Taking Government Money, the Pain-free Way

Earlier today at the e27 Unconference 2009 panel “Innovation in Asia and Where is it heading?” (which Bernard rightfully puts, should have been retitled as “Asia Web – Business and Markets“), Dr. Lai Kok Fong of BuzzCity advised entrepreneurs not to spend too much time trying to get government money.  I’m sure he was speaking from (bad) personal experience(s).  Then again, no one’s really going to say no to ‘free’ money.  Instead of telling kids to stay away from all strangers, I thought it’ll be better (in the long run) for me to respond with some advice on taking money from the government with as little pain as possible.

If the Shoe Size fits, Wear it.

As an entrepreneur seeking to change the world, it’s important to have a plan on world domination.  It’s even more important to stick to that plan.  Government grants can be highly capital efficient because they do not dilute shareholdings and (provided you continue to be a good boy till the end of your project duration) do not result in any additional liabilities for your start-up.  That is why it wouldn’t surprise me much if there were entrepreneurs that have gone down the slippery slope of tweaking their business plans to shoehorn their product into a particular government incentive scheme, only to find the resulting opportunity costs too high to stomach.  Those chaps made the mistakes so you wouldn’t have to – learn from them and Walt Disney – be Cinderella, not her sisters.

Caveat Emptor

As a general rule of thumb, avoid unacceptable uncertainty – i.e. schemes with competitive elements, unclear budgets and quotas that can result in undesirable outcomes.  Assuming you’ve cleared that hurdle (or knowingly chosen to), go in with your eyes wide open, and do your homework thoroughly so you’ll know what you’re getting yourself into.  For instance:

• Look past the marketing bulls**t: Find out the historic incentive quantum ranges that are awarded to your peers.  This is the last place you’d expect governments to innovate on, lest they be accused of showing favoritism.  When the marketing brochure says the scheme supports
  ‘up to 50% of project qualifying costs’, highlight ‘up to‘ and ‘project qualifying costs‘ and seek further clarifications.
• Do your background checks: Learn the (good and bad) experiences of others who have received the incentive previously.  Ask around about that officer you’re putting up your application to.  It never hurts to have a better understanding of the execution efficiency and ability of the bureaucrat you’re dealing with.
• Consider the long-term implications: This applies more for government equity schemes.  Watch out for redemption clauses and the resultant contingent liabilities that might turn away future investors.  For early-stage ventures, the value of governments as shareholders beyond cash and mere branding (like a scout badge) are often overrated, especially in Singapore, and can even be a double-edged sword if your initial markets include *erhem* Malaysia.
• Understand the application and approval process: Unfortunately, some governments have yet to learn to treat start-ups with the same level of head-to-toe customer service that MNCs are accorded.  Don’t feel shy about chasing your point of contact (in a friendly manner of course!) for an update on your application status – sometimes that’s the only way to move your file ahead of others.  Get ready to walk away if the application and approval processes appear too onerous – who knows, your officer might be relying on your project being approved to achieve his annual quota, and wouldn’t mind bending over backwards to make the ride less bumpy for you.

Be Realistic

If you’ve gotten this far and made the decision to put in a formal application, I urge you to be smart, and above all realistic with your project milestones and deliverables.  Should things go south during the execution of the project, you’ll be able to justify why you failed to deliver (it’ll never be your fault!), or have the flexibility to go back to the bargaining table and negotiate for an extension.

Having done all of the above, it still helps to be mentally prepared.  You’re probably not going to be supported for every single line item you asked for.  They claimed it was up to 50%? Expect somewhere between 20 – 35% instead, as they haggle over acceptable base salary levels and exceptional expenses.  As most grants/incentives are on a reimbursement basis, you’ve got to do your own cashflow projections and leave yourself with enough cash in the bank to pay first, and claim later.  Expect cash cycles of 60 days or more (from the point of submitting a claim to receiving the money in the bank) – anything earlier is a bonus (and I’d like to hear about it please!).

Be Thankful

I pay my taxes and as little as that may be in Singapore (thank god!), some part of that still ends up as a grant to fund that next cool project of yours.  Share with other entrepreneurs how you were able to get that grant with ease.  Don’t tell people to stay away.  I’m sure we all don’t want our government to get the wrong idea (that their schemes and programmes aren’t needed by the market) and stop giving us handouts.

Be thankful, and help me pass this message on.

Related posts:

1. Of iPhone 3G and SingTel
2. Hitchhiker’s Guide to Starting your Venture in SG (with Govt as your guardian angel)
3. Singapore’s Uncoordinated Initiatives for Entrepreneurs
4. Six winners for NRF Early Stage Venture Fund
5. Start-ups fail because they have no users

Tagged as: advice, government, grants, hassle, incentive, tips