Is Australia falling behind on support for startups?

BlueChilli > Blog > Blog > Is Australia falling behind on support for startups?

It’s a question we hear more often from politicians across the spectrum when they visit BlueChilli. It’s great that they’ve started to ask, but it’s not that we’re at risk of falling behind — we would say that we’ve already fallen behind and we now need to decide whether to catch up.

The tech startup economy is global — money and talent and software are all highly mobile. Not only can we land our product in New York, Berlin London or Sao Paolo with almost zero export cost, we can also move our tech investment funds, talent and businesses. If we’re serious about encouraging the development of innovative tech startups in Australia, we need to at least match the support available to tech startups and their investors in other countries. And if we want to slow the migration of Australian tech startup founders and investors to other nations, we need to offer greater support than other nations do.

We can’t do that by chucking a clumsy $20k tax write-off against small business and calling it support for the tech startup industry. It doesn’t hurt, but it doesn’t move the needle. In Canada, the government will pay 80% of the salary bill of an early-stage startup if it moves to Canada from, say, Australia. (And that’s not a tax refund the following financial year, it’s an actual cheque).

Chris Mims of the Wall Street Journal explains why Canada is making such dramatic changes, and along the way, explains why Australia should be considering the same:

One reason is simply that high tech is the route to the post-industrial economy that all countries with any degree of central planning aspire to—just look at the explosion of the IT sector in China, abetted in no small part by its government. Tech represents high-paying jobs from an industry that isn’t resource intensive and, in contrast to Canada’s oil-sands boom, doesn’t pollute. What bureaucrat wouldn’t sign on for that?

Well, how about every Federal bureaucrat in Australia? We are far too slow and far too conservative in setting the legislative direction for innovation in Australia. For example, it took over seven years to address problems with employee share option taxation in Australia (and even those changes still haven’t become law).

While we’re debating if we should consider equity-based crowd funding, other countries have rapidly passed reforms to enable it. In the UK 20% of all deals involve equity crowd funding with over $1bn transacted in 2014.

We lack effective tax incentives for angel investments. Consider the UK where investors receive up to 30% tax deduction on early stage investment and in Israel where they’re proposing 100% tax deductions on early stage investment.

Our CEO Sebastien was recently in Israel meeting with their Chief Scientist about the proposed 100% tax deduction for angel investors and he asked what he calls “A naive and very Australian question”. Was there a ceiling on the amount that could be deducted? The Chief Scientist incredulously replied, “Why would we have a ceiling? We want people to invest in Israel startups.” (In the proposal there is a $1M limit per investment, but no limit to the number of investments that can be deducted.)

What this country needs is a strong, clear and simple vision that gains popular support and is above political point scoring. Australia needs a ‘moonshot’ vision like Kennedy’s famous ‘man on the moon’ vision, which unified the United States and contributed to the rapid development of the microprocessor by Fairchild, which resulted in the spin-out Intel and planted the seed of Silicon Valley as we know it today.

Choose renewable energy. Choose SAAS. Choose fintech or med tech. But please, stop tweaking the smallest knobs on the economic controls. It needs to be big, it needs to be ambitious on a global frame of reference, and it needs to begin now.