comet report

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Evaluation of the

Commercialising Emerging

Technologies (COMET) Program

Report, Findings and

Recommendations

Prepared for the Department of Innovation, Industry,

Science and Research (formerly the Department of

Industry, Tourism and Resources)

April 2008


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ACIL Tasman Pty LtdABN 68 102 652 148Internetwww.aciltasman.com.au

Melbourne (Head Office)Level 6, 224-236 Queen StreetMelbourne=VIC=3000

Telephone (+61 3) 9600 3144Facsimile (+61 3) 9600 3155Email [email protected]

DarwinSuite G1, Paspalis Centrepoint48-50 Smith StreetDarwin NT 0800GPO Box 908Darwin NT 0801


BrisbaneLevel 15, 127 Creek StreetBrisbane QLD 4000GPO Box 32Brisbane QLD 4001


PerthCenta Building C2, 118 Railway StreetWest Perth WA 6005


CanberraLevel 1, 33 Ainslie P laceCanberra City ACT 2600GPO Box 1322Canberra ACT 2601


SydneyPO Box 1554Double Bay NSW 1360


For further information on this report please contact the Department of Innovation, Industry,

Science and Research.
http://www.aciltasman.com.au/http://www.aciltasman.com.au/http://www.aciltasman.com.au/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.aciltasman.com.au/


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Evaluation of the Commercialising Emerging Technologies (COMET) Program

Exec utive summary iv

Executive summaryLaunched in 1999 and enhanced in 2004, the Commercialising Emerging

Technologies (COMET) program is a competitive grants program that assists

micro and small businesses to commercialise their innovative goods or

services. The programs objectives are to:

increase Australias sustainable economic growth through stimulating thesuccessful commercialisation of Australian innovation

build sustainable and high growth firms by increasing prospects forsuccessful commercialisation of innovations through the attraction of

capital and partners.Tailored support is provided to customers through a network of Business

Advisers and third party Service Providers who assist with activities including:

management development

engagement of mentors

strategic and business planning

market research

market validity

intellectual property strategy

proven technology

capital raising

finding partnerships.

The purpose of this evaluation by ACIL Tasman is to assess the

appropriateness, efficiency and effectiveness of the program. In the course of

the evaluation ACIL Tasman has had extensive consultations with COMET

customers, the delivery network (the National Manager and Business Advisers)

and other stakeholders, as well as key personnel in the Department of

Innovation, Industry, Science and Research, in particular AusIndustry. Wehave greatly appreciated the input from these officials and the advice provided

to ACIL Tasman by the Innovation Australia Board. ACIL Tasmans

quantitative analysis has benefited from the data collected and held on the

COMET program by AusIndustry.

The following provides a brief summary of the evaluations assessment of the

program.


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Exec utive summary v

Appropriateness

Theobjectives of theprogramcontinueto beappropriateas they encompass thebenefits tothefirmand thenation as a whole. Further, they area responseto a verified need thatremains today, to improvethesmall and early stagefirms capacity to commercialisetheirinnovation.

Theobjectives of theCOMET programremain relevant and in ACIL Tasmans viewtheir substancecannot beimproved by amendments. Overall it is clear that stakeholdersarestrongly supportiveof theprogram. In particular it is recognised that thefocus in theobjectives on attractingcapital and partners areseen as integral to thesuccess of theprogramin achievinga widerangeof commercialisation outcomes.

Theremay beoverlap in thedelivery of theCOMET programs Tier 2 assistanceand

Commercial Ready Plus assistancebecausesomeCOMET companies may decidethatTier 1 fundingand Business Adviser assistancehas brought themto a stageof beinginvestment ready and consequently apply for Commercial Ready Plus rather thanaccessingTier 2 COMET funding(wheretherearehigher administrativeandcompliancecosts relativeto theavailablegrant). OnceCommercial Ready Plus becomesfully operational an assessment should bemadeof whether potential Tier 2 grantrecipients haveinstead elected to apply for Commercial Ready Plus.

The COMET program is unique in the combination of its objectives, delivery

model and its target customer base.

The COMET program is an appropriate program for achieving the objectives

of increasing Australias sustainable economic growth and building sustainable

high growth firms. The program aims to address market failures in the capital

market (particularly as investors over-estimate the risks associated with early

stage companies) and information asymmetry (very early stage growth

companies dont know what they dont know).

The majority of stakeholders consulted in the course of this evaluation were

very supportive of the COMET program, with the Innovation Australia Board

and members of the COMET Committee all pointing to the programs success

in achieving a wide range of commercial outcomes for COMET customers.

Consultation with COMET customers also indicated support for the program.

In ACIL Tasmans view the building of sustainable high growth firms is the

more important program objective, as it will in turn lead to increased economic

growth so long as the program leads to additional firms becoming sustainable.

As discussed below, the lack of baseline data makes it difficult to assess if

additionality is being achieved.

On the basis of ACIL Tasmans extensive stakeholder consultation and

analysis we consider that there is no need to change the substance of either

objective.


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Exec utive summary vi

Notwithstanding the concentration of innovation in metropolitan areas, the

COMET program should remain focussed on improving the nations eligiblebusinesses ability to commercialise their innovations. This is the COMET

programs point of difference when compared with general business assistance

and development programs.

Efficiency

Success fees havethepotential to distort Business Advisers behaviour. They should beremoved fromtheCOMET programand thus fromtheprograms eligibilityrequirements. Success fees should bereplaced with a different incentivestructureforBusiness Adviser activities. This incentivestructurewould includea focus on a rangeofoutcomes rather than a singleoutcomei.e. capital raising.

If success fees remain, theeligibility requirements should continueto includethesuccess feerequirement. In this situation, thepolicy on entities related to theCOMET customer company (which areestablished for thepurposeof raisingcapital) that arenot liableto pay success fees to Business Advisers under thecurrentarrangementsshould beaddressed.

COMETs outsourced delivery model is workingwell and key stakeholders (i.e. theBoard and most COMET Committeemembers) consider that COMET should bemaintained as an outsourced model.

The administration of the COMET program has a number of strengths while

there are areas requiring improvement. The model for outsourced programdelivery is widely applauded, with strong support for its maintenance. Several

key stakeholders, including the Innovation Australia Board and members of

the COMET Committee considered that the model should remain outsourced.

For example, the Innovation Australia Boards advice to the evaluation noted

that the outsourced delivery model was fundamental to the programs success.

Further, most members of the COMET Committee supported the outsourced

model, with many explaining that the outsourced model was successful because

of the National Managers and the Business Advisers hands-on experience

with commercialisation. It was argued that this experience brings considerable

value to the program. This value is evident from COMET customers

satisfaction with the overall quality of Business Adviser assistance and Business

Advisers development of their commercialisation skills. However, there is

evidence to suggest that COMET customers were less positive about the

Business Advisers input to the delivery of commercialisation outcomes which

involves third partiessuch as raising capital from business angels or venture

capital funds, borrowing money, licensing, and joint ventures and strategic

alliances. Overall, it is ACIL Tasmans view that the outsourced model is

working well.

To be eligible to apply for a COMET grant, potential applicants must meetcertain criteria. These criteria were reviewed as part of the evaluation and, with


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Exec utive summary vii

the exception of the requirement that the applicant must be prepared to enter

into a success fee agreement with the COMET Business Adviser and theminimum company age criterion, no changes were suggested. In regards to the

age criterion, ACIL Tasman considers that age may not be a relevant or

necessary criterion when it is considered that firms that meet the turnover

criterion may also be more than five years old or have traded for more than

five years (including through related entities). Such would be the case where

an existing company may have a number of innovations under development,

each at different stages of commercialisation potential or generating revenue.

It may also be the case that the innovation process is a relatively new activity,

for a long established business. For these reasons the consultant sees merit in

relaxing the age eligibility criterion as it does not appear to be a good predictorof firm eligibility.

