Innovation and Funding Technology Instruments

The Technology Innovation Association has developed various innovation and funding technology instruments to grow the South African economy.

Diagram Showing the Application Process of the Funding Provided by the DTI

The Research and Development Tax Incentive

In 2006, the South African government introduced innovation and funding technology instruments aimed at increasing scientific and technological research and development expenditure by businesses throughout all sectors. The Research and Development Tax Incentive is provided for in Section 11D of the South African Income Tax Act.

The R & D Tax Incentive, administered by the Department of Science and Technology (DST), along with the South African Revenue Service (SARS) and the National Treasury, remains ongoing at least until 2022, with an indication from the relevant Deputy Director at the DST that it will be extended past this initial date. Furthermore, a task team, established by the Minister of Science and Technology in 2015, addressed bottlenecks in the process, the result of which was an online system introducing a simplified application process which saw 95 % of valid applications received by the DST since October 2012 being adjudicated by February 2018.

The primary aim of Section 11D is to allow a tax deduction equal to 150 % of expenditure incurred directly and solely for R & D activity in South Africa. This incentive is available to businesses of all sizes and in all sectors of the economy.

The R & D Tax Incentive provides this tax deduction for expenditure wherein the relevant project is aimed at systemic investigative or systematic experimental activities of which the result is uncertain, the purpose of which is:

Discovering non-obvious scientific or technological knowledge;
Creating or developing an invention, as defined in the South African Patents Act;
Creating or developing a functional design, as defined in the South African Designs Act;
Creating or developing a computer programme, as defined in the South African Copyright Act;
Creating or developing a multi-source pharmaceutical product; or
Conducting a clinical trial as provided for in the Guidelines for Good Practice in the Conduct of Clinical Trials with Human Participants in South Africa.

The deduction is not limited to the above project aims, but also for projects for which the aim is a significant and innovative improvement to any of the above inventions, functional designs, or computer programmes. “Improvement” in this context being a new or improved function, improved performance, improved reliability, or improved quality.

For the purposes of determining taxable income in respect of any year of assessment, there shall be allowed the above deduction from income, only if the research and development expenditure is incurred in South Africa and: (a) the research and development project has been approved in terms of Section 11D; and (b) the expenditure is incurred on or after the date of receipt of an application in terms of Section 11D by the DST.

The Innovation Funding and Pre-Commercialisation Support Division Assists with Innovation and Funding Technology Instruments

The Innovation Funding and Pre-Commercialisation Support (IFPCS) Division supports the development and exploitation of technology innovations by enabling and facilitating the conversion of technology ideas into enterprises. This is done by the funding the development of technology and the preparation of the technologies developed for commercialisation or use.

The innovation and funding technology instruments strive to de-risk technological innovations as they mature through the Technology Readiness Levels (TRL) scale. Once the concept for a technology idea has been proven and the application assessed and approved, the IFPCS Division provides financial support to the technology development using the Technology Development Fund (TDF) for further development or the Commercialisation Support Fund (CSF) for projects that have been demonstrated and are now ready and participate in the market. All funded projects are monitored during and after development while providing other non-financial support which varies from project to project. Non-financial support may include linking TIA funded companies with other funders such as the IDC to fully commercialise their technologies. The IFPCS Division seeks to drive the following initiatives in a bid to strengthen the programmes offering:

Upstream integration;
Downstream integration;
Concurrent innovation;
Development of new funding instruments; and
Patent Maintenance Support Fund (PMSF).

The IFPCS Division has various business units that respond to the biotechnology sector in supporting technology development. The sub-programmes’ activities are aligned to key DST strategies namely the Bio-Economy Strategy, DST’s Ten-Year Innovation Plan (including addressing the DST Grand Challenges), and the National Research and Development Strategy. Various initiatives have been enacted to support technology development, including:

Advanced Manufacturing (AM);
Agriculture;
Energy;
Information Communication and Technology (ICT);
Health;
Natural Resources;and
Workout and Restructuring.

