Over the last year ForrestBrown has become a Strategic Partner of Notion Capital, a venture capital firm based in London that specialises in B2B SaaS and cloud businesses. Ian Milbourn, Chief Financial Officer of Notion Capital and Adam Kotas, a Director of Forrest Brown recently caught up to talk about the partnership and the importance of research and development (R&D) tax credits to high-growth tech companies.

Ian Milbourn is a Partner and CFO of Notion Capital, the venture capital firm he co-founded in 2009. A qualified accountant, Ian has worked in the entrepreneurial services division of Ernst & Young, as well as in the tech industry in the US and UK with a wide remit including M&A, financing and equity incentives. In his spare time, Ian enjoys keeping fit, playing golf (badly), and being the best dad he can to his three kids.

Where do R&D tax credits fit in the funding cycle for a high growth company?

The obvious thing to say about high growth companies is that they are investing heavily in R&D. Cash conservation is key and we talk a lot about extending the runway between funding rounds. Again, “high growth” implies a requirement for future fundraising, particularly for technology companies. We talk to our companies about cash management, making sure they can buy as much runway as possible between the rounds – primarily to gain an increased valuation.

R&D tax credits are an important source of cash for those companies, who will in the early stage be investing heavily in R&D - anywhere between 30% to 100% of their total spend. Importantly it does not require them to go out fundraising. From our standpoint, R&D tax credits are one of a number of areas that we encourage our companies to be on top of as a simple way to get a cash boost.

What are the most exciting areas of R&D for you in software and cloud services at the moment?

There is a lot going on. Big data has been a theme for a long time - the concept of being able to deal effectively with petabytes of data out there. For the last couple of years there has been a push around unstructured data – making it structured so that you can analyse it.

Now we are seeing more and more on machine learning and AI – the ability for software to learn and improve itself as it handles more data.

You have then got the cutting edge stuff like drones and driverless vehicles.

As an investor, what signals does a company claiming for R&D tax credits give you?

It just means they are on it: really focused!

I would look at the question the other way round: If someone is not doing this, it suggests to me they have not got a focus on cash management, which would be a big turn off. We are actually about to survey our portfolio on R&D tax credit claims, and I would be amazed if the figure was below 95%. As the CFO of the fund, I find all of our 31 companies have two constraints: time and money. Anything I can do to help them out with money is worth the effort on my side.

Why do you like ForrestBrown? What makes them different?

When I first got talking to ForrestBrown I was surprised that a firm would just focus on this niche area of tax. But the more I have thought about it, the more I have come to recognise it as a key strength. Having a firm that just does R&D tax credits gives real expertise. It might be a niche area but it is the most relevant area of tax for our companies – corporation tax is frankly irrelevant because our companies are all loss making at this point.

I have introduced ForrestBrown to a few companies now. Seeing the results of them going into businesses where previously there have been big four tax firms that have done work and submitted claims, and ForrestBrown have reviewed it and got more money, that is ultimately what it is about. So I have been really impressed. As CFO of the fund, I want all my companies to use the best people in the market and for R&D tax credits, that is what ForrestBrown are.

Chartered Tax Adviser Adam Kotas joined ForrestBrown in 2014 and was made a Director in 2015. He specialises in advising companies on the structure of their business to maximise their R&D tax relief claims. He has a close interest in the digital space and in particular disruptive technologies. Adam is also keen cyclist and a wine enthusiast.

How are R&D tax credits relevant to B2B SaaS and cloud service providers?

In order to attract investment or be disruptive, you need a model or a platform: is it going to save someone time, or money, or something else? The way to achieving this will be driven by technology and innovation.

Take the idea of incorporating machine learning into what you are doing: you may not be pushing the boundaries of AI itself, but the R&D may be in the application of what is already established. To be a company that is going to create a huge footprint, you have to be at the forefront of the technology in your sector. The R&D tax credit is directly what that is aimed at, so it is a completely natural fit.

I look at it at from an entrepreneurial business tax perspective. These tech companies want to grow massively and R&D tax credits is just an absolutely key part of the funding cycle: be that raising money from investors, loan finance or R&D tax credits.

Some advisers recommend holding an R&D tax credit in the back pocket for a rainy day; potentially a good thing to do. But a counter view is to use it to delay the requirement for new funding and push your product further. Then, you can raise funding at a higher valuation later on, which of course means you don’t need to give away as much equity.

Where can R&D tax credits go wrong?

With companies like those in the Notion portfolio, it is unlikely that they haven’t claimed.

So assuming claims are happening, the next thing that can go wrong is when companies do not claim for everything that qualifies. For example, a lot of the time we come across companies who think they can only claim on in-house projects, which is one of those R&D tax credit myths out there.

This is relevant to B2B SaaS; they will normally be working on a proprietary product system or platform. It starts off in-house, but once it is built and they start selling, they find themselves working with clients. Sometimes there is a lot of personalisation or integration with a client – even though it is cloud-based. It could be months of work and there could be a lot of qualifying R&D at that stage. So that’s a problem, only claiming for part of what you could do.

A lack of knowledge about R&D tax credits in the wider accounting context is another problem. How are the broader accounts set up? How are management charges applied? If you make R&D a wider consideration at this stage, you can optimise the whole accounts to maximise the claim. If you are not working with an R&D specialist how do you know if your claim is optimised?

This would require a change of mindset, but for high growth tech companies it could be argued it would make more sense for them to appoint a specialist R&D tax credit adviser as a lead on tax affairs. It is such an integral cash management and cash generative area. At this stage the corporation tax return, while important, is a compliance process that needs to be taken care of.

Any other issues that can arise?

Where else can it go seriously wrong? Let’s imagine you have been claiming R&D tax credits for a couple of years. You’re expecting a credit in your third year of £250K in July, but HMRC decide to look into a few things. You should have a thorough level of support, good record keeping processes, a clear methodology for how you have arrived at all the costs, support for that methodology and the processes you have been through…

If this is lacking and HMRC are not satisfied with your answers, that £250k which you have built into your cash flow in July now may not come in until December, March the following year, or next July even! It could materially affect the speed of your development and in some cases what you are able to achieve overall. So it could cause a massive problem and shows the value of having an expert working on your case from the beginning.

Thinking more generally, what is the most interesting area of R&D you have come across in your time at ForrestBrown?

There is the obvious stuff. I find using the virtual reality headsets pretty cool: exploring a brain through the VR headset for example.

I like the mobile app side of R&D. Companies that take all the technology in your phone and work out new ways to use it. There was an educational app I came across teaching children about bumble bees. You could transfer a virtual bee from one phone to another with a tap. I like that the developers are using the gyroscope and all the other tech in the phone to make the best app possible and in this case educate children.

I’m interested in cars too, and love it when we find R&D in the most unexpected of places – for example, those companies who have developed a deep expertise that is above even that of vast corporations who can throw unlimited sums at a project. There was a project which involved restoring an old (pre-second world war) race car – it was stuff that one of the well-known car manufacturers commissioned, which was an amazing project undertaken by a company with fantastic knowledge and expertise that can only come from years of working in the motorsport industry. The company, compared to the resources of the car maker themselves, were basically working in a shed, developing the processes and techniques to reproduce this remarkable piece of history. Fascinating. Director at

Post produced in partnership with Adam Kotas, Director at ForrestBrown.