The administration of the COMET program, while effective, appears intensive

when compared with other programs administered by AusIndustry, in

particular with the recently introduced Commercial Ready Plus. It is the

consultants view that the less intensive expenditure controls and lower

reporting requirements in Commercial Ready Plus are more reflective of best

practice. If similar practices could be introduced into the COMET programs

administration it could relieve the burden on AusIndustry, COMET customers

and Business Advisers alike.

AusIndustry has recently completed an efficiency review focussed on

improving efficiencies without materially increasing risk. Importantly, the aim

was to reduce administration on customers, the Business Adviser network, the

National Manager and AusIndustry. The efficiency review made a number of

recommendations to refine the process aligning grants, plans and acquittals.

ACIL Tasman has also suggested changes to the approval and application

processes which have the potential to address a number of issues and concerns

raised throughout the evaluation, namely:

the lack of baseline data to assess the extent of any unmet demand for theprogram and the level of additionality

a role for the COMET Committee in providing technical assistance andadvice

duplication of tasks that can reduce the efficiency of the process and mayinhibit the responsiveness of the program to stakeholders

better management of the pipeline of applications

matching customers and Business Advisers, based on Business Adviserworkload and expertise.


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Exec utive summary viii

Further improvements to the program could be achieved by allowing for more

flexibility in certain areas, including allowing for some variation in the timelimit for program participation in the event of extenuating circumstances.

Business Advisers and some survey respondents have identified certain early

stage commercialisation activities that they feel are necessary to

commercialising an innovation, but which are not currently included as eligible

activities for COMET funding. ACIL Tasman sees merit in increasing the

opportunity for in-house grant expenditure for prototype development and

attendance at trade shows and the like, as these activities could potentially

improve commercialisation outcomes.

The success fee element of the COMET program has come under scrutiny inthe course of this evaluation for a number of reasons. In particular:

Potential COMET applicants who wish to raise capital must be prepared toenter into a success fee agreement with their COMET Business Adviser tobe eligible to apply for a COMET grant.

While success fees align Business Advisers and customers interests inraising capital, there is the potential for a bias in the activities undertakenby the Business Advisers towards only those capital raising outcomes

which pay a success fee.

Survey respondents, when asked about the payment of success fees, were

generally supportive of the payment of a success fee provided there was astrong link between the Business Advisers input and the capital raising.

Some business angels and fund managers that are investing in pre-seed,seed and start-up companies contacted during the course of the evaluation

were concerned that it is inappropriate for the success fee to be paid fromthe capital raised to finance the future development or growth of thecompany.

In recent years other innovation programs (for example, AustralianIndustry Productivity Centres) have adopted different outsourced deliverymodels which do not use a success fee incentive arrangement.

As an incentive mechanism for the COMET program, success fees have been

successful in many respects. Business Advisers are strongly of the view that

success fee payments are an integral part of the compensation they receive for

working in the COMET program, confirming that success fees are

instrumental in attracting and retaining high calibre private sector consultants.

Overwhelmingly the majority of successful applicant companies (70 per cent)

interviewed by ACIL Tasman wanted to raise capital while in the program. For

these companies and for this single outcome, the success fee arrangement

certainly assists in aligning the Business Adviser endeavours with a major

interest of the company. The high proportion of COMET customers wishingto raise capital many reflect the fact (argued by many stakeholders) that capital


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Exec utive summary ix

raising is an integral part of early stage seed or pre-seed business (i.e. those that

make up the COMET population). Alternatively, it may indicate that a biasexists in the selection of applicants, given the possibility for Business Advisers

to earn success fees from capital raising commercialisation outcomes. ACIL

Tasman has been unable to substantiate whether there is such a bias in the

COMET program, as the necessary baseline data is not available. ACIL

Tasman does, however, consider that an alternative incentive structure which

would focus on a range of commercialisation outcomes for the program rather

than a single outcome (capital raising) would be more appropriate.

ACIL Tasman sees considerable merit in replacing the success fee paid to

Business Advisers with a new remuneration package consisting of a higher

consultancy fee plus incentive payments that are linked to agreed BusinessAdvisers KPIs contained in new Business Adviser contracts with the

Commonwealth. The Business Adviser KPIs could cover all or any of the

commercialisation outcome targets identified under the programs outcome

monitoring, including capital raising, partnerships and alliances.

ACIL Tasman also considers that the value of the National Managers and

Business Advisers consultancy fees should be maintained in real terms.

Effectiveness

TheCOMET programis effectivein improvingtheability of themajority of itscustomers to commercialisetheir innovation as evidenced by thenumber ofcommercialisation outcomes reported to AusIndustry and by thedramaticchangeinsurvey respondents assessment of their ability to commercialisetheir innovation afterparticipatingin COMET.

It is difficult to determinehowCOMET is improvingtheamount of commercialisationactivities undertaken as thereis insufficient data on thecommercialisation activities ofcompanies not participatingin COMET. However, it appears that theprogramisimprovingthequality of commercialisation activities undertaken by many COMETcustomers. This findingis based on:

thecommercialisation knowledgeand skills of companies applyingfor COMET thenumber and typeof commercialisation activities undertaken

theproportion of companies achievingoutcomes.

Thereis evidenceto suggest that theCOMET program, by ensuringCOMETcustomers aredevelopingtheskills necessary to managethecommercialisation process(and hencetheir business), has improved COMET customers potential to besustainableand high growth businesses.

Sincetheprogramcommenced in 1999, thelevel of theCOMET grant has declined inreal terms.

Over the life of the COMET program (up to 30 June 2007) 1,351 participantshave achieved, or are achieving, a wide range of commercialisation outcomes


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Exec utive summary x

including capital raising and partnerships. Significantly, AusIndustry reports

the following: 603 capital raisings

1,138 partnership arrangements, where COMET customers entered intosome form of agreement which could be considered as a partnership,including

415 alliances

143 licenses

580 other partnership agreements

417 innovations taken through to the production stage.

In ACIL Tasmans survey of COMET program participants most respondents

reported that their ability to commercialise their innovation had improved as a

result of participating in the program (seeFigure ES 1.)

Figure ES 1 Ability to commercialise innovation

Before participating in COMET After participating in COMET

Data source: Successful applicant survey.

Further, COMET is improving the quality of commercialisation for many

customers. At a higher level, COMET has improved some customers potential

to become sustainable, high growth companies when employment and annual

sales are considered.

To date over $400 million in capital has been raised by the companies who

have participated in the COMET program. As observed by the Innovation

Australia Board the program has excellent leverage of 6:1 in relation to

investment funds to companies compared to Commonwealth funding. It

appears that no other innovation program has achieved such high leverage.

Because of a lack of baseline data there is insufficient evidence to conclusively

say that the COMET program has contributed to an increase in Australias

sustainableeconomic growth.

As noted previously, the outsourced model is generally considered to be highlyeffective among stakeholders, and integral to the COMET programs success.

Very poor12%

Poor33%

Average40%

Good12%

Very good3%

Very poor1%

Poor4%

Average19%

Good49%

Very good27%


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Exec utive summary xi

Business Advisers were viewed very highly by customers, however more so in

the activities where the outcome was not affected by a third party decision.Similarly, Service Providers were well regarded by COMET customers.

ACIL Tasman considers that there are benefits to be gained from the greater

use of the expertise of the COMET Committee within the program. Further,

as the National Manager position plays a pivotal role in the COMET program,

and has technical and innovation experience in common with the Committee,

ACIL Tasman sees merit in actively strengthening this relationship to the

benefit of the program. For instance greater alignment between program

delivery and program governance could be encouraged by giving Committee

members a role in the assessment of applications. It could also assist the

National Manager to better understand aspects of the Committeesdeliberations.

The Innovation Australia Board, through its various Committees, plays an

important role in the federal governments innovation programs. Program

KPIs for COMET are set by the Boards COMET Committee and are

reported against in annual Strategic Plans. ACIL Tasman has made a number

of suggestions for change to the KPI targets. These suggestions aim to ensure

that the KPI targets reflect the nature of the program correctly. For example, it

is not logical for certain KPI targets to necessarily increase over time as the

number and nature of outcomes obtained by the population in COMET at anypoint in time will depend on the commercialisation needs of that particular

population.

