Jersey Innovation Fund
Operational Terms of Reference
September 2012
Contents Page
- Strategic context 2
- Laws and articles that allow for the Fund to be created 2
- The Jersey Innovation Fund’s operating model 2
- Definition of Grants and Repayable Loans 4
- Management and Governance 5
- Risk 7
- Scope of the Jersey Innovation Fund 7
- Operational Cost 7
- Reporting 7
- Audit 7
- Assessment framework 8
- Recommendations and approval framework 10
Appendix 1 – Extract from P55, 2012
Appendix 2 Examples of Innovation Funds
Appendix 3 HM Treasury Green Book best practice
Appendix 4 Nolan Principles
Appendix 5 Application Business Case Templates
Appendix 6 Process Map
1. Strategic context
On 17th July 2012, the States approved a new Economic Growth and Diversification Strategy (P55/2012). The key objectives of the Strategy are to deliver growth, improve competitiveness, diversify the local economy and create employment. This will be achieved by the States working in partnership with the private sector and third sector organisations to deliver four strategic aims:
- Encourage innovation and improve Jersey’s international competitiveness
- Grow and diversify the financial services sector, capacity and profitability
- Create new businesses and employment in high value sectors
- Raise the productivity of the whole economy and reduce the reliance on inward migration
To support the delivery of these aims, the EGDS proposed the creation of the Jersey Innovation Fund (JIF) to increase innovation in the Jersey economy and, by doing so, increase the Island’s productivity, economic diversity and competitive advantage. The relevant extract from the EGDS is included at Appendix 1
The JIF will be capitalised with an initial £5 million allocation in the Medium Term Financial Plan (MTFP). Projects eligible for funding will range from direct business support for start up, growth and inward investment through to strategic infrastructure in the private, public and third sectors projects.
All projects considered for support will, as one of their core outputs, improve the rate of innovation in Jersey and lead to job creation for Jersey residents.
2. Laws and articles that allow for the Fund to be created
The Fund will be established pursuant to Article 3(3)(a) of the Public Finances (Jersey) Law 2005.
3. The Jersey Innovation Fund’s operating model
The principle of Governments encouraging, supporting and making investment into innovation is not a new concept, indeed Jersey is unusual in not having such support available to support economic development. The UK, Malta and Singapore are three good examples where government funds have, with significant success, been used to boost innovation. Whilst there are some common features, each jurisdiction has a unique operating model, eligibility and assessment criteria designed to support the specific priorities and objectives of the jurisdiction. That being said, analysis of Innovation Funds from across a number of jurisdictions allows operating models to be characterised into 3 main types:
3.1 The Fund of Fund
A Government Fund managed by public sector fund managers who make strategic investments in a number of established private sector Venture Capital funds. The Government funding is directed towards Venture Capital funds that are of strategic importance; for example technologies or renewable energies. Coupled with private sector funding these privately managed funds invest in private sector businesses. All investments are equity finance arrangements where a share in the company is taken in return for the investment. The returns on any Government investments are linked to the overall performance of the venture capital fund and not linked to any one specific organisation.
3.2. The Partnership Fund
A Government managed fund that invites private sector venture capital fund managers to submit applications for co- funding to increase the availability of risk capital for early-stage and high-growth companies. Government does not own any equity in the private enterprises; this is retained by the venture capital organisation. Returns on any investments are linked to either the overall performance of the venture capital fund or a specific organisation.
3.3 The Government Fund
A fund that provides financial support in the form of repayable loans and/or non repayable grants direct into a private sector enterprise. The fund is normally managed by an independent Board with members from both the public and private sector. The returns made on loans are linked to combination of arrangement fees, interest rates and special clauses allowing it to benefit from any increases in value, sales growth, or the licensing of any intellectual property.
An example of each is provided at Appendix 2
The Public Finances (Jersey) Law 2005 provides the legal framework to both establish the JIF and allow the Fund to provide support for projects in the form of loans or grants. Existing legislation would not allow the JIF to be used to make investments in private enterprise in exchange for equity, in the business.
As a consequence, it is proposed that the JIF will launch and initially operate as a Government Fund (see 3.3 above) making available financial support in the form of repayable loans or non-repayable grants. The assumption is that the majority of support will be provided in the form of repayable loans with conditions that allow the JIF to realise enhanced returns if the business were to be successful and/or sold for significant gain. It is envisaged that non repayable grants will only be considered in exceptional circumstances.
Following the launch of the JIF, the Treasury and Economic Development will develop the necessary draft legislation, for States approval, that will allow the Fund to make equity investment in privately owned business. This will require an element of the JIF to be operated as a Partnership Fund, as described in 3.2 above. The aim is that the Treasury Minister will bring forward a further Report and Proposition to the States of Jersey for approval of this element of the JIF within six months of the launch of the Fund.
The aim of the JIF is that it should be self-replenishing and NOT a sinking fund. As a consequence, all grants and loans offered will have conditions that allow the JIF to realise enhanced returns if the business were to be successful and/or sold for significant gain. In all cases any returns from clauses attached to any grants or loans will be returned back to the Fund.
