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Office of the Minister For Industry and Regional Development

DEV (00) 39

26 June 2000

To: The Chair
Cabinet Economic Development Committee

Contents

• Proposal
• Executive Summary
• Background
• Objectives of the Industry NZ Enterprise Awards Scheme
• Broad Criteria and Funding
• Delivery and Administration
• Evolution of the Industry NZ Enterprise Awards Programme
• Monitoring and Evaluation
• Consultation
• Fiscal Implications
• Legislative Implications
• Publicity
• Recommendations

Proposal

1. This paper seeks Cabinet Committee's agreement to the operational details and appropriation for the Industry NZ Enterprise Awards Scheme to be delivered by Industry NZ in 2000/2001. This is the first of the Industry NZ programmes to be put in place. It has been designed as a straightforward scheme that can be implemented quickly and effectively. Work on a more comprehensive, added value scheme, with a higher level of grants is also proposed.

Executive Summary

2. The objective of the Industry NZ Enterprise Awards Scheme is to assist innovative firms and entrepreneurs to build capability to test and develop early-stage business concepts and projects, by providing funding to employ expertise and advice. The Scheme will target small businesses and entrepreneurs and start-up enterprises in New Zealand with marketable and growth-potential business projects and concepts, a sound track record and/or demonstrable capability, and that have a real desire to develop and grow beyond their current level of operation.

3. Funding will be available for 50% of total costs up to a maximum of $10,000 (GST inclusive) for businesses and entrepreneurs to employ external advice and expertise for testing and commercialising their business proposals, and concepts in areas such as feasibility studies, prototype design and testing, electronic commerce strategy, market research, and strategic planning.

4. Grant approvals will be based on a contestable award process, with the highest scoring applicants on key criteria receiving the grants. This process will involve a partnership between BIZ providers and the Ministry of Economic Development/Industry NZ. BIZ providers will be the first point of call for applications and selected providers will pre-assess the quality of the applicant and applications against key criteria. Maori Business Facilitation Service shop-fronts will also become designated first points of call, once this Service is established. An Awards Approval Committee, made up of representatives from Industry NZ, the Ministry of Economic Development and private sector experts, will meet once every two months to undertake a final assessment of applications, and determine the grant award winners.

5. The Scheme will provide a minimum of 250 grant awards of up to $10,000 (GST inclusive). A minimum of 200 grant awards will be dedicated for existing businesses and 50 for entrepreneurs or start-up businesses.

6. The Scheme is scheduled to be in place by the first week of July 2000, and will be administered by the Industry NZ Establishment Unit in the Ministry of Economic Development in the interim while Industry NZ is established.

7. It is recommended that the Industry NZ Enterprise Awards Scheme initially be delivered as a six-month programme, during which Industry NZ will develop a more comprehensive grants scheme. The Ministry of Economic Development, in consultation with relevant departments, will report back to Cabinet Economic Development Committee by 1 November 2000 on detailed approaches for implementing ongoing early stage grants schemes through Industry NZ.

8. The Industry NZ Enterprise Awards Scheme will be funded through the budget allocation for industry and regional development policy, programmes and administration in Vote: Industry and Regional Development (CAB (00) M 16/6 (29) refers).

Background

9. On 12 June 2000, Cabinet agreed that a number of industry development initiatives for delivery by Industry NZ be subject to further detailed design and implementation work. This included a grants programme to ensure that entrepreneurs with innovative ideas are not prohibited from realising the potential of those ideas by a lack of early stage finance. This would include funding for early stage projects and new business development (CAB (00) M 19/2 refers).

10. Cabinet also directed the Ministry of Economic Development, in consultation with relevant government departments to report back to Cabinet Economic Development Committee by 28 June 2000 on the implementation of new industry development initiatives and the proposed appropriations (CAB (00) M 19/2 refers).

11. Ministers have asked officials to give priority to the implementation of the early stage grants scheme.

Objectives of the Industry NZ Enterprise Awards Scheme

12. The broad aim of the proposed grant awards scheme is to help entrepreneurs and businesses with innovative and marketable business concepts to realise the potential of those ideas through access to early stage finance and expertise.