The Commercialisation Support Fund

The Innovation and Funding Technology Instruments fund pre-commercialisation demonstration, market testing, and validation. Beneficiaries include higher education institutions; small, medium and micro-enterprises; and start-up companies. The benefits are structured as follows:

R500, 000 (minimum amount of funding);
R50, 000, 000 (maximum amount of funding);
3 to 5 years funding period.

The Technology Innovation Agency will assess the attractiveness and sustainability of the project opportunities in terms of the technology / product / process / services, current stage of technology development, viability of the technology, business model, structure, and process required to commercialise.

The TIA has a three-stage application process: the submission of a Statement of Interest and basic assessment, full assessment, and approval.

Seed Fund Innovation and Funding Technology Instruments

The TIA Seed Fund Programme (SFP) has two sub-programmes: the first is a partnership with Higher Education Institution (HEI) partners to assist their own researchers, innovators, and spinout companies overcoming the challenge to access funding to achieve the same objectives; and the second sub-programme is the Small, Medium, and Micro-Enterprises (SMME) Seed Fund which partners with implementation incubators and development agency partners across South Africa.

The objectives of the Innovation and Funding Technology Instruments are:

To assist HEI’s, science centres (SC’s), and SMME’s to advance their research outputs and ideas to develop prototypes, proofs of concept, and business cases that could be used for further development;
To de-risk research outputs by enabling the entrepreneur, researcher, and SMME to inform their opportunities that will bring them closer to securing follow-on funding from the TIA and / or other funders; and
Funding Mandate fit with the relevant Seed Fund sub-programme.

Parameters:

Grant funding up to R1 million per project;
TRL 3 to 8 No Basic Research;
Alignment with fundable activities; and
SMME’s strategic funding partner (SFP) needs a valid Tax Clearance certificate for the company or individual applying in their own capacity.
The TIA reserves the right of first refusal for follow-on funding.

Eligible applicants will work through the relevant Seed Fund partner: Technology Transfer Offices (TTO’s) and Research Offices (RO’s) atHEI’s, and SMME’s apply directly to partner incubators or regional development agencies. The partner’s role is to advise the applicant according to institutional policies and Fund mandate.

The partner-based Investment Committee decides to fund the project, prioritises applications according to own objectives and criteria, sets conditions to the funding award, and assists with monitoring and evaluation of the progress. The partner institutions provide a secretariat role to the Investment Committee, ensures there are audit trails, project monitoring, and evaluation.

Higher Education Institution Seed Fund Programme

To fund universities and Science Council-linked innovators and entrepreneurs;
Outcomes of basic research;
Supports the intended impact of the Intellectual Property Rights Act; and
Contracted partnership with every HEI (through TTO’s and RO’s).

Fundable Activities:

Initial proof of concept;
Prototype development;
Sourcing of IP opinions;
Production of market samples;
Refining and implementing designs;
Conducting field studies;
Support of certification activities;
Piloting and scale-up and techno-economic evaluation;
Detailed primary market research; and
Business plan development.
Exclusions: No payment of institutional salaried staff.

Technology Transfer Offices manage the funds with involvement of the Seed Fund Committee. Staff employed by higher education institutions cannot be paid and no bursaries or employment of students is permitted, except for defined project hours. The programme allows for human capacity development through Innovation and Funding Technology Instruments.

SMME Seed Fund Programme

The Innovation and Funding Technology Instruments enable and support technological innovation and entrepreneurship among qualifying SMME’s based in the various provinces of South Africa. This Programme is implemented in collaboration with regional partner agencies with which the TIA has entered into Memoranda of Agreement specifically to implement the Programme. The TIA provides funding and partner institutions provide non-financial and incubation support to recipients. Qualifying SMME applicants work through the relevant Seed Fund partner based in the province.