4. Definition of Grants and Repayable Loans
Within the first six months of operation the types of financial support available from the JIF will be restricted to repayable loans and non repayable grants. In both cases the Economic Development Minister will have the option to approve specific clauses or conditions to safeguard the States of Jersey and allow it to benefit from, but not limited to, any significant increase in the value of the enterprise, a move to another jurisdiction, a significant increase in revenues or other commercial opportunities resulting from the original investment.
The option to provide either a repayable loan or grant provides the opportunity to support fully commercial projects in innovation or projects that would not proceed without grant assistance from the JIF. In all cases projects supported by JIF must clearly demonstrate that, in the success case, they have the potential to deliver economic and commercial returns. The assumption is the majority of support offered will be through repayable loans with grants only offered in exceptional circumstances
Any financial support offered (loan or grant) will comply with all aspects of the Public Finances (Jersey) Law 2005 and States of Jersey Financial Directions. Any grant or repayable loan would be the subject of a detailed Funding Agreement. Each Funding Agreement will be unique to the project and include details of any specific clauses, the rights and obligations of both parties and contain the following as a minimum:
- Name of the investee;
- Description of the financial support (loan/grant)
- Purpose of the loan or grant;
- States strategic aims and objectives supported
- Amount of the support;
- Payment terms and timing;
- Repayment terms of the loans
- Interest rates of approved loans
- Royalty obligations
- Other Special conditions attached to the funding support
- Treatment of royalty or loan defaults
- Arrangements for repayment or early repayment
- Explanation of the corporate governance framework;
- Explanation of disclosure of the support in the States of Jersey Annual Accounts
- Clear explanations of what each party is expected to provide, including any reports and/or statements;
- Any conditions attached to the support and criteria for measurement of whether investment conditions have been fulfilled;
- Arrangements for repayment of the loan or grant in the event of non-performance or non-compliance;
- Rights of access for departmental officers and the Comptroller and Auditor General and
- Arrangements for the purchase and disposal of any assets to be acquired using the grant.
4.1 Definitions of the types of financial support available
Loans are defined as:
a sum of money advanced from the Fund to a party for a limited period of time and repaid with interest calculated on the balance outstanding.
Grants are defined as:
a transfer of money to an individual or entity in return for future compliance with certain conditions relating to the activities of the individual/entity.
4.2 Obligation to pay interest on all loans
The company receiving a loan from the fund will be obliged to pay interest on the amount borrowed. The terms and interest rate will be determined through consultation between the Board, the SoJ Treasurer and Minister for Economic Development.
4.3 Obligation for payment of royalties
At the discretion of the Minister for Economic Development, any project receiving support from the JIF may be required to pay royalties. The scale and scope of royalty payments will be defined, in the Funding Agreement. For instance, if the Minister for Economic Development approves a grant or repayable loan for research and development support which may lead to the commercial development of products or services, the Minister shall, based on professional advice, decide income from products or services which may be subject to royalty payments and how the amount of royalties should be calculated as a percentage of income. The products / technology on which royalties are to be paid shall be specified in the Funding Agreement.
Royalty-liable revenues would be recorded separately by the company and paid in accordance with terms and conditions defined in the Funding Agreement. The sale price requiring payment of royalties would be the full price recorded by the company in its accounts and audited statements. The only expenses that would be deducted from the sale price are those due to purchase taxes.
To remove any doubt, the Funding Agreement will document the exact details of all loan and royalty payments. The Funding Agreement will be a binding agreement between the parties and must be signed by the Minister for Economic Development before any funding is released.
5. Management and Governance of the JIF
A new independent Innovation Board (“the Board”) will be established. The Board will consist of an independent chair, a minimum of 2 private sector members plus, in an ex-officio capacity, one representative from Treasury the Economics Unit and the Economic Development Department’s Chief Officer. The Board will review every application and make recommendations to the Minister for Economic Development to approve or reject an application. The Board will not have authority to approve any funding. The Minister for Economic Development will have sole responsibility for approving or rejecting all grants or loans from the Fund.
The Economic Development ex-officio representative on the Board is also the Department’s Accounting Officer. To protect this position, avoid any possible conflicts of interest and to allow the Chief Officer to provide independent advice to the Minister for Economic Development the Chief Officer will not have any voting rights in his capacity as a Board member.
The private sector representative’s will play a critical role in assessing the likely success of the project so extensive commercial experience in a related role will be a pre requisite.
The Board will be supported by a JIF Executive, provided by the Economic Development Department. The JIF Executive will be responsible for administrative and secretariat functions. In addition, the JIF Executive will have responsibility for ongoing management, aftercare and monitoring of all investments made and reporting to the Board on these matters on a regular basis.
The JIF Executive will also have lead responsibility for:
- Receiving and coordinating all applications
- Undertake initial and appropriate levels of due diligence
- Preparing the Business Case on behalf of the Board for the Ministers consideration
- Preparing the Funding Agreement in association with the Law officers Department
- Providing aftercare and on-going monitoring of approved projects
- Establishing a risk register for all projects.
- Managing the risk register, which must be updated every 6 months, register every 6 months and notify the Board, Treasury Minister, Treasurer and Ministers for Economic Development of any changes.