13. More specifically, the grant awards scheme will assist innovative firms and entrepreneurs to build capability to test and develop early-stage business concepts and projects, by providing funding to employ expertise and advice in relevant areas such as feasibility studies, prototype design and testing, electronic commerce strategy, market research and strategic/business planning.

14. The scheme also aims to improve businesses' and firms' understanding of the value of external advice and of developing business capability.

15. The intended target for the scheme is businesses and entrepreneurs with marketable and growth-potential business projects and concepts, and that have a real desire to develop and grow beyond their current level of operation.

Broad Criteria and Funding

16. The broad criteria for assisting existing businesses and entrepreneurs under this programme include the following.

1. Businesses or groups of businesses must:
• Be operating in a commercial environment, resident in New Zealand and registered for GST purposes
• Be financially viable and have a sound track record
• Demonstrate a commitment to growth
• Show why they need this funding rather than any alternative funding
• Demonstrate how the funding will add value to existing activities
• Have a well developed early-stage business proposal or concept
• Demonstrate a commitment to retain the value of the proposal in New Zealand
• Have proposals and business concepts that are consistent with laws and regulations
• Have less than or equal to 20 FTEs and/or annual turnover of less than or equal to $NZ10 million.
2. Entrepreneurs or start-up enterprises must:
• Be resident in New Zealand for income tax purposes
• Have a well developed early-stage business concept or proposal
• Demonstrate capability and motivation
• Demonstrate a commitment to retain the value of the proposal in New Zealand
• Show why they need this funding rather than any alternative funding
• Demonstrate how the funding will add value to existing activities
• Have proposals and business concepts that are consistent with New Zealand's laws and regulations
• Be committed to ongoing mentoring/liaison as part of the funding package.

17. The final criteria for funding of the Industry NZ Enterprise Awards Scheme will also be consistent with New Zealand's international treaty obligations.

18. Funding will be available for 50% of total costs up to a maximum of $10,000 (GST inclusive) for businesses and entrepreneurs to employ external advice and expertise in any of the following areas:

• Feasibility Studies
• Prototype design and testing
• Electronic Commerce Strategy
• Business/Strategic Planning
• Market Research
• Human Resource Development
• Business Appraisal/Capability Assessment
• Protection of intellectual property
• Testing of financial viability and assessment of value
• Mentoring/Counselling.

19. The part-funding requirement is consistent with a principle of partnership, and encourages commitment from applicants and an improved understanding of the value of the assistance. Applicants may seek funding for external advice and expertise in one or a number of the above activities.

20. All applications will be subject to a pre-assessment of the capabilities of the business/entrepreneur and the quality of the proposals by selected BIZ providers (see delivery and administration below). This is to both help filter the number of applications received by the Ministry of Economic Development/Industry NZ and to ensure that quality and added value applications are considered for approval.

21. Applications must be made prior to incurring expenses. Once an application has been approved, payments will be made on a reimbursement basis on production of invoices/receipts. The proposed use of the funding must be indicated in advance. No funding will be provided for overseas travel, normal business expenses, or to contribute to the purchase of other government services (i.e. Tech NZ, Trade NZ).

Delivery and Administration

22. It is proposed that the Industry NZ Enterprise Awards Scheme will be delivered and administered as illustrated in Figure 1.

Figure 1: Delivery and Administration Process

23. The key to the promotion and delivery of this scheme is the emphasis on the awards process. Although the support will be effectively grants, selection will be based on a contestable process, with the highest scoring applicants on key criteria receiving the grants. This is to help manage the demand and expectations from potential applicants while Industry NZ is still being established.

24. The scheme will provide a minimum of 250 grant awards of up to $10,000 (GST inclusive). A minimum of 200 grant awards will be dedicated for existing businesses and 50 for entrepreneurs or start-up businesses.

25. Application forms will be made available from BIZ providers. BIZ providers may, where required, assist applicants in filling out the application and providing the required supporting documentation. Businesses and individuals will need to demonstrate a commitment to capability development through participation in training, mentoring and development services such as those offered by BIZ, Economic Development Agencies, New Zealand Institute of Management, Business in the Community, Small Business Enterprise Centres and other service providers.

