What was broken
A recognised deep-tech founder needed non-dilutive seed capital to move a validated prototype toward a market-ready product, and had to present a seed-fund application that would clear an incubator selection committee.
What we did
CapEasy structured the seed-fund proposal end to end: the eligibility case, the argument for the convertible-debenture (scaling) instrument over a grant, and a utilisation plan mapped only to program-permitted heads. We built the milestone-linked tranche plan and the financial model the committee assesses, and shaped the narrative so the technical work read clearly to a non-specialist panel.
Where it landed
The application was approved for a convertible debenture through an incubator-backed public seed fund. A seed-fund approval is the incubator committee’s sanction; actual disbursement follows the program’s due-diligence and compliance milestones and is not guaranteed.
A grant, a tax offset and a convertible note are three different things on the books
The choice this engagement made — arguing for the convertible-debenture instrument over a straight grant — is the same choice an Australian deep-tech or scientific-software founder faces every time an accelerator, an early-stage fund or a program offers capital, because the three shapes of non-dilutive-looking money behave completely differently once they hit the ledger. A grant (CSIRO Kick-Start, the Industry Growth Program) is income recognised against milestones and permitted-spend rules — it is never a liability and it never converts into anything. The R&D Tax Incentive is a tax offset: a refundable credit or an amount that reduces tax payable, claimed through the return, not booked as revenue from a customer or a funder. A convertible note or debenture from a fund or accelerator is debt from the day it is signed — cash the company owes back, or converts into shares, on terms fixed in the instrument.
Getting that distinction right on the chart of accounts matters before a cap table or a set of statutory accounts is ever produced for a lead investor or an auditor: booking a convertible note as income overstates revenue and understates liabilities in the same period, and booking a grant as debt does the opposite. The instrument decides the treatment; the treatment is not a matter of preference.
What is actually open to a scientific-software company right now
business.gov.au lists CSIRO Kick-Start as dollar-matched funding of between $10,000 and $50,000 — the company contributes an equal cash amount, and the voucher buys CSIRO's own research time and equipment, which makes it a fit specifically for a scientific-software or hardware-adjacent startup that needs validated research capability it does not have in-house; it calls for GST registration and turnover under $10 million (or under three years of registration), and is accessible pre-revenue. The Industry Growth Program's Early-Stage Commercialisation stream is built to fund feasibility, proof-of-concept and prototyping work at Technology Readiness Levels 3 to 6 with grants of $50,000 to $250,000 as matched funding (the company must co-contribute), under National Reconstruction Fund priority areas that explicitly include "enabling capabilities" — the category deep tech sits in; its Commercialisation and Growth stream scales that to $100,000–$5,000,000 for TRL4–9 work, with combined turnover under $20 million required. As of this writing the Industry Growth Program is paused to new applications; business.gov.au's grants and programs finder is the place to check current status before planning a raise around either.
Underneath both sits the R&D Tax Incentive, which — unlike a competitive grant round — runs every year on current rules rather than opening and closing on a date. business.gov.au states the refundable offset for a company with aggregated turnover under $20 million is 43.5% of eligible notional R&D deductions; a company at or above that turnover gets a non-refundable offset instead, tiered by R&D intensity. That $20 million refundable-offset threshold is scheduled to rise to $50 million from 1 July 2028 — a change worth knowing about now if the current raise is sized to keep turnover under the existing line.
How the ledger carries a convertible note until the day it converts
AASB 132 — the accounting standard for financial instrument presentation — treats a convertible note or debenture as a compound financial instrument: an entity separates it into a liability component (the obligation to repay or the obligation the holder can force) and an equity component (the holder's option to convert into shares), each recognised at its own carrying amount on day one, with the two components together equalling the instrument's fair value. From that point the liability leg is carried at amortised cost — a discount that unwinds through interest expense over the note's life — right up to conversion or repayment. None of that is optional bookkeeping; it is what a split-accounting entry looks like on a balance sheet an auditor or an incoming investor will actually read.
A grant follows a different clock entirely: it sits as deferred income against the milestones the program funds, released as those milestones and the permitted-spend heads are met — the same tranche-and-permitted-heads discipline this engagement built for the application. When a note does convert, the liability is extinguished, new shares are issued, and the company's register of members is updated — the mechanical step ASIC's member-register guidance describes for any change in a company's share structure. What CapEasy prepares in either case is the schedule behind the entry: for a note, the principal, discount rate and conversion terms filed next to the signed instrument, reconciled monthly the way a SAFE schedule is kept; for a grant or the R&DTI, the milestone and permitted-spend tracking, and — where R&D expenditure is being claimed — a chart of accounts that separates R&D-coded engineer time and project cost from ordinary opex, kept as the work happens rather than reconstructed at year end. The classification call, the audit sign-off and the return itself are prepared for your registered BAS or tax agent and your auditor to finalise — the instrument’s accounting treatment and the program’s eligibility decision are theirs and the funder’s to make, never the preparer’s.
What to take from it
- A convertible note or debenture is debt on your books from signature until conversion; a grant is income against milestones; the R&D Tax Incentive is a tax offset. Booking one as another misstates the accounts before anyone else ever opens them.
- AASB 132 requires a convertible note to be split into a liability component and an equity (conversion-option) component at initial recognition, then carried at amortised cost — not booked as a single lump-sum number.
- Scientific-software and deep-tech founders have grant-shaped options to check, not just tax-offset-shaped ones: CSIRO Kick-Start's matched vouchers work pre-revenue and are open now; the Industry Growth Program's Early-Stage stream is built for TRL3–6 work under matched funding but is currently paused to new applications — check business.gov.au's finder for live status.
- The R&D Tax Incentive runs every year on current rules — a 43.5% refundable offset under $20 million turnover — rather than opening and closing in a round, but that turnover threshold is scheduled to rise to $50 million from 1 July 2028.
- Keep a note schedule the way you would keep a SAFE schedule: principal, discount, conversion terms, filed with the signed instrument and reconciled monthly, so the split-accounting entry and the eventual share issue on the members register both trace back cleanly.