INNOVATION July-August 2017

FIGURE 2: TECHNOLOGY READINESS LEVEL

It’s important to emphasize that our analysis to this point has focused specifically on R&D grant and tax credit support at the project level. Clearly, the success of your R&D endeavours will propel growth at the organizational level and that, in turn, will unlock further financing opportunities. Figure 4 (page 37) depicts the evolution of the funding profile mined from the data of more than 2,000 nationwide government funding programs. The horizontal ordinate tracks the evolution of the business from concept to maturity while the vertical ordinate measures the percentage of expenditures that are eligible for some combination of grant, loan, and tax credit reimbursement. It is important to recognize that three implicit relationships are communicated through the trendlines. Taken together, these three relationships establish the funding profile at each stage of a company’s expansion: 1. The amount of tax credits is directly related to the amount of eligible expenditures. 2. The degree of business risk is inversely related to the amount of sales. 3. The amount of grant support is inversely related to the degree of business risk. Support at the Concept Phase Investigating the left hand side of Figure 4, we observe low expenditures and negligible sales at the concept phase of a newly formed company (in this example, a CCPC). The marginal degree of expenses results in an insignificant amount of tax credits despite a generally high degree of eligibility. The lack of sales at this phase identifies the company as a high-risk prospect, prompting funding agencies to mitigate their risk by restricting access to the larger government assistance programs. Stake-free seed money is scarce in this phase, although some reasonable repayable and non-repayable financing can be found in sectors identified as priorities by government.

Description of Level

Actual technology proven through successful deployment in an operational setting Actual technology completed and qualified through tests and demonstrations Prototype ready for demonstration in an Level of Readiness System/subsystem model or prototype demonstration in a simulated environment Component and/or validation in a simulated environment Component and/or validation in a laboratory environment Analytical and experimental critical function and/or proof of concept appropriate operational environment

Actual application of the technology in its final form and under real-life conditions, such as those encountered in operational tests and evaluations. Activities include using the innovation under operational conditions.

Technology has been proven to work in its final form and under expected conditions. Activities include developmental testing and evaluation of whether it will meet operational requirements.

Prototype at planned operational level and is ready for demonstration in an operational environment. Activities include prototype field testing.

Pre Commercialization Gap Build in Canada Innovation Program

A model or prototype that represents a near desired configuration. Activities include testing in a simulated operational environment or laboratory.

The basic technological components are integrated for testing in a simulated environment. Activities include laboratory integration of components.

Basic technological components are integrated to establish that they will work together.Activities include integration of “ad hoc” hardware in the laboratory.

Active research and development is initiated.This includes analytical studies and/or laboratory studies. Activities might include components that are not yet integrated or representative.

Technology concept and/or application formulated

Invention begins. Once basic principles are observed, practical applications can be invented. Activities are limited to analytic studies.

Basic principles of concept observed and reported

Scientific research begins to be translated into applied research and development. Activities might include paper studies of a technology’s basic properties.

How Development and Funding Programs Interact How best to determine where your projects fit on the development profile? The most widely accepted method is the Technology Readiness Level (TRL) scale (Figure 2). Developed by NASA in the 1970s, the TRL scale provides a common touchpoint for tracking the progress of new technologies from concept to deployment. Generally speaking, the lower down the scale your development resides, the greater your technological uncertainties, the greater your feasibility risk, and the greater your emphasis should be on tax credits over grants. Conversely, the higher up the scale your development progresses, the fewer the technological uncertainties that remain, the closer to commercialization your technology is moving, and the more you should emphasize grants over tax credits. As shown in Figure 3, a general rule of thumb would be to consider TRL levels 1 to 3 to be primarily tax credit driven, levels 7 to 9 primarily grant driven, and levels 4 to 6 a blend of the two. An accurate assessment of your technology’s positioning on the TRL scale, therefore, is key to discerning where the balance of your expectations should be.

Time Figure 3

TRL 9: Actual system proven in successful end use operations

TRL 8: Actual system completed and qualified in test and demo

TRL 7: System prototype demo in operational environment

TRL 6: Field demo of subsystem model/prototype

TRL 5: Field validation or component or breadboard

TRL 4: Laboratory validation of component or breadboard

TRL 3: Proof of concept or key analytical characteristic

TRL 2: Technology concept or application formulated

Grant/Loans funding intensity Tax credit funding

TRL 1: Basic principles observed and reported

Technology maturity

C ontinues on page 35...

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