Building COMET customers ability to commercialise their innovation is a

fundamental component of the program. ACIL Tasman therefore also

recommends that consideration be given to the introduction of a new KPI

(and accompanying target) to assist in assessing changes in COMET

customers ability to commercialise their innovations as a result of their

participation in the program.

During the evaluation it was drawn to ACIL Tasmans attention that the realvalue of the grant has declined over time. This is undesirable in view of the

significance of Service Providers to the program and the rise in their fees over

time. ACIL Tasman sees merit in increasing the grant to a level that would

maintain its value in 2004 terms and indexing the grant annually(by either the

consumer price index or preferably by growth in average weekly earnings of

professional managerial adults).


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Summary of Key Findings xii

Summary of Key Findings

Key Finding 1

The objectives of the program continue to be appropriate as they encompass the benefits to the firm and the nation

as a whole. Further, they are a response to a verified need that remains today, to improve small and early stage

firms capac ity to commercialise innovation.

Key Finding 2

The objectives of the COMET program remain relevant and in ACIL Tasmans view their substance cannot be

improved by amendments. Overall it is clear that stakeholders are strongly supportive of the program. In particular it

is recognised that the focus in the objectives on a ttrac ting capital and partners are seen as integral to the success of

the program in achieving a wide range of commercialisation outcomes.

Key Finding 3

There may be overlap in the delivery of the COMET programs Tier 2 assistance and Commercial Ready Plus

assistance because someCOMET companies may dec ide that Tier 1 funding and Business Adviser assistance has

brought them to a stage of being investment ready and consequently apply for Commercial Ready Plus rather than

ac cessing Tier 2 COMET funding (where there are higher administrative and compliance costs relative to the

available grant). Once C ommercial Ready Plus becomes fully operational an assessment should be made of

whether potential Tier 2 grant recipients have instead elected to apply for Commercial Ready Plus.

Key Finding 4Success fees have the potential to distort Business Advisers behaviour. They should be removed from the C OMET

program and thus from the eligibility requirements. Success fees should be replaced with a different incentive

structure for Business Adviser ac tivities. This incentive structure would include a focus on a range of outcomes rather

than a single outcome i.e. capital raising.

If success fees remain, the eligibility requirements should continue to include the success fee requirement. In this

situation the policy on entities related to the C OMET customer company (which are established for the purpose of

raising capital) that are not liable to pay success fees to Business Advisers under the current arrangements should be

addressed.

Key Finding 5

COMETs outsourced delivery model is working well and key stakeholders (i.e. the Board and most COMET

Committee members) consider that COMET should be maintained as an outsourced model.

Key Finding 6

The COMET program is effective in improving the ability of the majority of its customers to commercialise their

innovation as evidenced by the number of commercialisation outcomes reported to AusIndustry and by the

dramatic change in survey respondents assessment of their ability to commercialise their innovation after

participating in COMET.


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Recommendations xiii

Key Finding 7

It is difficult to determine how C OMET is improving the amount of commercialisation ac tivities undertaken as there is

insufficient data on the commercialisation activities of companies not pa rticipating in COMET. However, it appears

that the program is improving the quality of commercialisation activities undertaken by many COMET customers. This

finding is based on:

the commercialisation knowledge and skills of companies applying for COMET

the number and type of commercialisation activities undertaken

the proportion of companies achieving outcomes.

Key Finding 8

There is evidence to suggest that the COMET program, by ensuring COMET customers are developing the skills

necessary to manage the commercialisation process (and hence their business), has improved COMET customers

potential to be sustainable and high growth businesses.

Key Finding 9

Since the program commenced in 1999, the level of the COMET grant has declined in real terms.

Recommendations

Recommendation 1

The COMET programs contrac t management and reporting requirements should be reduced in line with those of

Commercial Ready Plus.

Recommendation 2

Relaxing the eligibility criterion regarding a companys age should be considered because it does not appear to be

a good predictor of firm eligibility.

Recommendation 3

Consideration should be given to increasing flexibility in terms of the eligible activities funded by the COMET grant.

Recommendation 4

In any extension of the program, consideration should be given to reviewing the Business Adviser consultancy fee to

reflec t the growth of income of equivalent professionals since 2004.


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Recommendations xiv

Recommendation 5

In any extension of the program, consideration should be given to replacing Business Adviser success fees with

another incentive mechanism to link the interests of the Business Advisers to those of C OMET customers. A possible

approac h could be as follows: introduce a two tier consultancy fee, with the first tier based on the current

consultancy fee (but indexed to maintain it in real terms). The second tier would be an additional sum, which is paid

on a bi-annual basis based on performance against agreed Business Adviser KPIs contained in new contracts with

the Commonwealth.

Recommendation 6

The COMET Committee should consider reviewing the current KPI targets in the next financial year to ensure that KPI

targets are better aligned with the principles of the program.

Recommendation 7

The COMET Committee should consider the addition of a new KPI that measures the customers ability to

commercialise before and after participating in COMET.

Recommendation 8

In any extension of the program, consideration should be given to increasing Tier 1 and Tier 2 grants, by at least the

CPI but preferably by the change in Average Weekly Earnings (AWE) of professional managerial adults, and adjusted

annually.

Recommendation 9

Consideration should be given to introducing a new application and approval process to:

address the current lack of baseline data

increase the engagement of the C OMET Committee, in particular for their skills and knowledge

minimise duplication of tasks

better manage the pipeline of applications

assist in matching customers and Business Advisers.


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Contents

Executive summary iv

Summary of Key Findings xii

Recommendations xiii

1 Scope of the Evaluation 1

2 Methodology 2

2.1 The consultation process 2

2.1.1 Issues Paper 2

2.1.2 Stakeholder consultation 3

2.1.3 Desktop analysis 6

2.1.4 Comparison of state and industry breakdown in samplegroups 8

2.1.5 Review of Departmental documentation 9

2.2 Referencing 9

2.3 Report outline 10

3 The COMET program 12

3.1 Governance and delivery 12

3.1.1 Governing network 13

3.1.2 Delivery network 14

3.1.3 COMET post-September 2004 15

3.2 Funding 16

3.3 Success fee 17

3.4 Support 17

4 Appropriateness 21

4.1 The COMET program rationale 22

4.1.1 Inception of the program, 1999 22

4.1.2 The current COMET program 24

4.2 Sources of market failure 26

4.2.1 Capital market failure 27

4.2.2 Information failure 35

4.2.3 Additionality 37

4.2.4 Addressing the market failures 40

4.3 Appropriateness of the objectives 46

4.3.1 Macroeconomic objective 47

4.3.2 Microeconomic objective 50

4.3.3 Importance of each objective 51


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4.3.4 Amendments to the objectives 51

4.4 Alternatives to the COMET program 53

4.4.1 Alternative programs 54

4.4.2 State and Territories commercialisation programs 59

4.4.3 Alternative delivery network 62

5 Efficiency 68

5.1 Previous administrative reviews 68

5.2 COMET administrationa snapshot 69

5.3 Administrative costs 71

5.3.1 Comparison with Commercial Ready delivery costs 72

5.3.2 Business Advisers and National Manager administration costs 735.4 COMET program reporting 76

5.4.1 Nature and extent of reporting 76

5.4.2 Grants, assistance plans and reporting 85

5.5 Administrative controls 87

5.5.1 Pre-application controls 87

5.5.2 Application and approval controls 89

5.5.3 Complaint management 93

5.6 Program eligibility, merit criteria and guidelines 94

5.6.1 Eligibility 94

5.6.2 Merit criteria 107

5.6.3 Guidelines 110

5.7 Is the outsourced delivery model appropriate? 114

5.7.1 The history behind the delivery model 115

5.7.2 Roles in the management model 116

5.7.3 Views on the outsourced model 116

5.8 Remuneration of Business Advisers and National Manager 118

5.8.1 National Manager 118

5.8.2 Business Advisers 121

5.9 Co-contribution 130

6 Effectiveness 133

6.1 Effectiveness in meeting objectives 133

6.1.1 Microeconomic objective 134

6.1.2 Macroeconomic objective 158

6.2 Other issues pertaining to effectiveness 163

6.2.2 Measuring outcomes 169

6.3 Effectiveness of the COMET delivery network 175

6.3.1 AusIndustry 175

6.3.2 Business Advisers 176

6.3.3 National Manager 184


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6.3.4 Service Providers 185

6.3.5 Effectiveness of COMET network relationships 190

6.3.6 COMETs promotion in universities 196

6.3.7 COMETs wider promotion 199

7 Alternative options for program delivery 206

7.1 Proposals for alternative applications and approval processes 206

7.1.1 Option One 207

7.1.2 Option Two 211

A Terms of Reference A-1

B Issues Paper B-1

C Questionnaires C-1

C.1 Successful applicants C-1

C.2 Unsuccessful applicants C-15

C.3 Service Providers C-22

C.4 Committee C-24

C.5 National Manager C-26

C.6 Business Advisers C-28

C.7 Business Angels C-30

D Successful applicant survey results D-1E Unsuccessful applicant questionnaire results E-1

