Breaking the cycle of start-up welfare

The government is challenging entrepreneurs to ask not what your country can do for you, but what you can do for your own autonomy.

Entrepreneurs love a whinge. They especially love to bash the government for its lack of support, which usually means the refusal to hand out cash with no strings attached.

Yet, grants can quickly pervert an entrepreneur's quest to launch a product that solves a customer problem, subsidising poor business models.

This type of government intervention risks creating a "start-up welfare" state.

However, the government's R&D tax incentive strikes the perfect balance. The ATO refunds 45 cents for every dollar spent on costs, which support the engineering of experimental or risky technologies.

There is just one caveat: the innovation must be ground-breaking.

I hear you say, "the government wouldn't know innovation if it developed its way out of the CSIRO", but AusIndustry has devised a definition. And it's quite simple, really.

To qualify for the scheme and offset costs, such as development, testing, hosting and rent, TCF Services R&D tax accountant Andrew Flick said that start-up research must generate new knowledge and, importantly, be an experiment.

Think back to your high school science experiments to predict a hypothesis, develop a method and state an outcome.

"A lot of the start-ups we see don't qualify because what they're doing might be a new service or it's creative-type industry or business, but it doesn't actually have a technical difficulty to the start-up. They already know how to develop it, and if you already know how to develop it, you're not doing R&D," Flick said. "They're not undertaking a challenging enough activity in their development. They're not doing something hard."

If you're developing a Groupon clone, you probably won't qualify. If you're developing a 99designs style marketplace (in the eyes of the government), you're not really innovating. If you're developing another social network ... Well, you get the idea.

There are some concerns about the fact that companies that have sold a majority stake to venture capital firms might, in some cases, make themselves be ineligible for the scheme, but founders of cool products, such as Rome2Rio, Murmur and Adioso, all agree that, fundamentally, the tax credit helps start-ups who deserve it.

So, the next time you want to complain about how little the government has done to help you, maybe you should ask if you've done enough to test yourself.