Fundable activities:

Business plan development;
Prototype development and evaluating prototypes against customer requirements;
Turning prototypes into pre-production products (scale-up and piloting);
Activities leading to technology co-development;
Licencing of technology to manufacturers and for distribution;
Transfer of technology for development and manufacture;
Design development and support of certification activities through SABS or equivalent;
Purchase of hardware for scale-up from prototypes; and
Supporting IP protection maintenance costs.

Stage 1: The applicant is required to submit the Statement of Interest (SOI), via the online application system. The SOI describes the intellectual property, commercial, team, proposed technology innovation, and budget. Once the SOI has fully met all of the criteria, a detailed full application will be requested.

Stage 2: Once the full application has been submitted, there will be an assessment conducted to determine whether the application has submitted all the necessary information to proceed with the full assessment. The full assessment involves opportunity evaluation in commercialisation, intellectual property, technical, and legal. Deal structuring and project execution plan will be developed at this stage.

Stage 3: Approval of applications is always subject to availability of funding. Applications that preceded the full assessment stage are approved by the TIA approving body.

Industrial Financing and Loan Facilities are Innovation and Funding Technology Instruments

The Industrial Financing and Loan Facilities comprises two components: Pre- and post-dispatch Working Capital Facility, and the Industrial Policy Niche Projects Fund.

Pre- and Post-Dispatch Working Capital Facility

Offers a working capital facility up to a maximum of R30 million for a period of up to four years, at a preferential fixed interest rate of 6 %.

Industrial Policy Niche Projects Fund

Projects identified by the DTI sector desks and IDC’s Strategic Business Units that focus on new areas with the potential for job creation, diversification of manufacturing output and contribution to exports, that would otherwise not be candidates for commercial or IDC funding, may be eligible for an MCEP grant that may be structured as part of the borrower’s equity contribution.

Technology Development Fund

To support the development of technologies from proof concept, leading to product prototype, and ultimately demonstration thereof in an operating environment.

Beneficiaries:

Science Councils;
Higher Education Institutions;
Small, Medium, and Micro-Enterprises; and
Start-up Companies.

Benefits:

R500, 000 (minimum amount of funding);
R50, 000, 000 (maximum amount of funding);
1 to 10 years funding period

The TIA will assess the attractiveness and sustainability of the project opportunities in terms of (among others) the innovativeness of the technology / product / process / services, current stage of technology development, viability of the technology, business model, structure, and process required to commercialise.

The TIA three-stage application process is as explained under the section titled Seed Fund above.

Minimum Requirements

Applicants other than Science Councils and Higher Education Institutions applying for financial assistance must meet the following requirements:

Applicants must be South African citizens with valid South African identity documents or legal entities registered with the CIPC;
Applicants must have the necessary contractual capacity to engage with the TIA;
All primary business operations, including but not limited to projects / programmes / enterprises, must be operated within South Africa and be registered with the CIPC;
Applicants must meet the DTI’s Localisation Framework requirements of a minimum of 20 % equity ownership by a South African entity and B-BBEE requirements as per the B-BBEE Act;
The enterprise must be compliant with generally accepted corporate governance practices appropriate to the client’s legal status; and
For foreign-owned intellectual property, the IP should be licenced or assigned to a South African institution such as a university, science council, or a legal entity registered with the CIPC.

Technology Venture Capital as Innovation and Funding Technology Instruments

The Technology Venture Capital (TVC) is a fund established by the DTI which provides business support and seed capital for the commercialisation of innovative products, processes, and technologies. TVC aims to increase the number of economically-productive companies in South Africa, and thus contribute to economic growth and international competitiveness through innovation and technological advancement.

The purpose of the TVC Fund is to provide funding and business support to small companies at early stages of commercialisation (not development) of innovative products, processes, and technologies across all sectors which have the potential to make a significant developmental impact on the South African economy.

Qualifying criteria include, but are not limited to:

Viability and Sustainability;
Innovation;
Local Intellectual Property;
Market Potential;
Competitive Advantage; and
Developmental Returns.

This incentive funds product testing and demonstration, process / product development, small-scale manufacturing, market readiness, and market development.