F Submissions received F-1

Boxes, figures and tables

Box 1 Regional differences in access to equity 35

Box 2 Global Integration: Changing Markets, New Opportunities 48

Box 3 Commercial Ready and Commercial Ready Plus 56

Box 4 New Industries Development Program (NIDP) 59Box 5 Outsourced delivery in Innovation programs 115

Box 6 Government Innovation Services 189

Figure ES 1 Ability to commercialise innovation x

Figure 1 Geographic distribution of successful applicant survey group (200203to 200607) 5

Figure 2 Industry distribution of successful applicant survey group (200203 to200607) 5

Figure 3 Geographic distribution of COMET customer data used in the 199900to 200102 desktop analysis 7

Figure 4 Industry distribution of COMET customer data used in the 199900 to200102 desktop analysis 7


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xviii

Figure 5 Comparative analysis of sample with entire COMET population industry distribution 8

Figure 6 Comparative analysis of sample with entire COMET population geographic distribution 9

Figure 7 Agreements executed by industryinception to 30 June 2007 19

Figure 8 Barriers to commercialisation, 2005, per cent of firms by employmentsize 24

Figure 9 Venture capital investment 2005as a percentage of GDP 30

Figure 10 Venture capital invested by development stage of company 32

Figure 11 COMET and other small companies, barriers to commercialisation 43

Figure 12 Barriers prior to participating in COMET 44

Figure 13 Business R&D intensity 2005percentage of GDP 49

Figure 14 Comparison of Business Adviser time allocationACIL Tasman andHoward Partners Review 74

Figure 15 Distribution of time spent on COMET Administration, e.g. reporting(days per year) 82

Figure 16 Days spent on reporting per annum, 200203 to 200607 83

Figure 17 Aggregate commercialisation outcomes achieved by COMET clients 135

Figure 18 Ability to commercialise innovation 137

Figure 19 Extent of COMETs role in selected commercialisation outcomes andactivities 140

Figure 20 Significance of COMET on business activity 148

Figure 21 Rating of specific Business Adviser services 179

Figure 22 Option Oneproposed enquiry, application and approval process 207

Figure 23 Option Twoproposed enquiry, application and approval process 212

Table 1 Differences in COMET pre- and post-September 2004 13

Table 2 Administrative roles of individuals and groups in COMET program 15

Table 3 COMET agreements executed by state/territoryinception to 30 June2007 18

Table 4 Regional/ Metropolitan Analysis - COMET Agreements executed bystate/territoryinception to 30 June 2007 18

Table 5 Sources of risk, early stage companies 29

Table 6 Private equity investment early stage companies, 2000 to 2006 33

Table 7 Barriers to commercialisation: COMET Survey respondents and ABSinnovative respondents 2005 42

Table 8 Quality of information available outside of COMET 45

Table 9 Quality of professional advice obtained before COMET 45Table 10 AusIndustry commercialisation programs 55

Table 11 State government commercialisation programs 60

Table 12 Comparison of COMET and 2007 Industry Statement programs 63

Table 13 Comparison of program design 64

Table 14 Administration of the COMET program 70

Table 15 AusIndustry innovation programs 71

Table 16 Comparative program delivery costs 200405 to 201011 72

Table 17 Business Adviser time allocationHoward Partners Review 73

Table 18 Breakdown of National Managers activities 75

Table 19 COMET program delivery costs 200405 to 201011 76

Table 20 Contract managementreporting requirements 78Table 21 Average time taken to process Quarterly Reports 80


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xix

Table 22 COMET Customer sentiment on compliance cost of COMET 82

Table 23 Amount of support from Business Advisers in reporting 84

Table 24 Initial enquiry to application approval 87Table 25 Business Advisers source of COMET enquiries 88

Table 26 Average days spent processing applications 92

Table 27 Complaints registered under the new process 94

Table 28 COMET commercialisation outcomes 97

Table 29 Assumed and estimated success fees received, 200506 and 200607 105

Table 30 Reasons for COMET applications being rejected: 1 July 200426November 2007 108

Table 31 Remuneration structure, pre- and post-September 2004 121

Table 32 Average annual full time remuneration earned by selected professionalswhich may have similar qualifications to Business Advisers 122

Table 33 Market salaries 2007 128Table 34 Number of COMET outcomes and number of customers obtainingthese outcomes, 199900 to 200607 135

Table 35 Commercialisation activities undertaken by COMET customers 136

Table 36 Change in ability to commercialise an innovationquantum shift inrating level 138

Table 37 COMETs impactimproving ability to commercialise 138

Table 38 Capital raised by COMET survey respondents 142

Table 39 The impact of the COMET program in relation to improving youropportunity to raise capital 143

Table 40 Proposed and actual expenditure of commercialisation activities200405 to 200607 144

Table 41 Proportion of respondents achieving a commercialisation outcome 146Table 42 Average rankings for economic indicators 148

Table 43 Change in FTEs between application and 30 June 2007 149

Table 44 Influence of COMET on employmentgroup that experienced achange in employment between application and 30 June 2007 150

Table 45 Influence of COMET on employmentgroup that did not experience achange in employment between application and 30 June 2007 150

Table 46 Change in COMET customer employment between application and 30June 2007 151

Table 47 Changes to annual sales revenue between application and 30 June 2007 153

Table 48 Influence of COMET on annual salesgroup that experienced a changebetween application and 30 June 2007 154

Table 49 Change in COMET customer sales revenue between application and 30June 2007 155

Table 50 Proportion of COMET companies that are still active 156

Table 51 Survival of business by employment ranges (per cent) 157

Table 52 Estimated change in COMET companies employment 159

Table 53 Research and experimental development expenditure Australia (byemployment size) 163

Table 54 Government programs accessed by COMET customers, survey findings 165

Table 55 COMET customers accessing one or more AusIndustry grants and theR&D Tax concession 166

Table 56 Changes to COMET Program Key Performance Indicators 170

Table 57 Extent to which AusIndustry provided the skills necessary to

commercialise 176


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xx

Table 58 Extent to which Business Advisers provided the skills necessary tocommercialise 177

Table 59 Overall satisfaction with COMET Business Adviser 177Table 60 Availability and assistance provided by Business Adviser 178

Table 61 Rating of general Business Adviser services 178

Table 62 Weighted respondent rating of specific Business Adviser services 180

Table 63 Customers seeking capital and that raised capitalranking of BusinessAdviser 182

Table 64 Customers seeking capital that did not raise capitalranking of BusinessAdviser 182

Table 65 Extent to which the National Manager provided the skills necessary tocommercialise 184

Table 66 Understanding of the role of the National Manager 185

Table 67 Extent to which Service Providers provided the skills necessary to

commercialise 185Table 68 Rating of the services provided by Service Providers 186

Table 69 Average time allocation by Business Advisers to all activities 197

Table 70 Time allocated by Business Advisers solely to sales activities 197

Table 71 Allocation of time spent by National Manager solely on sales tasks 198

Table 72 Uptake of COMET by public institutions (target vs. actual) 198

Table 73 How companies found out about COMET 199

Table 74 Quality of the content of COMET documentation produced byAusIndustry 200

Table 75 Time spent with Business Advisers prior to application 201

Table 76 Average Weekly Earnings, 2004 and 2006 203

Table 77 Average salaries for selected professionals 203Table 78 Current and proposed application/assessment options 215

Table 79 Administrative roles of individuals and groups in COMET program B-8

Table 80 Assistance, funding and success fees under COMET B-13

Table 81 Comparison of the assessment process under COMET B-14

Table 82 COMET submission providers F-1


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Scope of the Evaluation 1

1 Scope of the EvaluationACIL Tasman was commissioned by the Department of Industry, Tourism

and Resources (DITR) to undertake an independent evaluation of the

Commercialising Emerging Technologies (COMET) program. Subsequently

the name of the Department was changed to the Department of Innovation

Industry, Science and Research (DIISR).1

The purpose of the evaluation is to provide evidence to support any

recommendations for improvements or modifications that may need to be

made to the COMET program to maintain or improve outcomes.