26. Once the Maori Business Facilitation Service shop fronts have been established by 1 September 2000, they will also become designated first points of call for applications.

27. Applications will be forwarded to four regional pre-assessment centres, which will include BIZ providers in Auckland, Taranaki, Wellington and Christchurch. These centres will be contracted to the Ministry of Economic Development to pre-assess the applications (ensure suitability and completeness of the application, contact the applicant where required to clarify information, contact the local BIZ provider where required to obtain additional information, check budgeted figures and consider the quality of the business proposal), score the applications against key criteria and provide comments. Regional pre-assessment centres will be encouraged to partner with other business assistance providers in areas where they may lack local knowledge and will work closely with Industry NZ.

28. A standard pre-assessment template and scoring process will be established in consultation with the four regional pre-assessment centres.

29. The four regional pre-assessment centres will forward assessed applications to the Industry NZ Establishment Unit in the Ministry of Economic Development (until Industry NZ is established), which will undertake a background check on applicants (through the Ministry's Business and Registries Branch). An Awards Approval Committee, made up of representatives from Industry NZ, the Ministry of Economic Development and private sector experts, will meet once every two months to undertake a final assessment of the applications and determine the grant award winners. All applicants will be notified of the decisions and contracts will be entered into with the successful applicants.

30. Criteria for evaluation and scoring will be developed around the extent of innovation, growth prospects, and individual or organisational qualities.

31. It is anticipated that around 50 grants will be awarded by 1 August, some 100 grants will be awarded by 1 October, and the remaining grants (at least 100) will be awarded by 1 December. Successful applicants will be required to report back on the outcomes they achieved with the grant funding.

32. The Industry NZ Enterprise Awards Scheme will be launched in the week beginning 3 July 2000, and will be monitored and managed by the Industry NZ Establishment Unit in the Ministry of Economic Development in the interim while Industry NZ is established.

Evolution of the Industry NZ Enterprise Awards Programme

33. The Industry NZ Enterprise Awards Scheme as described above has been designed within the constraints of the tight timeframe provided for the development of the programme. This is reflected by the use of the existing network of BIZ providers, the low of levels of funding available, the awards process and the clear but restrictive funding provisions.

34. There are risks with this approach:

• Although there will basic pre-assessments undertaken on all applicants, the approval decision will be based to a certain extent on businesses own assessments of their needs and capabilities.
• As the scheme is geared around support to employ expertise and external advice, it has the potential to influence the decisions of consultants and other experts in the way they deliver services.
• It will be difficult to ensure quality of the expertise that will be used by successful applicants although BIZ providers will, as part of the pre-assessment, make some determination of relevance.
• There are great expectations in the business community about the type and level of funding support that will be available from Industry NZ. These expectations will have to be carefully managed, as this is a low-level, fairly specific scheme.
• In the first instance, due to practicality, only BIZ providers will be selected as the first points of call. This may cause tensions with other agencies such as the Economic Development Agencies of New Zealand and Small Business Enterprise Centres of New Zealand, although a number of the members of these organisations are also BIZ providers.

35. These risks can be managed to a degree with a well-developed communications strategy and clear monitoring and accountability arrangements. However, while it is important to signal the government's intention as early as possible to support entrepreneurship and business development, and although the Scheme is consistent with the objectives and underlying problems outlined for early stage financing, this is not the comprehensive scheme that was originally envisaged.

36. A more comprehensive and added value scheme would:

• Provide applications through a fuller range of qualified providers (e.g. Economic Development Agencies, Small Business Enterprise Centres, Chambers of Commerce) which would also undertake simple pre-assessments.
• Ensure, following the relatively simple pre-assessments, that applicants seeking more significant levels of funding were subject to a full business appraisal of their capabilities and growth potential by Industry NZ Specialists. This fuller appraisal would identify the business's/entrepreneur's and proposal's strengths, weaknesses, opportunities and the range of needs, rather than relying heavily on the business's/individual's assessment.
• Provide higher levels of flexible funding (say up to a maximum of $50,000) which could be applied to a range of areas of need and added value identified through the appraisal. This would include direct funding to the business/entrepreneur in addition to funding to employ external advice and assistance.
• Be provided on a case-by-case basis, rather than through an awards process.

