The federal government has just announced $1bn of initiatives to support an innovation culture in Australia and to drive ideas – under the hashtag #ideasboom. Over 20 ideas designed to support entrepreneurship, ideas, investments and startups have been released. Here are my thoughts on the good, the bad and the ugly.
Firstly however, it’s important to acknowledge that innovation is on the National agenda, with bi-partisan support following Labor’s announcement last week of a similar range of measures. It’s clear that Ed Husic and Wyatt Roy are in violent agreement on supporting the future for Australia and this is awesome.
I’ve been addressing the innovation agenda from an ecosystem perspective for quite some time now, indeed I even pitched these ideas at PolicyHack. It’s fantastic to see this come through in both parties innovation agenda. Indeed the recent reforms to the SIV changes have created a frenzy around ESVCLP funds, with a doubling of the number of funds in the last six months. (BlueChilli has an ESVCLP fund, the 10th such fund to be unconditionally approved). This is dangerous when done in isolation, as an influx of funds without the influx of assets (startups) to be invested in will mean that assets will be overvalued and poorer quality assets are funded, both of which lead to knock on effects when the VCs will not get their returns in 7-10 years and therefore cause long term effects to the ecosystem. Classic supply and demand economics.
I’ve mapped these out over the ecosystem, of ideation, development, growth and scale – the four phases of startup development which we run through at BlueChilli.
STEM influence (ideation)
Incentives and funding to increase STEM students are needed to encourage kids to get in to tech and industry. The government also extending these initiatives to include Digital Technology and Entrepreneurship is clever to ensure that the ones wanting to build startups are incentivised just as much as those able to build them directly. The $48m to inspire with the PM’s science and entrepreneurship price and $51m towards Digital Technology to encourage and support groups like CodeClub Australia, DICE kids and ClubKidpreneur is awesome. Note I’m affiliated with the later two, DICE was conceived, pitched and formed at PolicyHack and I’ve been supporting ClubKidpreneur since it pretty much started.
Women in tech (ideation)
Whilst it’s a conservative $13m, the focus on women in STEM and entrepreneurship is a huge positive step forward in encouraging more women to take up ideas and run companies. Anything we can do to derisk this decision is a huge positive.
Visa changes (ideation)
It’s crazy we live in an environment where we “kick out” PhD graduates once they’ve completed their study and built families here. The proposed changes go a long way to addressing this. The new entrepreneur’s visa will definitely help a few BlueChilli founders who are struggling to address how they can build a company in Australia. We want awesome smart talented people in this country building awesome smart startups.
University block grant changes (development)
The proposed changes to support industry collaboration as strong as academic creation will mean that a greater transfer of IP from universities to startups and may actually support startups being spun out of universities.
Incubator and accelerator support (development)
The private sector’s solution to de-risking the development of startups is through accelerators and incubators. The $8m in support to accelerators and incubators goes some way to helping these programs build quality startups – as I can attest, running one of these groups is very hard work! Helping us improve our offering, and to expand these in to other areas which need the support is an excellent approach to supporting startups in the development phase.
Tax incentives for startup investors (development and growth)
This is massive, a 20% income tax concession followed by 100% CGT offset for assets held over 3 years will drive a huge amount of investment into startups and helps bridge the gap between ideation and the VC ecosystem, helping drive better quality startups to the VC industry and providing greater amount of support to investors. The issues here however are that there’s a potential for a stay in investments in the six months prior to this initiative being implemented as investors “wait” to get the favourable tax treatment, but overall this is awesome. Globally this is modelled on the UK SEIS structure, which has created a boom in startup investment in the UK and is one of the primary reasons behind the UK’s recent success in startups and innovation. However, a $200k limit each year is tiny, when I spoke to the Chief Scientist in Israel who has a similar initiative with no limit, he said “why do I want a limit? We want people to invest in startups, why would we cap it”?
Government procurement (growth)
Loosely modelled on DMO CTD program which I was familiar with back in my defence days, the government procurement changes for ICT will be a boom to early stage startups who struggle to get their first customer. The Digital Marketplace run by DTO will make it easier for SMEs to sell to government through an online platform, and the $19m business research initiative looks a lot like BlueChilli’s successful Disrupt@Scale model where Government problems will be pitched back to startups for their support, run by the newly formed IAS (merge of IA and the Science Council).
ESVCLP changes (Scale)
Increasing the ceiling from $100m to $200m will mean more funds can be deployed through the existing ESVCLP funds. This will help drive further investment into later stage as a $200m fund is kinda required to be able to handle Series A/B investments. A 10% income tax concession for Limited Partners will help address the “why bother” issue, as investors will receive greater tax incentives by investing direct. I do think this should be increased to be on-par with direct investments, but this is actually ok as it will mean the fund managers will need to work hard to convince people why their selection methods are better. (There are only a few funds with proprietary deal flow in Australia, BlueChilli and BlackBird are two of them).
$200m fund to CSIRO (Scale)
The $200m VC fund to the CISRO on a matched basis will mean that “high tech” startups which have a national research benefit will be de-risked through this fund. Again, great support for later stage startups and also goes to address the defunct Industry Investment Fund. Matched funding is the smart bit, as I don’t want the government (or an agency) making investment decisions, so matching others is a smart way to do this – and is how Israel and other countries achieve this.
There are obviously more initiatives, but I wanted to put my thoughts down in how the major ones address the ecosystem holistically. So, in summary:
- ecosystem approach
- Tax incentives for startup investors
- strong focus on STEM
- VISA changes to keep smart people here
- Incubators and accelerators key part of infastructure
- Caps on startup investors way too low ($20ok)
- Tax incentives might not be enough to draw local money in to ESVCLPs
Again, the big thing here is that innovation has bi-partisan support. I’m really excited for the next few years and the future of Australia.