Conducting the evaluation in 2007 is timely and appropriate for a number of

reasons:

It is five years since the last formal evaluation of the program.

The evaluation will assemble data and information to support and justifyany changes to COMET.

The evaluation enables a whole-of-program consideration of issues relatingto the appropriateness, effectiveness and efficiency of the program.

As part of the evaluation, ACIL Tasman has been required to undertake a

number of steps: develop a methodology for undertaking the evaluation that addresses the

Terms of Reference

undertake stakeholder consultations to obtain their information and views

examine relevant departmental files and other program relateddocumentation

collect and analyse all performance data available

analyse the data collected and develop findings and recommendationsaddressing the Terms of Reference

prepare an Evaluation Report which sets out data, findings from analysis ofdata, and recommendations which respond to the Terms of Reference

present progress of the evaluation, and findings and recommendations tothe Evaluation Steering Committee and to the Department.

The full Terms of Reference for this evaluation can be found at AppendixA.

1

We have retained the use of DITR throughout this report given that quotations andreferences in general refer to DITR.


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Methodology 2

2 MethodologyThis evaluation of the COMET program is guided by the Department of

FinancesDoingEvaluations: A Practical Guide.2

Appropriateness. The extent to which the program objectives/desiredoutcomes align with government priorities/policy and client needs

In essence the guidelines require

analysis of the COMET programs:

Efficiency. The extent to which program inputs are minimised for a givenlevel of program outputs, or to which outputs are maximised for a givenlevel of inputs

Effectiveness. The extent to which program outcomes are achievingprogram objectives.

The methodology used to undertake this evaluation is outlined below.

2.1 The consultation process

The consultation process conducted by ACIL Tasman was a major source of

information for the evaluation. The activities undertaken during this process

are outlined below.

2.1.1 Issues Paper

Due to the potential geographic spread of COMET participants and other

relevant or interested stakeholders, ACIL Tasman developed an issues paper

inviting submissions to the review. The issues paper outlined the COMET

program and noted questions for consideration (as outlined in the Terms of

Reference) and is provided at Appendix B.

The issues paper was advertised in TheAustraliannewspaper on 11 August

2007 and housed on the ACIL Tasman website. ACIL Tasman received 10

submissions, comprising: 5 from Service Providers and consultants

2 from members of the COMET delivery network

1 from a COMET customer

1 from an Academic

1 from a Venture Capitalist.

A full list of submission providers can be found at AppendixF.

2 Department of Finance (1994)DoingEvaluations: A Practical Guide, Commonwealth ofAustralia, Canberra.


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Methodology 3

2.1.2 Stakeholder consultation

Perhaps the most critical component of the evaluation process was the

consultation with key stakeholders, which was undertaken through a series of

structured and unstructured consultations. Stakeholders that participated in the

consultation process included: successful COMET applicants, unsuccessful

COMET applicants, all members of the COMET/ICIP Committee (including

the previous Chair of the Committee), the COMET National Manager and

Business Advisers (including past Business Advisers), Service Providers and

Business Angel investors.

Structured interviews

Structured interviews were conducted by phone. The interviews utilised a

survey questionnaire developed by the consultant (which was provided to the

respondent prior to interview) to obtain feedback, opinions and suggestions on

the program from:

105 successful COMET applicants

initially it was planned to undertake 105 interviewsthe number ofinterviews was subsequently revised down to 91 due to time constraints

and the difficulty in contacting applicants (the sample participated inthe program between 200203 and 200607)

20 unsuccessful COMET applicants

initially it was planned to undertake 20 interviews the number ofinterviews was revised down to 14 unsuccessful COMET applicantsdue to time constraints and the difficulty in contacting applicants (thesestakeholders participated in the program between 200405 and 200607).

Survey methodology

As part of the methodology the sample group surveyed were involved in the

program between 200203 and 200607. It was agreed that the participants in

the earlier years of the program had already been analysed as part of the

Howard Review in 2002. For this survey, the sample of successful applicants

aimed to directly reflect the proportion of participants in the program for each

year between 2002-03 and 2006-07. The sample size also aimed to reflect the

industry breakdown and geographic distribution of successful applicants. The

sample group was identified by DITR using these parameters. A copy of the

questionnaire used for successful applicants is provided at Appendix C. It

should be noted due to the nature of some of the survey questions not allsurvey participants provided responses for all questions.


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Methodology 4

For the sample of unsuccessful applicants, it was recognised that there may be

considerable difficulties in contacting and obtaining information from theseapplicants from earlier years of the program. Consequently, the sample only

contained unsuccessful applicants between 200405 and 200607. A copy of

the questionnaire for unsuccessful applicants is provided at Appendix C.

The sample pool

The survey sample pool comprised more than the 91 successful and 14

unsuccessful companies. It should be noted that AusIndustry contacted all

companies in the sample pools to satisfy confidentiality issues prior to ACIL

Tasman contacting them.

For the pool of successful applicants, AusIndustry attempted to contact 170

companies. Of these companies:

91 were interviewed

48 could not be contacted by AusIndustry

26 did not want to participate

5 agreed to participate but could not be contacted by the consultant withinthe desired timeframe.

For the pool of unsuccessful applicants, AusIndustry attempted to contact 43

companies. Of these companies:

14 were interviewed

12 could not be contacted by AusIndustry

14 did not want to participate

3 agreed to participate but could not be contacted by the consultant withinthe desired timeframe.

Cha racteristics of the sam ple group

As noted in the survey methodology, the sample group for the successfulapplicant survey was stratified to ensure it provided as accurate as possible

indication of the industry and geographic mix of COMET customers.

With respect to geographic mix, most customers came from the east coast of

Australia (seeFigure 1), with 26 per cent of customers coming from New

South Wales, 24 per cent from Queensland and 19 per cent coming from

Victoria.

The industry stratification of the respondents is shown inFigure 2.Almost half

(49 per cent) of COMET applications were classified as being in the

manufacturing sector, with a further 21 per cent classified as property andbusiness services, and 10 per cent as health and community services.


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Methodology 5

Figure 1 Geographic distribution of successful applicant survey group(200203 to 200607)

Data source: ACIL Tasman analysis of AusIndustry data.

Figure 2 Industry distribution of successful applicant survey group(200203 to 200607)


NSW

QLD

VIC

SA

WA

TASACT

NT

Manufacturing

Prope rty and business Services

Health and community services

Mining

Cultural and recreational services

Electric ity, gas and water supply

Communication services

Construction

Wholesale trade

Transport and storage

Education


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Methodology 6

Unstructured consultations

In addition to structured interviews, unstructured consultations wereconducted with key delivery and governing agents in the program, including:

all members of the COMET/ICIP Committee (face to face interviews) andone past Chair of the Committee (phone interview)

the National Manager (face to face interview)

16 COMET Business Advisersall current, and 2 previous advisers (faceto face interviews)

5 Business angel investors (phone interviews)

18 Service Providers (phone interviews).

While the interviews were unstructured, they were guided by a range ofquestions that can be found in Appendix C.