The Industrial Development Corporation is one of the Primary Innovation and Funding Technology Instruments

The Industrial Development Corporation of South Africa (IDC) is a self-financing national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic empowerment of South Africans, thereby promoting the economic prosperity of all citizens. It achieves this by promoting entrepreneurship through the building of competitive industries and enterprises based on sound business principles.

The IDC operates in a broad spectrum of industries and with some specialised knowledge and experience; it is able to offer valid and appropriate financial assistance to a wide variety of individuals and companies.

The IDC employs the following strategies to achieve its objectives:

Serving as a catalyst for balanced, sustainable development;
Identifying and supporting opportunities not addressed by the market;
Providing risk capital in partnership with the private sector;
Building on its skills and industry knowledge to add value to entrepreneurs and businesses; and
Optimising its financial management.

The programme is market-driven and prepares early-stage entities to supply to local markets.

The Enterprise Incubation Programme

The Small Enterprise Development Agency’s Enterprise Incubation Programme (EIP) is market-driven and prepares early-stage entities to supply to local markets. The programme is centred on the securement of a market/s, by the applicant (incubator), to transfer skills to small businesses and cooperatives (incubatees), with an effort of attaining the expectant quality standards and specification of firms. The operational model for the incubator programme will be inclined towards physical incubation- provision of incubation services from a physical site as opposed to virtual or remote support provision.

Under the Innovation and Funding Technology Instruments, start-up enterprises are developed to supply goods and services from various sectors and business disciplines, to the broader spectra of available and viable local markets. The EIP is focused on Enterprise Supplier Development (ESD) and centred on affording participating SMME’s and cooperatives with access to:

Skills and Support Infrastructure;
Business Development Support;
Best Practice Standards; and
Market Access.

Incubator / Accelerator Expectations:

Afford SMME’s and cooperatives access to tailored business development and technical support;
Physical resources and infrastructure to enhance enterprise impact and ability to service market agreements; and
Accelerate high growth enterprises for Initial Public Offerings (IPO’s) or Initial Crypto Offerings (ICO’s) into national, African, and global markets following a best practice accelerator model.

The EIP is targeted at South African registered and tax-compliant entities with vast experience in the development and mentoring of early stage enterprises and cooperatives with the potential to supply goods and services to firms in the local economy on a sustainable basis. Beneficiaries include new and existing incubators (not previously funded by the DTI’s Incubation Support Programme and SEDA Transfer Programme (STP)).

Benefits are between R5 million to R10 million.

Feasibility studies are capped at R1,5 million.

The EIP is a 100 % subsidy in the pilot year to recognise expected variation in expected performance improvements to the programme and lower the risk of failure. Thereafter, cost-sharing at a ratio of 90:10 between the Department of Small Business Development (DSBD) and eligible applicants will be introduced for the programme rollout. The applicant’s contribution toward the 10 % will be accepted in either monetary value and / or assets linked to the incubator and its activities.

The SEDA Technology Programme Innovation and Funding Technology Instruments

The SEDA Technology Programme (STP) is a division focusing on technology business incubation, quality and standards, and technology transfer services and support to small enterprises.

The STP seeks to stimulate economic growth and development through facilitating technological innovation increasing the accessibility to, and utilisation of, technology and technical support for small enterprises, while at the same time improving the sustainability and international competitiveness of small enterprises supported through the programme. The STP is responsible for the provision of both financial and non-financial technology transfer, business incubation, and quality support services for small enterprises.

The Technology Transfer Unit

The STP provides a range of services that assist small enterprises, particularly enterprises in the 2nd economy, to access and acquire technology. “2nd economy”, as defined by the STP, broadly refers to small enterprises (registered or not registered) that are marginalised with respect to all or most of the following:

Access to Funds;
Access to Markets;
Limited Business Skills;
Limited Technical Know-how; and
Access to Appropriate Technology.

The Technology Transfer Unit (TTU) has two main objectives:

To provide technology transfer services to small enterprises; and
To provide specific technology support to women-owned enterprises.

