By CHRIS BARTON
Keylogix directors Mike and Dot Johnstone understand just how much a Government research and development grant can help. But they also know only too well that it is just one chapter in the software development story.
Technology New Zealand has just given the Auckland company $208,000 to help complete final development of its Microsoft Word add-on Active Docs.
It is the second time Keylogix has netted a Government handout. Eighteen months ago it received $120,000 from the Foundation for Research , Science and Technology to help the early development of its ActiveDocs software.
"The fact is if we hadn't had that initial money, we wouldn't have ActiveDocs," Mr Johnstone said.
Getting the money was not an easy process - it required $20,000 worth of compliance costs involving chartered accountancy firm Ernst and Young analysing and presenting revenue forecasts. The second application was more straightforward.
"This [the second grant] is to finish some really curly technology for ActiveDocs - with a big XML [extensible markup language] component that Microsoft is helping us build."
The grant is supplied on a dollar for dollar matching finance basis, meaning for every 100 hours spent on development, Keylogix can invoice Technology New Zealand for 50.
But at $240 per hour for XML coding experts, $208,000 can be eaten up quickly.
ActiveDocs, due for commercial release in September, is a mass-market package aimed at Microsoft's Office 2000 users.
The software is an authoring tool enabling users to create intelligent, automated templates from within Microsoft Word 2000.
But while the grants have helped to get the product off the ground, there is not enough to bring it to commercial reality.
For that, the Johnstones have had to pour back everything they have made from the other part of their business - customising document solutions for corporates.
So what do they think about tax breaks for R&D?
"I'd love it, it's a great idea. Every cent we've earned through our customising business has gone back into ActiveDocs development.
"We must have spent $1 million to date and I can't get any of it back," Mr Johnstone said.
The issue will come up when Research, Science and Technology Minister Pete Hodgson fronts up to an audience of some of the country's best "science-based" business brains attending a two-day Futures Sector conference in Auckland, hosted by the Government and the Manufacturers Federation.
Mr Hodgson could be in for a tough time from the conference's co-hosts.
Manufacturers groups were outspoken in their condemnation of the grants decision in the Budget, which Mr Hodgson supported and is ultimately responsible for.
The Budget contained an extra $20.3 million to be spent directly on private-sector R&D.
Included was $11.8 million in grants to help firms offset the costs of their R&D spending and an extra $8.5 million for Technology New Zealand, part of the Foundation for Research, Science and Technology.
Conference-goers will be listening closely for any change in Mr Hodgson's stance over tax breaks.
Dot Johnstone believes many New Zealand companies are not realising their potential on the international market because of a lack of funding.
She says it is time New Zealand became serious about research and development.
"In New Zealand there are few institutions that even established organisations can approach for R&D funding.
"Banks are only interested in bricks and mortar, and even the specialised IT venture capital funds are reluctant to participate at the R&D stage."
But now ActiveDocs is almost built, and Microsoft has thrown its considerable marketing weight behind the product, the venture capitalists are circling.
Even though there is plenty of venture capital around, Mr Johnstone says getting the right amount at the right price is fraught with difficulties.
Having worked long and hard to get ActiveDocs to this point, the Johnstones are reluctant to give too much away to reach the final stage.
Mr Johnstone says he is not prepared to part with the 30 to 40 per cent stake many venture capital firms want for the few million dollars extra the company needs to develop distribution partnerships in the United States.
"Our route to market is clearly identified," he said. "We don't need that much cash, but we do need some."
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