2.1.3 Desktop analysis

It was observed that a review in 2002 by Howard Partners analysed the

stakeholders from this period, consequently it was decided not to interview this

group. To obtain necessary customer data from the earlier years of the

program, a desktop analysis of AusIndustry data on 75 successful applicants

who entered the program over the period from 19992000 to 200102 was

conducted. The sample size reflects the same proportion of successfulapplicants for this time period as was used in the successful applicant survey.

Information (identical to that obtained for this 19992002 sample) was also

analysed for the successful applicant survey sample.

Cha racteristics of the sam ple

As noted, the sample group for the successful applicant survey was stratified to

ensure it provided as accurate as possible indication of the industry and

geographic mix of COMET customers. A similar approach was used with the

desktop analysis.

Similar to the successful applicant survey group representing customers from

200203 to 200607, most customers came from the east coast of Australia.

For this group however, 27 per cent were sourced from Queensland and 24

per cent from New South Wales. A further 20 per cent were from Victoria (see

Figure 3).

While demonstrating similar industry traits to the 200203 to 200607 group,

the industry breakdown was slightly different for the 19992000 to 200102

group (seeFigure 4). Manufacturing only represented 39 per cent of customers

(compared to 49 per cent), and property and business services represented


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Methodology 7

35 per cent of applications. Communication services was the third largest

group, representing 9 per cent of applications.

Figure 3 Geographic distribution of COMET customer data used in the199900 to 200102 desktop analysis


Figure 4 Industry distribution of COMET customer data used in the199900 to 200102 desktop analysis


Further, a review of a number of key questions from a sample of program

completion questionnaires submitted by COMET customers upon exiting the

program was also undertaken.

QLD

NSW

VIC

SA

WA

ACT

TAS

NT

Manufacturing

Property and business Services

Communication services

Transport and storage

Education

Health and community services

Cultural and recreational services

Mining

Electri city, gas and water supply

Construction

Government Administration and

Defence


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Methodology 8

2.1.4 Comparison of state and industry breakdown in samplegroups

A comparison of the industry sectors represented in the successful applicant

survey sample and the 1999-00 to 2001-02 desktop analysis sample with the

entire COMET program population shows that despite best efforts there is

over representation of some sectors and under representation of other sectors.

This is particularly evident in the manufacturing sector and the property and

business services sector in survey sample (seeFigure 5).

When the state breakdown is considered, there is greater representation among

the groups (seeFigure 6).

Figure 5 Comparative analysis of sample with entire COMET population industry distribution

Data source: ACIL Tasman analysis of AusIndustry data

0

5

10

15

20

25

30

35

40

45

50

Manufacturing

Propertyand

BusinessServices

CommunicationServices

HealthandCommunity

Services

Agriculture,

Forestry

andFishing

Electricity,G

asand

aterSupply

TransportandStorage

Construction

Education

Mining

Culturaland

RecreationalServices

FinanceandInsurance

WholesaleTrade

GovernmentAdministration

andDefence

PersonalandOther

Services

RetailTrade

Accommodation,

CafesandRestaurants

%

All customers

2003 to 2007

sample group

1999 to 2002

sample group


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Methodology 9

Figure 6 Comparative analysis of sample with entire COMET population geographic distribution


2.1.5 Review of Departmental documentation

The final component of the evaluation was a review of relevant documentation

housed within the DITR on the COMET program.

2.2 Referencing

As outlined in Section2.1,ACIL Tasman has used results from the analyses of

multiple data and sample sets. This data is used throughout this report to

substantiate claims and present views. The following referencing is used

throughout the document:

successful applicant survey - the survey of the 91 COMET customers

Business Adviser survey - informal survey of 14 Business Advisers

Business Adviser consultation - additional information obtained from theBusiness Advisers

National Manager survey - informal survey of the National Manager

AusIndustry database - data retrieved by AusIndustry from its internaldatabase at the request of ACIL Tasman

program completion questionnaires - data extracted from a sample of 135completion questionnaires submitted by customers. As there weredifferences in the questions asked by AusIndustry, the results of thesequestionnaires were grouped into three time periods Version 1 (December2002), Version 2 (September 2005) and Version 3 (January 2006)

random sample of COMET customer data 19992007. - background

information from the AusIndustry database on the 91 COMET customersinterviewed that participated in the program between 200203 and 2006

0

5

10

15

20

25

30

NSW QLD VIC SA WA TAS ACT NT

%

All customers

2002-03 to

2006-07 sample

group

1999-00 to

2001-02 sample

group


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Methodology 10

07 and a random sample of 75 customers participating in the programbetween 199900 and 200102

AusIndustry information - general information obtained from AusIndustrypublications

successful applicant sample pool. the 170 companies contacted byAusIndustry (or that AusIndustry attempted to contacted) requestingparticipation in the successful applicant survey

COMET Strategic Plans the program strategic plans developed by theCOMET/ICIP Committee.

2.3 Report outline

Chapter 3 presents a brief description of the COMET program. Chapter4

considers the appropriateness of the program. Chapter5 considers the

programs efficiency. Chapter6 considers the programs effectiveness and

finally Chapter7 considers alternative options for delivery. These chapters

report findings and provide recommendations as issues arise. The full set of

findings and recommendations are reported in the Summary to this report.


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Methodology 11


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The COMET program 12

3 The COMET programThe COMET program was established in November 1999 and is part of a suite

of business assistance programs delivered by AusIndustry. AusIndustry is a

division of the Department of Innovation, Industry, Science and Research

(DIISR) and is the Australian Governments agency for delivering products,

services and information that support innovation, industry, science and

research.

The programs objectives are to:

increase Australias sustainable economic growth through stimulating thesuccessful commercialisation of Australian innovation

build sustainable and high growth firms by increasing prospects forsuccessful commercialisation of innovations through the attraction ofcapital and partners.

The COMET program is a merit based assistance program that aims to

increase the commercialisation of innovative products, processes and services

by providing individuals, early stage growth companies and spin-off companies

with a tailored package of support to improve their potential for successful

commercialisation.

An enhanced version of the COMET program was launched in September

2004, providing additional funding and an enhanced focus on regional areas

and public sector research. The differences between the original and enhanced

versions of the program are outlined inTable 1.COMET has been extended

until June 2011 with additional funding of $100 million as part of the

Australian Governments innovation statement,BackingAustralias Ability

BuildingOur Futurethrough Scienceand Innovation3

3.1 Governance and delivery

. More than 1,000 companies are

expected to benefit from the extended program.

The COMET program is delivered by DIISR with the assistance of the

Innovation Australia Board (the Board) (previously the Industry Research and

Development Board) and its COMET Committee.

The COMET program is delivered by AusIndustry with assistance from an

outsourced network of Business Advisers, who are lead by a National Manager.

3 Australian Government,BackingAustralias AbilityBuildingOur Futurethrough ScienceandInnovation, 2004, p.5.


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Service Providers are third party agents engaged by successful applicants to

provide specialised assistance necessary to commercialise an innovation.

Table 1 Differences in COMET pre- and post-September 2004

COMET pre-Sept 2004 COMET post-Sept 2004

Tailored Assistance

for Commercialisation

(TAC)

Management Skills

Development

Types of

assistance

offeredunder

COMET

Strategic andbusiness planning

Market research

Sound managementteam

Intellectual property

strategy

Proven technology

Working prototypecompletion

Assist with findingcapital, joint ventures

Participation in approved

management skillsdevelopment courses.

Management development

Engagement of mentors

Strategic and businessplanning, including an exportstrategy if appropriate

Market research

Market validity

Intellectual property strategy

Proven technology

Working prototype completion

Assist with finding capital,joint ventures

Grant

Funding

Up to 80% of agreedcost of agreed TACplan. Funding cappedat $100,000.

Up to 80% of the cost ofparticipating in approved

courses and/or up to 50%of cost of engaging amentor. Funding cappedat $5,000.

For companies:

* Tier 1: 80% of eligibleexpenditure (20% owncontribution). Funding cappedat $64,000.