- Drafting the Annual Report for the Board to approve
The Board, as appropriate, will also draw on other expert opinions to provide comprehensive due diligence when considering and assessing applications. This will include, but not be limited to, technical expertise, market intelligence, financial due diligence, and company or patent searches.
In every case and during the assessment process the States of Jersey Economic Advisors Units will undertake an economic impact assessment and present a written report to the Board which they will use in considering and assessing the project from an economic prospective.
The Board, after being fully satisfied with the due diligence checks, reviewing the expert and economic opinions and a detailed analysis of the proposal will make a recommendation to the Minister for Economic Development to approve or reject the project. The recommendation will be presented using the Business Case template which is based on HM Treasury Green Book best practice. Appendix 3
The Board, which will act in an advisory capacity, will be responsible to the Minister for Economic Development. The Board will, at all times, ensure that the JIF operates within both the Public Finance Laws and any current or future Financial Directions. Board Members will also operate within an approved corporate framework and publish an annual report that will be presented to the States
Private sector Board Members will be appointed through a process overseen by the Appointments Commission. Public Sector Board Members will be appointed by the Minister for Economic Development. Board Members will not be remunerated
Board members will be appointed for a period not exceeding 3 years. A member of the Board will cease to serve before the 3 year term if:
- They resign
- They cease to be employed as a civil servant of the States Department they are representing
- With respect to a private sector representative, they commence employment with the States of Jersey as a Civil Servant.
Board member will be expected to declare an interest and not consider an application where there is any risk of a conflict of interest. Conflict arises where an individual’s obligation to further the purposes of the Board is at odds with their own financial interests. For this reason members will to abide by the seven principles of public life set out in the Nolan Report, attached at Appendix 4
6. Risk
No form of financial support comes without a level of risk. It is acknowledged by the nature of the projects supported that some will fail. This may result in a loan not being repaid, the non-payment of royalties, or a grant supported project not delivering the desired outcomes.
Although the pre-investment due diligence, plus the post investment monitoring and assessment process are designed to minimise risks it is important to acknowledge that it is impossible to operate a fund of this type without accepting some level of risk.
7 Scope of the Fund
The Fund will be used to fund projects across all sectors but targeted and prioritised towards:
- Attracting new innovative businesses to the Island. This is an important part of the inward investment proposition and supports Government’s commitment to enhancing its ability to attract and create new high value jobs.
- Assisting early stage high value start-up enterprises with access to working capital to enable it to invest in innovation.
- Supporting established business with high growth potential to invest in innovation.
- Financing research projects that may improve the Islands competiveness.
- Funding enabling investments in infrastructure.
- Seed funding for businesses developing new products/services/processes.
- Funding for businesses to establish better links with universities with the objective of commercialising academic IP.
8. Financial and Manpower implications
Operational costs
There will be costs associated with the operation and management of the Fund, particularly relating to assessment and approval of applications e.g. company searches, due diligence work, legal costs and specialist advice. These costs will be met from the Fund. It is intended that EDD will meet these costs in the first instance and on an annual basis recharge them to the Fund. Agreed processes will need to be put in place to manage and control this. The Economic Development Department estimate that the operational and management costs at this stage are £100,000.
Manpower Implications
The Economic Development Department will allocate an individual to be the Fund Executive to support the Innovation Board and assist the management and ongoing operation of the Fund. This post will be from within its existing establishment and budget.
9. Reporting
Copies of the signed minutes of all Panel meetings will be sent to the Minister for Economic Development. An annual report on the management, operation and details of all the investment made will be prepared and sent to the States. All reports published will comply with the States of Jersey Principles of Reporting.
10. Audit
The management of the fund will be subject to appropriate audit review as determined by the Audit Committee
11. Assessment framework
To demonstrate the extent to which an application might meet the criteria of the Fund, the independent Board will have a consistent and objective methodology to compare projects which may exhibit quite different characteristics.
In particular, the Board will have a robust approach to considering the impact a project might have on employment, competitiveness and innovation and an objective measure of whether a project can be considered to encourage high value added, high quality or high productivity activity. The Board will also consider the likely short and long term commercial viability of the project
In order to complete a thorough assessment of all potential projects, certain information will be required. A summary of the information required for every project is set out below
11.1 The applicant
Name of applicant
Company sector and project sector
Country of residency/ownership
Recent Trading Results & Trading Projections
Three years company accounts, including the most recent audited accounts.
Business Plan with sales projections and commentary explaining any change in revenues, costs, margins etc
11.2 The Project (proportionate to the size and complexity of the proposed project)
Description of project
Details of any additional facilities/plant/buildings required.
Rationale for the project / what alternative projects have been considered?
Will the project result in any new products?
Timescales.
Amount and type of assistance sought
Other Sources of Finance & Need for Further Finance
Clear evidence that any other necessary funding has been secured.
Evidence that all alternative funding has been exhausted (e.g. letters from bank)
Evidence that further funding is required (demonstrable finance gap)
Supply chain expenditure Any inputs purchased from local companies
Innovation existing level of innovation what innovation will be undertaken as part of the project. Details of any specific expenditure on innovation
Training / Skills Development Details of any training that will be undertaken – general/specific, on the job / classroom, qualifications etc.
