Dilution-free financing for IoT innovations
Written by:
Consider IT
Posted on:
- June 27, 2023
tags:
- Financing founding angels startups
Subsidies for IoT projects offer financing without repayment obligations or shareholder dilution. Germany supports up to 60% of costs through programs such as YIM and FYuLG. Don´t let these opportunities pass you by.
Dilution-free financing for IoT innovations
IoT systems now contribute significantly to customer benefits and value creation in many different industries and applications. As cyber-physical systems, they carry a great deal of complexity, which means that the innovation and development of new solutions is associated with high costs. These high costs require considering and exploring all funding options. Subsidies for innovations are still too seldom the means of choice, although they are available in a variety of ways and bring clear advantages. They usually come with no repayment obligation, no success requirements for disbursement milestones, do not dilute existing shareholders, and have even been available retroactively since 2020. This short article attempts to provide an entry point to this.
Complex requirements are placed on the Internet of Things (IoT), some of which also give rise to conflicting goals: ensuring connectivity, data protection and cyber security, interoperability and scalability, and the development of new applications and technologies. This requires new processes, products and solutions in the IoT field. The impetus for innovation can come from a variety of directions. Gradual improvements to existing technologies often emerge from practical challenges and/or dialogs, such as adapting proven technology to other deployment scenarios. Non-disciplinary impulses, such as remote sensing and GPS technology for precision location in the IoT, are also possible. Such radical innovations, so-called inventions, usually lead to a very high knowledge requirement and represent a major development and adoption risk because they can entail changes to entire IoT systems. Specific to IoT is the strong regulation, which does not always promote innovation. In the medium and long term, however, societal demands and the resulting security and data protection requirements are strong drivers of innovation. The task of politics, and thus also of funding, is to strike a balance that enables such innovation processes involving practice without overburdening the players involved. This paper therefore presents approaches that are not reserved for research institutions alone, but can also be of interest to small and medium-sized enterprises, practitioners and tinkerers.
Innovations often emerge from basic research that generates new knowledge and capabilities. Mostly, this type of research takes place at publicly funded institutions. This phase of research involves high risks in terms of its applicability and can therefore not be borne by market participants alone. For this reason, there are funding programs that support innovative IoT projects and offer financing opportunities. Even at this stage, market potentials become apparent that can be tapped by the participating scientists with the help of transfer and innovation centers. These centers primarily offer support in spinning off companies within or outside research institutions, in obtaining funding and venture capital, in coaching and mentoring, and in networking with relevant players.
Entrepreneur training at colleges and universities and spin-offs from IoT projects can also help to promote innovation in the IoT sector. By providing specific expertise and start-up support, promising project results can be turned into marketable IoT solutions.
In the subsequent phases of the innovation process, the results of basic research are further developed for solution-oriented application and can be supported by funding programs. In this process, the entrepreneurial self-interest increases, which must also be demanded accordingly. In the case of industrial research, which serves technical progress and the creation of practically implementable findings in the IoT, a contribution of ≤50% of the total costs is expected, as this expresses and demands entrepreneurial self-interest. As developments progress, it will become increasingly important to assess whether a meaningful practical application can be produced and, ultimately, whether it can be used under real-world conditions must be proven. To this end, the strong involvement of industry, both suppliers and users, is indispensable. In this phase, the risk for industry to take up these developments in order to successfully create marketable IoT products from them decreases. These steps at the end of the innovation process in the IoT are classified in the research category “experimental development”. In line with the risk concept outlined above, the basic funding intensity rate for companies in the area of experimental development is reduced to 25%. Small and medium-sized enterprises can receive surcharges in the same way as for industrial research.
Germany has a large number of funding programs that are also available for innovations in the IoT sector. 54 of the several thousand programs listed at www.foerder-finder.de explicitly name IoT as a focus. Two entry-level programs with over 60% chance of success and the possibility of submitting applications at any time will be presented in more detail here:
- One example is the Central Innovation Program for SMEs (ZIM) of the Federal Ministry of Economics and Climate Protection (BMWK). ZIM supports innovative projects in the IoT sector that are open to all technologies. Applications can be submitted at any time. The program allows project durations of up to 3 years and a funding rate of up to 60% of the costs, up to a maximum of 247,500 euros per applicant.
- In addition to the funding opportunities via ZIM, it is also important to consider the existing Research Allowance Act (FZulG). The FZulG allows companies to claim costs for research and development in the IoT area against tax. It aims to make Germany more attractive as a location for innovation and to motivate small and medium-sized enterprises in particular to invest in research and development. Eligibility extends to innovations in products, processes or services that are associated with sufficient technical risks. The application process is comparatively simple, and it is possible to apply for funding retroactively for innovation projects that have already been carried out. The law has been in place since January 1, 2020, and allows German companies, no matter how large or in which industry, to deduct research and development costs from their taxes or have them reimbursed. Anything that qualifies as innovation, whether in the development of new products, processes or services, is eligible as long as it involves enough technical risk. Up to 25% of eligible costs or up to €1 million per year per company are available. The special thing about the research allowance is that it can also be applied for retroactively. This means that you can already claim the costs for 2020, 2021 and 2022 and thus get a total of up to 3 million euros in tax refunds or savings for your business.
In summary, innovations in the field of the Internet of Things (IoT) face a wide range of requirements and challenges. In order to meet these, close cooperation between various players such as research institutions, companies and practitioners is required to drive IoT innovations forward. The use of funding opportunities plays an important role in this. There are various programs that offer financial support and funding for IoT innovations.
Need help applying to ( ZIM and FZulG) ? Consider IT is the expert funding agency you need. Don’t waste time and money we can help you through the process. nigischer@consider-it.de
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Commissioned by the Federal Ministry of Economics and Climate Protection (BMWK).