure is education, research and translation of those research results into valuable products and services. Governments should do what others can’t. Nowhere in the world has a private sector solution been devised that equalises R&D leakage so Governments everywhere provide incentives through grants and tax mechanisms to solve these problems.

I came into NZ just 15 months ago examining the early stage university research commercialisation to see if we could leverage what had been achieved by Powerhouse to build a vehicle that could deliver prosperity for Australia and New Zealand. Given all the noise I had very low expectations but have been impressed by what I have found. Powerhouse has made a couple of bad mistakes but haven't we all? What impressed me was that having helped start 31 companies with 25 still striving to win they are well ahead of any experienced investors expectations. We have gathered a lot of evidence and submitted it to the recent government collaboration process.

If anyone would like to review this evidence please and become involved in this exciting investment space contact me at the Powerhouse office.

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I suggest do a google search on Sam Morgan and grants. He has been on record opposing them. As you are new to NZ Sam was the founder of Trade Me and a significant investor in other NZ technology businesses, a number that have gone on to achieve real returns for investors and NZ.

I think he also highlighted all of the issues with the Powerhouse IPO at the time of the listing, maybe if the Directors and management at the time had listened some of those mistakes may not have happened.

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i am well aware of Sam and his comments on many things not just Powerhouse. He has got some things right but others wrong. I would be interested in what you have to say to the propositions I have put here and to evidence that you can provide to advance this important debate.

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I have published my views. I favor an optional tax credit for an investor. If they take the tax credit then any future profit is also taxed.

I have suggested this should be funded from NZVIF, Callaghan grants etc. This has the potential to become self funding allowing in fact growth in investment in the future.

It would be open to a lot more companies and investors. NZVIF's track record of partnering with investors such as PVL, Ice House has shown to have not worked.

Too much of the funding going into ventures is being siphoned off by people or groups that actually add no value.

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Yes Russell, you have exceeded investmentors expectations. Only in the fact you have destroyed shareholder value in such record time. No one could have expected that

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Derek I have been in the chair for 11 months and it is just 9 months since we have had a new CEO in place who is implementing our agreed strategy. In this space it will take several years to see if we have created or destroyed value. Under my watch we certainly have implemented very high standard of governance and properly informed the market as to what has taken place. If you suggest that proper governance destroys or creates value you are mistaken it might move the share price but the value was created or destroyed several years earlier! My and the CEO's focus is on identifying science around which we can build companies that are able to win their global category. Our efforts focus on helping our investments accelerate along their pathway to success. In taking on this role I have seen some things that I have not liked at Powerhouse and have worked hard on those things to improve them. I have invested some of my own money to achieve better results so I am putting my money where my mouth is! I hope Derek you too are putting your money into companies that will benefit NZ and I look forward to hearing what those companies are doing and if you are successful I will be eager to learn from your successes.

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I have invested in and started many companies. Some huge failures and some good successes. I am not simply an angry old commentator. Would be happy to share war stories at some stage. My main gripe with you is that you don’t seem to be able to lie straight in bed. You continue to misinform and twist news. It also grates me that you keep taking money from the tax payer. Forgetting the investee companies, you are currently trying to get tax payer for your operational costs and huge salaries. It’s just plain wrong. If what you say you do is so great you should have no problem standing on your own 2 feet

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Derek you seemed very misinformed and I am happy for you to meet with me because I put a lot of effort into providing accurate information and I would like you to show me where I have deceived anyone. Please call the office to set up a meeting.

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Hi Derek I did a Google Search to find some of your companies particularly startups and the only result I got was your comments 3 years ago describing Xero as a failure because they had not made a profit. There were no other references to your startups if you want to see a list of my involvements you can do the same search and there are a couple of pages for you to examine. Perhaps I'm searching using the wrong terms but could you make it easy for me and share a few names of your failures and your successes? I'd offer my biggest failure was Key Vision and my best investment success Readify.

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How do you set some boundaries to this role of government which may indeed be a vital missing link at some level?

And I don't mean an even more bureaucratic application process, which is a game in itself and leaving final judgments to non-commercial bureaucrats no matter what their commercial degrees may be in

Where does that level for being involved lie? Your enthusiasm and philosophical alignment to an essential role of government looks too unbounded to me

Surely the expenditure risk by government of investigating commercial potentials of emerging science is better confined to applied science institutes or companies owned by university and government science groups.

The fruit of their endeavours can then be put onto the market place when considered saleable. Or dies within the applied research entity.

Following a successful sale, priced by the market, the new owner of the IP can go to the various investor markets to back their vision for making the buy and bring on board the cash burn supply chain to fund the marketing, technical and financing race to the top, or not. The taxpayer is now out of it. The government's role is ring fenced and it got a market priced payback for its efforts

The IP owner may still contract back into the government institute by paying research fees to maintain alignment with ongoing science and their commercialising of their IP.

The idea of the taxpayer making bets by selective tax breaks or funding of IP under private ownership, whether to a favoured few or a favoured many invariably creates privilege as well as moral hazard in the use of taxpayers money and which becomes a yet another distortion of the role of markets to efficiently allocate resources.

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