Knowledge Transfers Is there any collaboration with other businesses or knowledge bases?
Counterfactual What will happen in the absence of assistance & what is the rationale/evidence for this?
.Market analysis of current and anticipated market share, main competitors etc.
Employment Impacts
Number of Full Time Equivalent staff – job titles, wages, skill levels, longevity, recruited from locally-qualified or non-local
11.3 The Assessment
- Commercial
- Commercial/Market Assessment – How realistic are the trading forecasts?
Is there a market for the product?
Is the market growing?
Who are the main competitors?
What is the likely response of competitors?
Are there any risks to the market e.g. exchange rate risks
Technical Assessment – how innovative is the project?
Viability/Sustainability
Will the project earn sufficient profits to be sustainable?
Are trading forecasts realistic based on the market prospects?
Assessment of the quality of the management team.
Are financing arrangements sustainable?
Environmental/Social Factors
- Difference between the value added of the project and the counterfactual
- Will be scored high/medium/low compared to Jersey average.
Supply Chain Value added of any additional spend in the local supply chain
Opportunity Cost
- For locally qualified employees, the opportunity cost is the most likely alternative employment (or unemployment) to the project.
- For non-locally qualified employees, the opportunity cost is the potential to import labour for a different project/firm, potentially in a different sector.
Innovation Spillovers
- Scored high/medium/low potential for spillovers, based on the characteristics.
- Monetised where possible, based on the level of expenditure.
Training Spillovers
- Scored high/medium/low potential for spillovers, based on the type of training.
Other Wider Impacts
- Only wider impacts e.g. displacement from other Jersey business, competition impacts etc.
- Budgetary Impacts
- Cost of Assistance, including all costs to other parts of government
- Direct Revenues – e.g. loan repayments, royalties, dividends
- Tax Impacts – income tax, corporate tax, potential GST impacts.
- Number of new FTE jobs
- Sustainability of jobs
- Quality of jobs
Skills (high, medium, low)
Productivity at end of project (plus assessment of high, medium or low)
Average wages (high, medium, low)
In addition to the assessment to be carried out by economists, Economic Development Department will ensure that a number of other assessments are completed. Again, these will be carried out to a level proportionate with the size and complexity of the proposed project. The information from the below assessments will both feed into and sit alongside other assessment being considered by the Board
Additionally – Will the project go ahead without assistance?
What is the return on investment without support?
How risky is the project?
Is alternative finance available?
Is there another, more profitable location outside Jersey?
12 Recommendation and approval framework
The Board, after completing the appropriate levels of diligence and assessment, will determine if the project should be rejected or proceed with a recommendation to the Minister for Economic Development to approve the project using the draft Business Case Template attached at Appendix 5. The recommendation, signed by the Chair, will include all terms conditions, interest rates, repayment term on loans, royalty obligations and special clauses that are to be attached to offer of support. .
The Minister for Economic Development if he approves the Board recommendation will record his decision by signing a Ministerial Decision. There is no right of appeal against either the Boards recommendation or the Ministerial Decision.
Appendix 1 – Extract from P55, 2012
Strategic Aim 1: Encourage innovation and improve Jersey’s international competitiveness
The States has a role to play, in partnership with business, in encouraging innovation that will improve the Island’s competitive advantage in an increasingly competitive international market place. Innovation encompasses a wide range of activities from research and development, to organisational change, training, testing, marketing and design. It contains products, services and other solutions that that can be new to the business or the international market. Businesses commonly under invest in innovation and, as a consequence fail to realise their potential. Government policy and financial intervention can remove barriers, bottlenecks or obstacles that impede the innovation process.
To achieve this strategic aim, a new Innovation Fund is proposed. The aim of the Fund is to support innovation and will be available to support a wide range of activity from direct business support to strategic infrastructure investments, in the private, public and third sectors. The one consistent factor of policies that merit support will be that they improve the rate of innovation in Jersey and lead to significant employment creation.
The priority is to:
1.1 Establish a new Innovation Fund pursuant to Art 3(3)(a) of the Public Finances (Jersey) Law 2005 – managed by EDD, with an independent Board including EDD, Treasury and Resources, and Chief Ministers’ Department representatives and non-Executive Directors drawn from the private sector. The Board will have responsibility for evaluating all applications for support and, following thorough analysis, making recommendations to the Economic Development Minister. The fund will make investments in private and public sector projects to drive greater innovation in Jersey and improve competitive advantage.
The Treasury and Resources Minister will bring forward detailed proposals for the Innovation Fund to the States for approval in the fourth quarter of 2012 however the Fund will have the following structure:
- Investments will only be made in projects that clearly demonstrate a significant leverage in terms of improving Island competitiveness, infrastructure improvements, developing innovation and diversification towards high value activity that creates good jobs for local people. Projects will also have to demonstrate how the investment will deliver wider economic benefits to the Island.