37. For these reasons, it is recommended that the Industry NZ Enterprise Awards Scheme in its current form be delivered as a six-month programme. During this time Industry NZ will develop the more comprehensive and added value grants scheme as described above. However, if successful, the Awards Scheme could continue.

38. The first six months can be viewed as a pilot phase during which the more sophisticated and added value scheme will be designed. Lessons learned from the first phase will be used in designing the next.

39. Officials will report back by 1 November 2000 on the recommended approach for implementing ongoing early stage grants scheme/s through Industry NZ.

Monitoring and Evaluation

40. The Ministry of Economic Development will be responsible for monitoring and evaluating the Industry NZ Enterprise Awards Scheme. Consistent with the components of an effective evaluation (CAB (00) M 19/2 refers), this will include assessment of the impact and effectiveness of the programme and whether it meets its objectives, the adequacy of the delivery and administration system, whether the programme provides value for money, and whether the programme is still necessary. The evaluation framework will be developed during the first few months of implementing the Awards Scheme.

Consultation

41. The following departments have been consulted during the preparation of this paper: the Department of Prime Minister and Cabinet, the Treasury, Ministry of Research, Science and Technology, Ministry of Foreign Affairs and Trade, Department of Labour, Ministry of Agriculture and Fisheries, Department of Internal Affairs, State Services Commission, Te Puni Kokiri, Ministry of Pacific Island Affairs, and the Ministry of Women's Affairs.

Fiscal Implications

42. The cost of the Industry NZ Enterprise Awards Scheme will be met out of the $33.750 million approved in the Budget for 2000/2001 (GST inclusive) for industry and regional development policy development, programmes and administration in Vote: Industry and Regional Development, with no corresponding impact on the Government's operating provisions. Administration and management of the grant scheme will be funded out of Non-Departmental Output Class "Delivery of Industry and Regional Development Programmes" from Vote: Industry and Regional Development. Administration is expected to cost around $350,000 (GST inclusive). Around $200,000 will be allocated to the BIZ pre-assessment centres, with $150,000 for Industry NZ management and administration. It is proposed that the Industry NZ Enterprise Awards be funded through a new Other Expense to be Incurred by the Crown "Industry NZ Enterprise Awards Scheme", from 2000/2001 in Vote: Industry and Regional Development, with the following changes to appropriation:

Legislative Implications

43. There are no legislative implications associated with this proposal.

Publicity

44. A communications strategy for the launch of the Industry NZ Enterprise Awards Scheme is being prepared in consultation with my office.