The latter objective focuses on the provision of technology transfer services and support to women-owned enterprises(>50% woman ownership), while both objectives are aimed at providing funding for small enterprises to acquire the necessary technology and technical support for effective technology transfer transactions. The STP offers financial assistance in the form of a non-repayable grant up to a maximum of R600, 000 per project.

The following categories are eligible to qualify for the Technology Transfer Fund (TTF):

Design, formulation, materials and methods transfer, including design improvement and optimisation;
Know-how, knowledge, skills and expertise transfer, including training and mentoring related to the technology being transferred;
Designs, equipment, systems, machinery and tooling directly related to the product and process technology being transferred;
The know-how, knowledge, skills, and expertise required to operate and maintain the equipment, systems and machinery, including training and mentoring related to the technology being transferred;
Expert labour costs regarding the technology, where such costs do not exceed 20 % of the total approved TTF funding provided by STP;
Intellectual property payments (e.g. licencing agreements) and expertise transfer payments to enable the TTF transaction;
Travelling and subsistence claims relating to the technology transfer transactions, subject to the Adjudication Panel’s prior approval;
Legal and expert resource expenses regarding the negotiations, agreement, and transfer of the technology;
Business training, development, and mentoring; and
General business services, e.g. equipment, machines, facilities, or processes that are utilised to provide repairs, examinations, overhauls, support, or assistance in some form or other, as well as specialised equipment, machines, or processes utilised to provide support for manufacturing, mining, agro-processing, or service enterprises.

Technology transfer items that will not be funded by the TTF:

Research and development of technology;
Franchise agreements;
Costs pertaining the other party – licencee or licencor;
Patenting;
Annual patent renewal;
Ongoing licence fees;
Business systems unrelated to the manufacturing technology;
Marketing and market feasibility studies;
Buildings, roads, vehicles, or major civil works;
High-voltage supply, main water supply, or major supplies;
Business services such as retailing, sales, personal care, cleaning, legal, financial, and all types of consulting activities; and
All costs not directly related to the acquisition of technology.

Quality and Standards Unit

Quality management ensures that small businesses have access to quality control and assessment processes, and provides training and access to accreditation and certifications.

Objectives:

To promote the importance of quality and standards as key drivers of South Africa’s competitiveness;
To enhance the quality and standard of products and services produced by South African entrepreneurs for national and export markets through providing advice and technical support;
To develop technical skills needed to create a broader understanding of national and international compliance standards;
To provide systems support to South African firms to upgrade their industrial capabilities through standards and quality assurance with a key focus on small, medium, and micro-enterprises; and
To provide conformity assessment support to small businesses in South Africa, helping them to overcome technical barriers to trade.

Enterprise Development Sub-Unit

Quality Awareness Coaching Sessions;
Quality Health Checks: Electronic Business Maturity Tools;
Quality Booklets: Micro-enterprise Support;
Training, and training of trainers on:
- ISO 9000:2008,
- ISO 18001,
- Food Safety – HACCP – ISO 22000,
- Good Manufacturing Practices,
- Strategic Business Process Management,
- Measurement Standards – New,
- Lean Manufacturing – New, and
- ISO 14001 – New.

Conformity Assessment Sub-Unit

The Unit facilitates the development and implementation of the following management systems through the provision of R90, 000 in grant / incentive support:

ISO 9001:2008 (Quality Management System);
ISO 14001 (Environmental Management System);
ISO 22000 (Food Handling and Processing Management System);
OHSAS 18001 (Occupational Health and Safety Management System);
ISO 17024 (Laboratory Accreditation) – New;
Auditor Training;
Facilitation of Third Party Certification;
Conformity Assessment Training; and
National Product Specification Portal that Contains 6776 standards.

The Unit facilitates the certification process through SABS and other certification bodies. The organisation has a choice between going for full certification at once, or being certified through three-step phases.

Product Certification: R60, 000 Grant / Incentive