- The fund will be used to support projects across all sectors, from enabling investment in ICT infrastructure, to additional support to attract innovative businesses to the Island
- The Innovation Fund will increase the availability of risk capital for high value growth companies, and is central to the Islands strategy for economic growth and diversification. The fund will support private, public and third sector projects that can clearly demonstrate the following:
- Creation of employment for Jersey residents
- Return on investment in terms of economic benefit for every £1 spent from the Fund
- A quantifiable impact on competitiveness and innovation in sectors which Jersey can demonstrate a comparative advantage (measured by increased market share)
- Encouraging high value added, high quality, high productivity economic activity
- A strong case for States support through alignment with States Strategic Plan priorities, in particular in areas where market failure is presenting a barrier to innovation.
- The Fund will be used to support projects across all sectors through:
- Additional support to attract new innovative businesses to the Island.
- Direct support to innovative businesses that may be unable to find finance.
- Finance for research and development opportunities.
- Enabling investment in ICT infrastructure.
- Seed funding for new products/services/processes.
- Funding for businesses to establish better links with university research
- Eligibility will not be sector-specific but all applications for support must demonstrate, as a minimum:
- The impact directly/indirectly in terms of expected profits/ revenues/employment in future years.
- What efforts have been made to access private sector funding
- Why private sector funding is not available
- How the project will bring wider benefits to the Jersey economy
- What funding is necessary and how the Island will benefit
- Applications will be assessed on a consistent and objective basis and only projects that meet the required criteria and score highly will be progressed. In particular:
- Dedicated Officer support will check and make sure compliance in terms of information/key criteria (those that do not will not go forward to the Officer Board).
- The Officer Board will consider applications and decide whether they merit more detailed consideration.
- Projects that merit further consideration would be assessed on their net economic impact by the Economics Unit and in terms of financial code, etc by Treasury and Resources (and other officers where appropriate).
Given the competitiveness of the inward investment market it is particularly important that the proposed Jersey Innovation Fund has access to significant resources, of a scale capable of standing comparison with competitor offerings.
Evidence from the UK, Singapore, Malta, Northern Ireland and elsewhere clearly demonstrates that an Investment Fund can make a real difference by supporting the wide range of policies intended and enhance the rate of innovation. The Funds being managed in the aforementioned jurisdictions vary in size and eligibility.
Whilst the scale of the problems in Jersey do not match those in the UK Europe or elsewhere it is essential that sufficient resources are allocated to the Innovation Fund to deliver results and attract matching investment. In this respect it is proposed that the new Fund be created with an initial investment of £10 million from Treasury,
The performance of the Innovation Fund will be monitored by the Treasury and investments in the Fund will be subject to annual audit, the results of which will be presented to the States.
Success for this Strategic Aim will be to have established a fund, and assessment framework, that could be used for strategic investments into innovation and new technologies that would deliver a competitive advantage for Jersey, attract additional private sector investment and create new high value businesses resulting in significant new job opportunities in a more diversified economy. |
Appendix 2 Examples of Innovation Funds
Model 1: The Fund of Fund
An example: The UK Innovation Investment Fund (UKIIF)
The UK Innovation Investment Fund operates on a Fund of Funds structure which means it does not invest directly in companies, but rather invest in a small number of specialist, private sector technology funds that have the expertise and track record to invest directly in technology businesses. By increasing the supply of venture capital to these funds the UKIIF drives investment in high growth businesses, start-ups and spin-outs which are finding it difficult to raise finance in the current economic climate
The UKIIF had an initial investment of £150m from HM Government, and has the ambition of increasing the value of the Fund to £1 billion. This money is invested in a small number of technology venture capital funds, operated by experienced and successful venture capital fund managers, with the expectation that the majority of the money would be invested in sectors such as life sciences, low carbon and clean technologies, ICT and digital and advanced manufacturing. The underlying funds are invested in companies that require equity finance at all stages of development, from seed and early stage funding through to later stage financing.
Types of investments- Equity finance
Model 2: Partnership Fund
Example Innovation Fund Ireland.
Ireland has up to €250 million available and runs along two parallel tracks. The first one comprises a €125 million pool of funds provided by the Exchequer and managed by Enterprise Ireland. Managers of private equity funds/firms are invited to submit applications. Successful applicants who receive an investment from Enterprise Ireland will have to commit to investing an equivalent amount in Irish companies or companies with significant Irish operations over the lifetime of their fund.
The second one is for a similar amount and designed to allow Ireland's National Pension Reserve Fund to make a similar level of commercial investments.
Fund managers must meet, at a minimum, the following criteria to be considered for investment:
An established global profile and network with a reputation for market leadership in venture capital investment.
A proven track record of raising funds and generating superior returns for investors.
A capacity to access high potential international investment opportunities with an investment team capable of attracting world-class entrepreneurs.
An intention to establish a new and substantial presence in the venture capital market in Ireland and a willingness to invest a meaningful proportion of their venture capital fund in Irish companies or companies with significant Irish operations
The Innovation Fund Ireland has been created to increase the availability of risk capital for early-stage and high-growth companies, and is central to the Irish Government's strategy for economic recovery. Government does not own any equity in the private enterprises benefiting from the risk capital available from the fund.
Model 3) The Government Fund
An example the Office of the Chief Scientist, Israel
The Office of the Chief Scientist (OCS) of the Ministry of Industry, Trade and Labour (MOITAL) ,empowered by the Law for the Encouragement of Industrial Research & Development 1984 (R&D Law), oversees all Government sponsored support of R&D in the Israeli industry. This broad spectrum support stimulates the development of innovative state of the art technologies, enhances the competitive power of the industry in the high-tech global market, creates employment opportunities and assists in redressing Israel 's balance of payments. In addition to its domestic activities, the OCS is involved in a myriad of bi- and multinational industrial R&D agreements.
