The information technology industry has given the Government’s research and development scheme the thumbs up, but warns that smaller technology firms could be left out in the cold. More money is needed to help businesses export their ideas and technology and how research and development is defined will be crucial, one source says. Businesses with revenues of at least $3 million a year, a strong R&D record and that spend 5 percent of their turnover on R&D will be eligible for a three-year grant covering 20 percent of their R&D spend, or up to $2.4 million a year. Those grants will add up to $189.5 million over four years, with $22.5 million to be awarded in 2010-11. Firms without internal R&D capability can apply for vouchers worth between $100,000 and $1 million to fund 50 percent of their R&D projects, by commissioning accredited research organisations to work for them. The Government will spend $20 million over four years on the vouchers, including $5 million over 2010-11. The Budget initiatives are in addition to funding provided by TechNZ – the Foundation for Research, Science and Technology's business investment programme. They replace a previous scheme that let businesses claim 15 cents in tax breaks back for every dollar they spent on R&D and was scrapped in 2008. That prompted Auckland software firms Wherescape and Endace to warn they might move their R&D overseas. Michael Whitehead, chief executive of Wherescape, which develops datawarehouse software, says well-established companies such as his can take advantage of the new grants, but smaller firms, particularly smaller software firms, appear to have been overlooked. "If we were starting off, the TechNZ scheme would be a better option than the vouchers. For companies like us, software companies, the assistance we need is from international experts, not from Crown research institutes." New Zealand Trade and Enterprise last year slashed export and commercialisation grants for 2009 to 2011 by $40 million – about half. It appears that shortfall has not been made up and the Government has not indicated more assistance is on the way, he says. "The big problem New Zealand has got is the commercialisation of the research. They're not talking about the fact they took $30 million out of it, they seem to be forgetting that." A lot will depend on how research and development is defined, Whitehead says. If it is defined as "ground-breaking" and does not include work to improve on existing research or products, software firms could lose out. Wherescape has received $310,232 from TechNZ, which will half-fund the development of a new product, and the company will stick with the TechNZ scheme where it can. The new grants allow for only 20 percent funding, but the money is not project-specific or dependent, which is a bonus, he says. "Overall I think it's a great start." Mike Riley, chief executive of data monitoring software firm Endace, says the new scheme will funnel money into commercially viable R&D "rather than just putting money into science for the sake of science". The old tax credit system was of no practical use to high-growth firms that were not yet profitable and did not pay tax, he says. Endace is eligible for the new grants and will make use of the voucher system. The Government's focus on proven firms is sure to disappoint some smaller early-stage firms but is understandable. "It's hard for a government to act as an angel investor and put small amounts of money into large numbers of firms and get any kind of reliable outcome." Brett O'Riley, chief executive of industry group NZICT, says the new grants scheme is an improvement as it should target investment at the right firms and ideas. The old tax-breaks scheme was appealing because it was simple to operate, but undeserving companies could cash in, he says. "Given we're in a very fiscally constrained environment, what this does is ensure the dollars are more likely to be matched against the best opportunities and those opportunities will be determined by the experts rather than the accountants." Any smaller companies that did not qualify for the grants could still snap up the vouchers, which would give younger firms access to highly skilled people, or TechNZ grants, he says. The extra $11 million earmarked to commercialise the work of research organisations will help New Zealand cash in on its innovation, he says.