What if my project requires less than $50,000 ($25,000 PreSeed) to reach investor ready stage?
That’s great, you can use Tier 1 investment for this, however you must provide a brief report on the project at the next Investment Committee meeting and keep the committee up to date on progress according to normal reporting requirements. The committee will provide feedback, but are not expected to stop funding to that project unless funding is being used for purposes outside of the PreSeed guidelines.
If the Tier 1 funding is devolved, what measures can the Investment Committee take to ensure that this investment is used as expected by the committee?
It is not expected that the committee will withdraw investment to a Tier 1 project part way through, as long as expenses claimed are within PreSeed guidelines and the project aligns with PreSeed objectives. However, the committee must have the ability to monitor and regulate how the PreSeed investment is allocated through KiwiNet is being used to ensure it meets the standard expected of the consortium. The committee will regularly monitor how investment is being used by each organisation to ensure the investment is being used appropriately. If a project is not considered to be of suitable quality the Investment Committee can notify the research organisation of this and suggest ways to mitigate the issue. If the committee continues to be dissatisfied with the way Tier 1 investment is used, they may choose to alter the policies to ensure that in future it is used as they require.
What if an inventor has an idea with good market demand, but you’re not sure if it will work?
If the market opportunity for that idea seems strong, you can use Seed/Kill funding to provide a small block of investment that can help the inventor hire a student, buy some equipment, and demonstrate an early prototype. If it is successful, you can then proceed to Tier 1.
Can I use Seed/Kill repeatedly on the same project?
No. If more than $15,000 ($7,500 PreSeed) is required to technically de-risk the project, then the committee require that a Project Development Plan should be prepared and submitted.
What if the first time a project is submitted to the Investment Committee it is not approved, but then a new opportunity for the same technology is identified and I want to resubmit a new proposal on that same technology for a different market opportunity?
If the cost of preparing the old business plan plus the cost of preparing the new business plan is likely to exceed the Tier 1 guidelines, the research organisation should consult the committee first to ensure Tier 1 investment will be provided. In general, it is a good idea to consult with the committee for feedback prior to resubmitting a project anyway, however this is not necessary if you’re within the Tier 1 guidelines.
What if the costs of completing Tier 1 are higher than $50,000 ($25,000 PreSeed)? The high costs of pre-clinical trials or patent costs may push the Tier 1 costs over this limit.
The committee have set the limit of $50,000 ($25,000 PreSeed) as it is considered that this is high enough to carry out the necessary market validation and business case development prior to submitting to the Investment Committee . If expenses like pre-clinical trials or patenting mean the project costs will be higher than the Tier 1 limit, then the committee would rather consider the full project plan before allocating more investment.
What if I don’t have enough information yet to budget the cost of reaching investor ready stage? Perhaps I need to do some pre-clinical trials before I have enough information to submit a full proposal, but the trials will cost more than is available through Tier 1.
Any project that is submitted to the Investment Committee must have some indication of the plan and the projected cost to reach “investor ready”. The committee recognises that this can be difficult since the projects are high risk and that these budgets will probably change as the project is carried out. However, the committee needs to avoid situations where $100,000 is invested in a project now, only to find that another unrealistic amount (e.g. $10,000,000) would be required to get to investor ready, and that this could have been worked out before the $100,000 was committed.
I’m confused about the limit on Tier 1 claim. Is the 10% limit per project a hard limit, and what if my project budget is higher than $600,000 ($300,000 PreSeed), does this mean I can use up to $60,000 on Tier 1?
The KiwiNet Investment Committee has set a limit of spending no more than 10% of PreSeed allocation on Tier 1. This limit is considered prudent for this type of allocation. As part of managing the fund so that this limit is not exceeded, a guideline has been set that recommends spending no more than 10% of the anticipated total project budget on Tier 1. However, this is only a guideline as it can be difficult to predict the total project budget until the end of Tier 1. The $50,000 ($25,000 PreSeed) limit on Tier 1 is a hard limit that cannot be passed without approval from the Investment Committee .
Tiers 2 and 3 seem very similar, why are they different?
The separation reflects that fact that the amount of due diligence required prior to project approval should be proportional to the amount of investment requested. For projects with budgets less than $200,000 ($100,000 PreSeed), research organisations can submit proposals that are lighter in detail. The committee will review these proposals for less time (e.g. 10-20 mins Tier 2 versus 30-45 mins Tier 3).
The Investment Committee meets every 6 weeks. What if I need a decision faster than that?
There are a number of options to address this issue. Firstly the Tier 1 funding is designed to enable each research organisation to carry out early development until the next Investment Committee meeting. If the research organisation wants more long term certainty of investment quickly to take advantage of a short term opportunity, it may be possible to call a meeting on short notice if enough committee members are available.
The policy includes the following guideline: “Tier One investment applications are expected to cost no more than about 10% of the total funding required under Tier Two or Three to get the project to investor ready stage.” This guideline could turn out to be overly restrictive, how can we be certain what the end budget will be until we have completed the market validation?
While the 10% limit across the whole portfolio is a policy of the Investment Committee , the 10% per project limit is only a guideline to try to ensure that the 10% limit on the portfolio is not exceeded. Because it is only a guideline, the research organisations can exceed the 10% limit on individual projects. However, in the case where the 10% guideline is significantly exceeded, the committee may ask for an explanation.
Also, as with all the other policies around the Investment Committee , this policy will be regularly reviewed and may be changed if it is found to be inappropriate.