The OCS annually supports hundreds of projects from incipient concepts within a pre-seed framework followed by support of incubator and start-up companies through autonomous industrial R&D enterprises. The support is directed toward the development of novel products based on new and innovative technologies throughout the entire industry, in well established as well as new companies and in both the high-tech and traditional sectors. This support also extends to a broad range of cooperative ventures with foreign commercial entities. The support is structured and delivered via a wide range of separate schemes-(a few examples below)
1. Pre Competitive R&D Support via:
Magnet Consortium Supports the formation of consortia made up of industrial companies and academic institutions, in order to jointly develop generic, pre competitive technologies. The duration of a Magnet Consortium is 3-5 years.
Grants are up to 66% of the approved budget for industry and up to 80% for the academic institution. No royalty payments.
Katamon Promote water technology projects by triple cooperation between industrial company, academic research group and water infrastructure company. Project's budget is up to US$1M, and its duration is up to 30 months. Grants are up to 50%. No royalty payments.
Research Institutes: Supports R&D programs carried out by Research Institutes Grants are up to 90% of approved budget.
2 Pre Seed
Tnufa: Encourages and supports technological entrepreneurship and innovation at pre-seed stage. Assists individual inventors and start-up companies during early stages of projects. Includes evaluation of technological and financial feasibility preparation of patent proposal for submission to authorities, construction of prototype, preparation of business plan, establishing contact with the appropriate industry representatives as well as attracting investors. Grants of up to 85% of approved expenses for a maximum of $50,000 for each project. Royalty Payment conditions can apply
Europe’s R&D Framework Agreement – ISERD
Grants to SMEs are 75% of the full cost with real overheads. Large industrial partners will receive 50% of the full cost with real overheads.
Eureka
Eureka is the largest European program for Industrial R&D, supported by nearly 40 member states. Israel is a full member in Eureka since 2000. Being non- bureaucratic and SME friendly, over 40% of Eureka project participants are small/ medium enterprises (SME) – including start up companies.
Israeli companies participating in the program receive R&D grants from the OCS.
Bi-national Funds
The programs enable the participation in joint R&D projects with foreign counterparts.
Grants are up to 50% of R&D expenses of each company from each state.
The CSO invests approximately € 230-460 million each year through various support mechanisms projects in traditional industries, and innovation projects in the fields of nanotechnology, biotechnology and clean-tech sectors. Each scheme has its own assessment evaluation and assessment criteria. Israeli firms applying for a grant can receive up to 50% of the project costs. In exchange, the firms are obliged to pay royalties if the project's outcomes become commercial. The royalty agreements are a condition of the grants or loan and act as the safeguard for longer term rewards.
All applications for funds are considered and approved by a Research Committee. Membership includes the head of administration of the fund, two representatives of the Ministry and Trade, two representatives of the Ministry of Finance, two representatives from the private sector, and a representative from the public with at least 10 years experience in business or industrial management. Appointment are to the Committee are for a three year period.
The UK Regional Growth Fund (RGF) represents a prime example of the type of Fund under consideration. This £2.4bn fund operating across England from 2011 to 2015 supports projects to create economic growth and sustainable employment in local communities. The first two rounds of RGF have been very successful - conditional allocations were made to 176 bidders which will leverage over £7.5bn of private sector investment and deliver around 330,000 jobs.
Appendix 3 HM Treasury Green Book best practice
The UK Treasury “Green Book” is widely acknowledged as best practice for public sector investment appraisal. There are ten key steps for preparing a Business Case and these steps form part of the “Green Book’s” Appraisal and Evaluation Cycle, which they formalise as the acronym “ROAMEF”. ROAMEF stands for (Rationale, Objectives, Appraisal, Monitoring, Evaluation and Feedback). This is shown within the “Green Book” as:
The ten key steps are:
1. Strategic Context 2. The Need for Investment / Disinvestment or Policy Development 3. Objectives & Constraints 4. Identify Options 5. Identify & quantify option costs and benefits 6. Appraise Risks 7. Calculate NPV & assess uncertainties 8. Identify non-monetary costs & benefits 9. Presenting the results of the option appraisal 10. Action / Project Plan for implementation |
1. Strategic Context.
The opening section will clearly define the project and describe where it fits within the strategic context of EDD. The case must be consistent with our objectives and should clearly demonstrate and evidence this.
2. The need for Investment, Disinvestment
The Business Case should present the rationale for the proposal, clearly stating why we need to invest in this project. Remember – public funding should not displace private sector funding and you will need evidence of market failure to support your case. The case should also consider the opportunity cost for the department of investing or disinvesting in other projects and prioritising this project against other demands.
3. Objectives & Constraints.
This section of the Business Case clearly states the project objectives i.e. what the proposal intends to achieve. This should be stated in terms of outcomes, outputs and targets that must be measurable.