* Tier 2: 50% of eligibleexpenditure (50% owncontribution). Funding cappedat $56,000. Fundingconditional on progress afterTier 1.

For individuals:up to $5,000for management skillsdevelopment.

Capital

raising

success fee

25% (subject toagreement) and only

payable whereCOMET supportexceeded $20,000.Success fee capped

at $100,000 percustomer.

2% and only payable whereCOMET support exceeds$20,000. Success fee cappedat $100,000.

Data source: COMET Customer Information Guides

3.1.1 Governing network

The Board is an independent statutory authority that, through various

committees, assists in the administration of Australian Government innovation

programs. COMET is one of 16 programs that the Board administers. Housed

within the Board is the COMET/Industry Cooperative Innovation Program

(ICIP) Committee(the COMET Committee), which is tasked with the ongoing

oversight of the program. The Chair of the COMET Committee sits on theBoard. The primary functions of the Committee are:


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oversighting and endorsing program guidelines and other key governancedocuments prior to consideration by the Board

reporting to the Board on program performance

advising the Board (and through it DITR) on issues and options relating tothe longer term direction of the program for possible input into the policydevelopment process

reviewing progress of the Operational Plan on a quarterly basis andsubmitting reports to the Board for consideration.

The COMET Committee is not involved in day to day management andconsideration of applications.

Committee members are required to have qualifications and experience incommercial and technical fields.4

The Innovation Australia Board Delegate (the Board Delegate) is located

within AusIndustry and is responsible for assessing applications against the

merit criteria.

A Program Delegate is also located within AusIndustry and has financial

oversight of the program.

3.1.2 Delivery network

AusIndustry is the program delivery agent for the Australian Government.

AusIndustry is responsible for the delivery of COMET.

AusIndustry engages a delivery network comprising a private sector consultant

National Manager and private sector COMET Business Advisers to assist in

the delivery of the program.

The National Manager has the primary role of oversighting some of the

functions involved in administering the program. Key activities include:

making recommendations on applications to the Board Delegate

assisting with the management of Business Advisers including reporting toAusIndustry on their performance

ensuring success fee arrangements are in accordance with programparameters

assisting in the development and reporting of the programs OperationalPlan.

A network of Business Advisers (currently 14) plays a central role in assisting

customers through the commercialisation process. Customers receive initial

4 http://ausindustry.gov.au/library/IRD_Chap4_web20070104022857.pdf.
http://ausindustry.gov.au/library/IRD_Chap4_web20070104022857.pdfhttp://ausindustry.gov.au/library/IRD_Chap4_web20070104022857.pdfhttp://ausindustry.gov.au/library/IRD_Chap4_web20070104022857.pdf


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support in the application stage, however if they are successful they are

provided with advice and guidance from the Business Adviser during thecommercialisation process. The services of a Business Adviser are part of a

customers participation under the COMET program and are free. Business

Advisers can provide advice on raising capital from business angels or venture

capital funds, borrowing money, licensing, and joint ventures and strategic

alliances.

Business Advisers may assist successful applicants in engaging third-party

Service Providers that will help with the requisite knowledge and practical skills

in business management and commercialisation. Successful applicants use

COMET program grants to pay for the guidance and assistance provided by

the service providers.

3.1.3 COMET post-September 2004

With the launch of the enhanced COMET program in 2004 came a change to

some of the delivery and governing groups.Table 2 briefly outlines the roles

and functions of the delivery and governing networks pre and post September

2004.

Table 2 Administrative roles of individuals and groups in COMET program


Individual/Group Role Individual/Group Role

IR&D Board

Responsible for program outcomes. TheIndustrial Research and Development(IR&D) Board receives directions from theMinister for Industry, Tourism and Resourcesunder the Industry Research andDevelopment Act 1986.

Innovation

Australia

Board

Responsible for program outcomes.Innovation Australia receives directions fromthe Minister for Industry, Tourism andResources under the Industry Research andDevelopment Act 1986.

COMET

Committee

Established in 2002. Sub committee of theIR&D Board and is charged with oversight of

the program

COMET /ICIP

Committee

Established in 2002. Sub committee ofInnovation Australia Board and is charged

with oversight of the program.

IR&D Board

Delegate

Involved in approvals process. Employee ofDITR. Makes final decision on applications.

Innovation

Aus tral ia

Board

Delegate

Involved in approvals process. Employee ofDITR. Provides assessment of merit to theProgram Delegate.

Review Panel

Consists of two National Managers and oneIR&D Board delegate. Involved in approvalsprocess.


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Individual/Group Role Individual/Group Role

Two National

Managers

Manage the delivery of the program.Involved in approvals process.

One National

Manager

Assists AusIndustry manage the delivery ofthe program including makingrecommendations to AusIndustry onapplications, assessing the performance ofBusiness Advisers and ensuring success fee

arrangements are in accordance withprogram parameters.

10 Business

Adv isers

Assist in the preparation of applications.Assess the applications and makes arecommendation to the Review Panel

through a National Manager

14 Business

Adv isers

Assist in the preparation of applications.Assess applications and makes arecommendation to the Program Delegate

through the National Manager.

AusIndustry Administers the COMET program. AusIndustry Administers the COMET program.

ProgramDelegate

Involved in approvals process. Employee ofAusIndustry. Makes final decision on

applications.

3.2 Funding

The amount of financial assistance available under COMET is capped at

$120,000 (exclusive of GST) per customer. Financial assistance to individuals is

limited to a maximum of $5,000 (exclusive of GST) for the purpose of

management skills development. There is no minimum COMET grant size.

COMET financial assistance is available through a two-tier funding structure: Tier 1. Grant value of up to $64,000 (exclusive of GST). The rate of

assistance is available at 80 per cent of the eligible expenditure

Tier 2. Grant value of up to an additional $56,000 (exclusive of GST).The rate of assistance is available at 50 per cent of the eligibleexpenditure.

COMET funding is used to subsidise a successful applicants access to service

providers for activities that have been agreed by a Business Adviser. This can

include assistance in one or more of the following areas:

management development including participation in approved managementskills development courses

engagement of non-executive directors or mentors

strategic and business planning, including an export strategy if appropriate

market research

market validity

intellectual property strategy

proven technology (including finalising working prototypes).


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3.3 Success fee

The COMET program is unique in that it adopts a success fee structure as

payment for assistance that culminates in a capital injection for the COMET

recipient. The success fee payable to the Business Adviser intends to reflect the

time, effort and expertise of the Business Adviser in putting the COMET

recipient in a position that is attractive to investors.

The success fee is currently 2 per cent of the amount of capital raised, with a

cap at $100,000 (exclusive of GST) per customer. COMET recipients must

have received funding of at least $20,000 (exclusive of GST) to be liable to pay

a success fee.

The success fee is payable on capital that is received within two years of a

companys commencement date as outlined in the COMET Grant Deed. This

requirement also applies to those customers that end their participation in

COMET before they complete their Assistance Plan. Business Advisers are

also permitted to enter into a post-COMET private arrangement with

customers, but not for three months after the customer completes the

program.

Success fee agreements are finalised between the customer and their Business

Adviser prior to execution of the COMET Grand Deed. The National

Manager has oversight of the agreement by ensuring that they are consistent

with the program parameters. The Australian Government plays no part in the

success fee agreement.

3.4 Support

Since its inception, COMET has supported companies in all Australian states

and territories. While the breakdown of states and territories by agreements

executed demonstrates that more companies on the east coast are benefiting

from COMET (referTable 3), this is to be expected given the population base

of the leading states, i.e. New South Wales, Queensland and Victoria.

An important observation is that the proportion of projects coming from each

state/territory is closely linked with the proportion of decision funding

distributed. For example, New South Wales comprised 26 per cent of total

projects and received 28 per cent of total funding; Queensland comprised 26

per cent of total projects and received 22 per cent of funding. This implies that

the geographic distribution of funds is fairly representative of the where the

projects being assisted are located.