Recommendations

45. It is recommended that the Committee:

1. Agree that the objective of the Industry NZ Enterprise Awards Scheme is to assist innovative firms and entrepreneurs to build capability to test and develop early-stage business concepts and projects, by providing funding to employ expertise and advice;
2. Agree that the target for the Scheme is businesses and entrepreneurs with marketable and growth-potential business projects and concepts, and that have a real desire to develop and grow beyond their current level of operation;
3. Agree that the broad criteria for funding for the Industry NZ Enterprise Awards Scheme will be:
1. Businesses or groups of businesses must:
• Be operating in a commercial environment, resident in New Zealand and registered for GST purposes
• Be financially viable and have a sound track record
• Demonstrate a commitment to growth
• Show why they need this funding rather than any alternative funding
• Demonstrate how the funding will add value to existing activities
• Have a well developed early-stage business proposal or concept
• Demonstrate a commitment to retain the value of the proposal in New Zealand
• Have proposals and business concepts that are consistent with laws and regulations
• Have less than or equal to 20 FTEs and/or turnover of less than or equal to $NZ10 million
2. Entrepreneurs or start-up enterprises must:
• Be resident in New Zealand for income tax purposes
• Have a well developed early-stage business concept or proposal
• Demonstrate capability and motivation
• Demonstrate a commitment to retain the value of the proposal in New Zealand
• Show why they need this funding rather than any alternative funding
• Demonstrate how the funding will add value to existing activities
• Have proposals and business concepts that are consistent with New Zealand's laws and regulations
• Be committed to ongoing mentoring/liaison as part of the funding package;
4. Note that the final criteria for funding of the Industry NZ Enterprise Awards Scheme will be consistent with New Zealand's international treaty obligations;
5. Agree that funding will be available for 50% of total costs up to a maximum of $10,000 (GST inclusive) for businesses and entrepreneurs to employ external advice and expertise in any of the following areas:
• Feasibility Studies
• Prototype design and testing
• Electronic Commerce Strategy
• Business/Strategic Planning
• Market Research
• Human Resource Development
• Business Appraisal/Capability Assessment
• Protection of intellectual property
• Testing of financial viability and assessment of value
• Mentoring/Counselling;
6. Agree that grant approvals will be based on a contestable process, with the highest scoring applicants on key criteria receiving the grants;
7. Note that the scheme will provide a minimum of 250 grant awards of up to $10,000, with a minimum of 200 grant awards dedicated to existing businesses and 50 to entrepreneurs or start-up businesses;
8. Note that the delivery and management process will include:
• Application forms will be made available from BIZ providers (and Maori Business Facilitation Service shop-fronts once the Service is established), which may, where required, assist applicants in filling out the application and providing the required supporting documentation
• Applications will be forwarded to four regional pre-assessment centres to pre-assess and score the applications against key criteria and provide comments
• Assessed applications will be forwarded to the Ministry of Economic Development (Industry NZ once it is established), which will undertake a background check on applicants (through the Ministry's Business and Registries Branch)
• An Awards Approval Committee, made up of representatives from Industry NZ, the Ministry of Economic Development and private sector experts, will meet once every two months to finally assess applications, and determine the grant award winners
• Successful applicants will be required to report back on the outcomes they achieved with the grant funding;
9. Note that the Industry NZ Enterprise Awards Scheme will be in place in the week beginning 3 July 2000, and will be administered by the Industry NZ Establishment Unit in the Ministry of Economic Development in the interim while Industry NZ is established;
10. Agree that the Industry NZ Enterprise Awards Scheme initially be delivered as a six month programme, during which Industry NZ will develop a more comprehensive grants scheme;
11. Direct the Ministry of Economic Development, in consultation with relevant departments, to report back to Cabinet Economic Development Committee by 1 November 2000 on detailed approaches for implementing ongoing early stage grants schemes through Industry NZ;
12. Note that the Ministry of Economic Development will be responsible for evaluating the effectiveness of the Industry NZ Enterprise Awards Scheme;
13. Note that as part of the 2000/2001 Budget Package $33.750 million has been approved for 2000/2001 (GST inclusive) for industry and regional development policy development, programmes and administration from Vote: Industry and Regional Development (CAB (00) M 16/6 (29) refers);
14. Note that Cabinet agreed that funding will not be released for specific initiatives within the Vote Industry and Regional Development Non-Departmental Output Class until Cabinet has approved the details of the specific policies, costs and output class structures (CAB (00) M 16/6(29) refers);
15. Approve the establishment of "Industry NZ Enterprise Awards Scheme" as a new Other Expense to be Incurred by the Crown appropriation from 2000/2001 in Vote: Industry and Regional Development;
16. Approve the following changes to appropriation to establish the Industry NZ Enterprise Grants Scheme, with no corresponding impact on the Government's operating provisions;

17. Agree that the administration of the Industry NZ Enterprise Awards Scheme be met from Non Departmental Output Class "Delivery of Industry and Regional Development Programmes" appropriation from 2000/2001 in Vote: Industry and Regional Development; and
18. Agree that the changes referred to in paragraph (o) above be included in the 2000/2001 Supplementary Estimates and in the interim be met from imprest supply.

Hon Jim Anderton
Minister for Industry and Regional Development