4. Identify Options
It is important to demonstrate that you have considered all the options including the “Do Nothing” option. There are always at least two options a “Do Nothing” and “Do Something”.
5. Identify Options and Quantify their Costs & Benefits
Quantify the benefits and costs of each option for the duration of the project.
6. Appraise the Risks
Identify the key risks and assess their likelihood and impact should they occur. For complex and very large schemes, there are numerous techniques of appraising risk including undertaking a sensitivity analysis and an optimism bias..
7. Calculate NPV & Assess Uncertainties
Appraising the use of States cash and apply a Discounted Cash Flow Analysis, sometimes referred to as DCF. Again, your Finance team will help you with this.
8. Identify Non-monetary costs & benefits
For each option, it is important to assess the non-financial impacts, such as the consequences for local employment and other social considerations including those environmental, economic, political and legislative.
9. Presenting the Results of the Option Appraisal
The ultimate outcome of the Business Case is to decide which option to select (including the “Do Nothing” Option).
10. Action / Project Plan for Implementation
An action / project plan agreed with key milestones in order to ensure that the project is viable. Used to evaluate and monitor its progress during and after implementation.
Appendix 4 Nolan Principles
Principles of Public Life
Selflessness - Holders of public office should take decisions solely in terms of the public interest. They should not do so in order to gain financial or other material benefits for themselves, their family, or their friends.
Integrity - Holders of public office should not place themselves under any financial or other obligation to outside individuals or organisations that might influence them in the performance of their official duties.
Objectivity - In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.
Accountability - Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.
Openness - Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands.
Honesty - Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.
Leadership - Holders of public office should promote and support these principles by leadership and example.
Appendix 3 Application Business Case Templates
Economic Development Department
Business Case
Project Name | Submitted by | Project Sponsor | Project Code |
Insert Project name | Name of Manager e-mail address Tel No | Insert Sponsored Project Director name & contact | EDD Co-ordinator will provide Code – See Jane De La Haye on 01534 440665 j.delahaye2@gov.je |
Recipient of Funding |
Internal | Please state Department e.g. Tourism |
External | State the 3rd party organisation / business name, address and contact point (e-mail & phone). |
The need for Investment |
The States of Jersey (SOJ) have clearly defined priorities & objectives. Economic Development Department (EDD) main focus is (1) & (2) in the boxes below. Please describe how your project will contribute to these priorities. (1) Get people into work | For example. Does this project create or safeguard jobs? |
(2) Managing population growth & immigration | For example. Does this project train local people to fulfil a skill gap? |
The other SOJ proprieties are listed below. Again, please describe how your project may contribute to these priorities? (3) Promoting family & community values (4) Reform Health & Social Services (5) House our Community (6) Reform Government & the Public Service (7) Sustaining long term planning | Specify how the project meets these priorities (if any). |
The EDD key objectives are; - Encourage innovation & improve Jersey’s international competitiveness
- Grow the financial services sector capacity and profitability
- Create new businesses and employment in high value sectors
- Raising productivity in the whole economy and reducing the reliance on inward migration
- Continue to improve the efficiency and effectiveness across the department
Please describe below your project contributes & supports any or all of these? | Specify how the project meets these objectives. |
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The Project Benefits |
Against the Strategic priorities & EDD’s key objectives, please quantify the outputs or outcomes of your proposal, for example, Number of jobs safeguarded or new businesses created & in what time period. Ensure they are consistent with SOJ & EDD priorities & objectives |
Project Description |
Briefly describe the project (Max 150 Words on this form as a summary, but you can submit a submission as an Appendix if it is appropriate.) |
If this is a 3rd Party Project? ( i.e. Grant, Subsidy, Sponsorship, Gift) |
- Provide details of the Grant & type.
- Why do they need the funding? Evidence this with the latest financial statements or audited accounts.
- Why this organisation?
- You need to show some evidence that there has been some due diligence been completed and that there are effective controls in place to ensure delivery and effective use of public money in accordance to SOJ Financial Directions 5.5.
- You have the option for the sections below for the 3rd party to complete these on your behalf, but these must be signed off by your Sponsoring Director.
