A wide range of NZ startups can now secure government R&D funding before raising other capital. In this article, we explore how that changes the fundraising game.
We used to have a catch-22 situation for some New Zealand startups chasing government funding . Until now, startups could theoretically access government research and development (R&D) funding for the very earliest stages of their R&D project, but in practice they couldn’t get it until first raising substantial other funding. Yet by the time they had raised other funds, they often found they no longer qualified for the early-stage government funding.
Now, a technical rule change may have flipped the process on its head. Startups can now win an attractive R&D grant ‘in principle’ even without other funds behind them. With the grant in hand, they can then present a more attractive opportunity to would-be investors.
The Attractive New-to-R&D Grant - Not Just for Startups
The NZ government offers all NZ businesses – both new and old – up to $400,000 through the attractive ‘New-to-R&D’ grant . Winning the grant means a business can claim government cash contributions for 40% of their R&D expenditure (plus GST) over a two-year period, up to the $400,000 maximum. They can also claim funds to grow their internal R&D capabilities.
The government hopes this grant will persuade more R&D-intensive businesses to launch, and more existing businesses to add an R&D arm to their operations.
To qualify, your business must be embarking on its first significant R&D investment in recent years and be able to fund its own 60% portion.
Why Startups Have Struggled to Access Grants
The New-to-R&D grant should be particularly attractive to young tech startups, yet we often see early startups struggling to benefit as much as they should.
Until now, the startup couldn’t even apply until they could prove they had access to sufficient other capital. At very early stages when capital is scarce, some startups have found themselves unable to qualify, or with only enough to match a small grant.
Despite being available for two years, only 63 winners had been announced under the old rules (as of October 2024 – just after the rule change). Most of these did not receive the full $400k, with 29 (46%) not even making it to $100k. The lowest grant was for $7,400.
New to R&D Grant Changes Increase Startup Eligibility
Now, the grant can be awarded in principle, so long as you have made some progress raising your 60% matched funding from investors, and you are confident of securing it within the next six months. This means you can apply at a much earlier stage in your fundraising journey.
A second improvement expands the grant’s definition of ‘new’. Previously a business became ineligible for the grant as soon as they had spent $50k on R&D in any three-year period. That cut-off has now been lifted to $150k, which means you can now also apply at a later stage of your R&D.
The combined effect is to expand the window of eligibility, now allowing many more businesses to qualify – at both earlier and later stages of growth.
How Does This Change Startup Fundraising?
The changes make a big difference to startups, who can now maximise the grant and better leverage it with private investment.
Under the old rules, a business could sometimes get a long way through the process of applying for the grant, before realising they couldn’t prove they had enough other funding lined up. Future intentions weren’t enough, you had to provide substantial evidence and paperwork proving firm investor commitments or cash in the bank already. This could cause delays while sourcing the capital and was a significant issue for early-stage startups.
If a startup had just closed a funding round, got some serious investors on board, or had access to cash from earlier windfalls, they could then go for the grant. Some could even claim the maximum $400k, if they have $600k matching funds.
More commonly, we saw startups raise small amounts, say $60k, to win a $40k grant, at less than one tenth the funding available. Since you can only get the grant once, this was a missed opportunity. It also created the risk of blowing past the $50k limit on R&D spending in the meantime.
Why This Matters for Startups Seeking Investment
The new rules mean a startup has a longer window of opportunity to apply and is more likely to receive the maximum amount. But there’s also a more important strategic advantage here.
Instead of startups first chasing investors and raising funds, they can first win a grant, then take that pre-approval to investors. Having the pre-approval in hand should make the investor more confident in the pitch and the plan. It also creates a very clear leverage calculation, showing how much government money will be matched to their private investment. The startup gets a longer runway, and the investor gets a better ROI.
Nothing Lasts Forever. Connect with our Grant Consultants.
The New-to-R&D grant is an attractive and valuable addition to NZ’s funding landscape. But with a limited pool of total funding available, it’s first in, first served. So, what are you waiting for? Reach out to our NZ-based grant and R&D funding consultants to discuss your eligibility.
