When we think of software development, sometimes our minds can move towards all things Startup. With the buzz given to new startups and funding, you could be forgiven for thinking software development is heavily skewed to developing and building startups.
Funding routes within the Startup industry is somewhat formulaic. Starting with a concept and after researching the market size and opportunity you will have a variety of options to fund your idea. This usually comes in the form of a friends and family funding round, pitching to angel investors, crowdfunding on platforms such as Seedrs, or, you can self fund your app development.
Standard practice would be for your first investment to fund your prototype in the form of a design sprint – then build your MVP.
After you build your MVP – the name of the game is traction, and then likely taking proof of concept and perhaps early-stage revenue and pitching to Seed Funds and Venture Capital (VC) firms.
That’s how you fund your Software in a Startup.
What about an Enterprises and SME’s?
These businesses that may be less desirable to investment from Venture Capital institutions, and equally, may find VC terms unappealing.
Typically, to fund software development within these Enterprises, you are faced with a small number of choices.
- You can fund software development from your balance sheet
- Or you can finance software development through company loans.
Loans are repayable, and balance sheet funding can be difficult, especially if you have company debt to be paid, or wish to reinvest profits in different elements of your business.
But, there is one underutilised form of funding software development in Enterprises and SME’s often neglect, and this is through R&D tax credits.
How To Fund Enterprise Software Development?
When I caught up with Jonathan Alford-Leach, Senior Business Development Manager at Signature Tax R&D, he managed to shine a light on how Software can qualify for R&D tax relief.
“Software is continually evolving, and new applications for Software are constantly being developed (e.g. robots, augmented reality, IoT and more).
Any company that is developing Software could qualify for R&D tax relief. If a business has a team of software developers to support other companies in their software projects, they too can make an application. This includes the provision of Software as a Service (SaaS), business tools or enterprise resource planning (ERP) systems.”
So How Do I Qualify?
To qualify, you need to demonstrate how the Software will advance the overall knowledge or capability against an existing product. The improvement can not be adapted from freely available information. This is good news if your business resolves difficulties and challenges that have not to net been overcome by a competent professional in a field.
So what constitutes an entity that may be able to benefit from R&D tax relief?
“An example could be, the development of a new software capability to improve the speed of the system. It might be the optimisation or re-architecting or combination of different technologies that did not previously integrate. Or improvement in the capability of an existing product or system.”
It can’t merely be tweaking a software platform just for your business. Still, it could include adapting custom-made systems for integration (with web programs, new hardware, new devices or making older technologies work in conjunction with each other).
If you are interested in connecting with Jonathan online feel free to connect on Linkedin here
For further information on software development and outsourced software development book a call with one of the Business Development team at Jyst