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Have you consulted with key stakeholders? | |
For example, Scrutiny, Police, Economic Advisor, HR, Education, Health, Planning, Legal etc. If so, please describe and evidence (Appendix). | |
Project Objectives & Constraints |
Describe the objectives of this project and any constraints. Objectives | Measures – Lead & Lag | Objective 1 | | Objective 2 | | Objective 3 | | Objective 4 | | Constraints | | | | |
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Options Summary (there are at least two) |
| | Costs | Benefits | Preferred Option Ranking (i.e. 1 to 5) | 1 | Do Nothing | | | | 2 | | | | | 3 | | | | | 4 | | | | | 5 | | | | |
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Recommendation of the preferred option |
State why the preferred option scores more highly against the evaluation criteria than the other options. |
Option 1 – | Do Nothing |
1.1 Describe the Option | Description of Option | 1.2 Key Assumptions | Describe the key assumptions Service required Growth / saving assumptions Timing Revenue streams | 1.3 Key Financial Indicators | Capital / Set up Cost Revenue Costs NPV if required | 1.4 Risk Assessment | What are the potential risks How will they impact How likely will it occur | 1.5 Assessment against the project objectives | This scoring can be used for assessing and ranking your chosen options. The preferred option should closely meet with the project objectives. You may wish to Weight your score in terms of importance of your objectives, but this must be the same for each option so that there is a like for like comparison. If so please describe the weighting criteria. Project Objectives | Weighting | Score Against Objective | Weighted Score | | | | | Objective 1 | | | | Objective 2 | | | | Objective 3 | | | | Objective 4 | | | | | | | | TOTAL WEIGHTED SCORE | |
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Option 2 – | |
1.1 Describe the Option | Description of Option | 1.2 Key Assumptions | Describe the key assumptions Service required Growth / saving assumptions Timing Revenue streams | 1.3 Key Financial Indicators | Capital / Set up Cost Revenue Costs NPV if required | 1.4 Risk Assessment | What are the potential risks How will they impact How likely will it occur | 1.5 Assessment against the project objectives | This scoring can be used for assessing and ranking your chosen options. The preferred option should closely meet with the project objectives. You may wish to Weight your score in terms of importance of your objectives, but this must be the same for each option so that there is a like for like comparison. If so please describe the weighting criteria. Project Objectives | Weighting | Score Against Objective | Weighted Score | | | | | Objective 1 | | | | Objective 2 | | | | Objective 3 | | | | Objective 4 | | | | | | | | TOTAL WEIGHTED SCORE | |
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Option 3 – | |
1.1 Describe the Option | Description of Option | 1.2 Key Assumptions | Describe the key assumptions Service required Growth / saving assumptions Timing Revenue streams | 1.3 Key Financial Indicators | Capital / Set up Cost Revenue Costs NPV if required | 1.4 Risk Assessment | What are the potential risks How will they impact How likely will it occur | 1.5 Assessment against the project objectives | This scoring can be used for assessing and ranking your chosen options. The preferred option should closely meet with the project objectives. You may wish to Weight your score in terms of importance of your objectives, but this must be the same for each option so that there is a like for like comparison. If so please describe the weighting criteria. Project Objectives | Weighting | Score Against Objective | Weighted Score | | | | | Objective 1 | | | | Objective 2 | | | | Objective 3 | | | | Objective 4 | | | | | | | | TOTAL WEIGHTED SCORE | |
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Option 4 – | |
1.1 Describe the Option | Description of Option | 1.2 Key Assumptions | Describe the key assumptions Service required Growth / saving assumptions Timing Revenue streams | 1.3 Key Financial Indicators | Capital / Set up Cost Revenue Costs NPV if required | 1.4 Risk Assessment | What are the potential risks How will they impact How likely will it occur | 1.5 Assessment against the project objectives | This scoring can be used for assessing and ranking your chosen options. The preferred option should closely meet with the projects objectives. You may wish to Weight your score in terms of importance of your objectives, but this must be the same for each option so that there is a like for like comparison. If so please describe the weighting criteria. Project Objectives | Weighting | Score Against Objective | Weighted Score | | | | | Objective 1 | | | | Objective 2 | | | | Objective 3 | | | | Objective 4 | | | | | | | | TOTAL WEIGHTED SCORE | |
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Option 5 - | |
1.1 Describe the Option | Description of Option | 1.2 Key Assumptions | Describe the key assumptions Service required Growth / saving assumptions Timing Revenue streams | 1.3 Key Financial Indicators | Capital / Set up Cost Revenue Costs NPV if required | 1.4 Risk Assessment | What are the potential risks How will they impact How likely will it occur | 1.5 Assessment against the project objectives | This scoring can be used for assessing and ranking your chosen options. The preferred option should closely meet with the project objectives. You may wish to Weight your score in terms of importance of your objectives, but this must be the same for each option so that there is a like for like comparison. If so please describe the weighting criteria. Project Objectives | Weighting | Score Against Objective | Weighted Score | | | | | Objective 1 | | | | Objective 2 | | | | Objective 3 | | | | Objective 4 | | | | | | | | TOTAL WEIGHTED SCORE | |
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Project Plan for recommended option |
The Project Plan demonstrates how the proposal is going to be delivered. You will need to identify key personnel roles i.e. Who is doing what and when. You may want to include a detailed Project Plan as an Appendix. In simple terms we are at least looking for: Key Milestones | 2012 | 2013 | 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Quantify Project Resource Requirements |
Insert cost details & timescale For example. | 2012 (£) | 2013 (£) | 2014 (£) | Capital Costs | | | | | | | | | | | | TOTAL CAPITAL COST | | | | | | | | Revenue Costs | | | | Set up one off costs | | | | | | | | Staff Costs | | | | Other recurring costs | | | | Eg Marketing | | | | Maintenance | | | | | | | | | | | | TOTAL REVENUE COST | | | |
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Key Risks |
List the Key Risks to this Project. You may want to include a full Risk Assessment, which assesses each risk, and how these risks can be mitigated. |
Signature & Date | Signature | Date |
Office Use Only |
Received | Date |
Validated by | |
Action | |
Accept | Reject | Other |
| | Please specify |
Approved by ED Minister | Signature | Date |
Name & Position |
Version | Date | Changed by | Changes |
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Process Map
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