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Table 3 COMET agreements executed by state/ territoryinception to 30June 2007

State No of Projects Percentage of Total

Projects

Decision Amount ($) Percentage of

Total Decision

Amount

NSW 355 26% 23,112,767 28%

QLD 349 26% 18,642,688 22%

VIC 260 19% 18,350,137 22%

SA 191 14% 10,574,080 13%

WA 133 10% 8,002,699 10%

TAS 33 2% 1,678,132 2%

ACT 30 2% 1,987,200 2%

NT 10 1% 603,160 1%

Total 1,361 100% 82,950,863 100%

Data source: AusIndustry information

With respect to the geographic breakdown within these states, COMET also

appears to have shared its resources among metropolitan and regional

companies in most states (seeTable 4). While the number of projects executed

in particular country regions is much smaller than others (e.g. 61 projects in

country New South Wales compared to five in country Western Australia),

these results can again be expected given the population base across the

different locations.

Table 4 Regional/ Metropolitan Analysis - COMET Agreements executedby state/territoryinception to 30 June 2007

Region No of Projects Percentage of

Total Projects

Decision Amount

($)

Percentage of

Total Decision

Amount

ACT 30 2.2% 1,987,200 2.4%

MetroSydney 294 21.6% 19,389,867 23.3%

CountryNSW 61 4.5% 3,722,900 4.5%

MetroDarwin 9 0.7% 538,360 0.6%

CountryNT 1 0.1% 64,800 0.1%

MetroBrisbane 209 15.3% 11,039,063 13.3%

CountryQLD 140 10.3% 7,603,625 9.2%

MetroAdelaide 173 12.7% 9,602,880 11.5%

Country SA 18 1.3% 971,200 1.2%

MetroHobart 17 1.2% 854,292 1.0%

CountryTAS 16 1.2% 823,840 1.0%

MetroMelbourne 227 16.7% 15,964,777 19.2%

CountryVIC 33 2.4% 2,385,360 2.9%

MetroPerth 128 9.4% 7,699,659 9.3%

CountryWA 5 0.4% 303,040 0.4%

Total 1,361 100% 82,950,863 100%

Data source: AusIndustry information.


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Similar to the state/territory breakdown, the proportion of projects located in

either regional or metropolitan areas appear to get a representative proportionof funding (e.g. metropolitan New South Wales had nearly 22 per cent of

projects and received just over 23 per cent of total funding, country New

South Wales had 4.5 per cent of projects and received 4.5 per cent of total

funding).

COMET support is spread across a range of industries, with the highest

representation in manufacturing (35 per cent of total projects) and property

and business services (35 per cent)seeFigure 7.

Figure 7 Agreements executed by industryinception to 30 June 2007

Data source: AusIndustry data.

Manufacturing

Property and Business Services

Communication Services

Health and Community Services

Agriculture, Forestry and Fishing

Electricity, Gas and Water Supply

Transport and Storage

Construction

Education

Mining

Cultural and Recreational Services

Finance and Insurance

Wholesale Trade

Government Administration and Defence

Personal and Other Services

Retail Trade

Accommodation, Cafes and Restaurants


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Appropriateness 21

4 AppropriatenessThis chapter considers the appropriateness of the COMET program by

examining the extent to which program objectives and desired outcomes align

with government priorities, policy and client needs. The assessment follows the

Department of Finances evaluation guidelines.5

The terms of reference asked ACIL Tasman to consider the ongoing

appropriateness of the program after seven years of operation including:

Q1. Is the COMET program still an appropriate initiative given its objectivesand the current business environment?

Q2. Are there alternative means by which the program objectives could beachieved, including through alternative programs?

Q3. Is the market or institutional failure(s) which justified the program still inplace? Does the COMET program address these identified market orinstitutional failures (if any)?

Q4. Are the program objectives still relevant or do they require amendmente.g. should the objective of the program include development ofmanagement skills or to assist investment readiness of a COMETcompany? Should any one objective be more important than others?

Q5. Was the COMET program appropriate at the time of inception?

In reporting our findings, we have addressed these questions in the following

sections of this report, given that some of the questions in some aspects

overlap.

Section 4.1 Addresses the rationale for the COMET program, and whether it

was appropriate at the time of its inception (Question 5) and

whether it is still appropriate (Question 1).

Section 4.2 Considers the evidence of market failure justifying the program

and whether the COMET program addresses these failures(Question 3).

Section 4.3 Considers whether the program objectives are still relevant, and

whether amendments are required (Question 4).

Section 4.4 Considers whether there are alternative means to achieve the

same COMET objectives (Question 2).

5 Department of Finance (1994)DoingEvaluations: A Practical Guide, Commonwealth ofAustralia, Canberra.


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Appropriateness 22

4.1 The COMET program rationale

4.1.1 Inception of the program, 1999

Innovation was prominent on the national agenda in the later years of the

1990s. The Department of Industry, Tourism and Resources (DITR) explained

the context for the Australian Government establishing the COMET program

in its submission to the Productivity CommissionsInquiry into PublicSupport for

Scienceand Innovation,in December 2006.

The Commercialising Emerging Technologies (COMET) program was established to

address a gap identified by private fund managers when the IIF [Innovation

Investment Fund] program was established that most early-stage firms were not

investment-ready because they suffer from a poor grasp of the realistic market

opportunity for their product and/or limited understanding of intellectual property

and general business management skills. These high risk factors make it very difficult

for venture capital funds to undertake due diligence and feel confident in the

prospects for the business.6

The introduction of the COMET program took place at a time when policy

attention was focussing on innovation and its critical role in underpinning

sustainable economic growth.

In announcing the COMET program in November 1999 the Minister for

Industry Sciences and Resources succinctly described the need for the

program:

Currently many Australian companies with innovative product, service and process

ideas fail to successfully commercialise their knowledge through lack of access to

equity funds and the commercial knowledge that venture capital offers companies

with good ideas and products.7

Through the COMET program, the Government aimed to maximise the

potential of these companies to successfully commercialise by getting

successful applicants to a level at which they might be able to attract equity

capital to fund their own expansion, and/or to provide them with the skillsnecessary to manage the firm and the commercialisation process. According to

the Minister:

6 DITR, Submission 93, to the Productivity CommissionsInquiry intoScienceand Innovation

(September 2006), p. 30.7 Media Release 99/378, Senator Nick Minchin, Minister for Industry, Science and Resources,

17 November 1999.

Need for the program

because small firms lacked

access to equity funds and

commercial knowledge


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Appropriateness 23

Specific strategies will generally focus on areas such as developing a sound

management team, a proper business plan and market research, all of which are

required to compete for capital.8

The Australian Government considered that there would be benefits both to

the firm and the nation as a whole, from increased commercialisation of

innovation.

COMET will benefit both individual companies and the country as a whole, as it will

ensure that Australia continues to produce new products and services which are

critical to our national growth and future prosperity.9

The COMET objectives have since been refined, to the following:

to increase Australias sustainable economic growth through stimulating thesuccessful commercialisation of Australian innovation

to build sustainable and high growth firms by increasing prospects forsuccessful commercialisation of innovations through the attraction ofcapital and partners.

The venture capital sector was amongst the 100 stakeholders consulted during

the development of the COMET program. This sector identified six factors

contributing to investment readiness and which were incorporated into the

COMET program. These factors appear in the current COMET Grant

Application Form, and a company applying for COMET is asked to identifywhich of the six factors are a strength or a need. These factors are a mix of

knowledge, skills and technological development, comprising:

proven technology

working prototype

management/team skills

market research

business planning

intellectual property strategy.

The initial COMET program budget was for $30 million over three years.

Given that the Government undertook extensive consultations prior to

introducing the COMET program, and based the design of the program on

identified needs, in ACIL Tasmans view the introduction of the COMET

program was an appropriate response to address a verified market need.

8 Media Release 99/378, Senator Nick Minchin, Minister for Industry, Science and Resources,

17 November 1999.9 Media Release 99/378, Senator Nick Minchin, Minister for Industry, Science and Resources,

17 November 1999.

COMET objectives, Ministerial

Directions, 2006

At the time

comet report

Documents