Startup sector calls on government for “urgent and critical” support during COVID-19 crisis

Alex-Scandurra-CEO-Stone&Chalk

Alex Scandurra, chief executive of Stone & Chalk. Source: supplied.

The Australian Innovation Collective has made an “urgent and critical” request for government support tailored to high-growth technology companies in Australia, a sector it says has been “bought to its knees” by the COVID-19 outbreak.

The submission to the federal government was put together by a group of industry representatives from the collective, including Stone & Chalk chief Alex Scandurra, Queensland chief entrepreneur Leanne Kemp and UTS director of entrepreneurship Murray Hurps.

The submission suggests broader structural changes to better support the industry, but first and foremost, it calls for temporary measures to help keep startups alive for the foreseeable future, as the whole world grapples with the economic downturn caused by COVID-19.

“The Australian innovation ecosystem delivers growth and jobs and is the engine room of the new economy,” the submission says.

And, while the government’s first two stimulus packages have been “fast and appropriate”, the recovery from the COVID-19 economic downturn could be an opportunity to bolster the innovation industry in Australia.

Reviving job creating will mean supporting emerging industries and supporting new startups, the collective suggests, as well as speeding up business expansion and new investment.

“The innovation ecosystem is a vital bridge to move the economy and communities beyond the COVID-19 crisis​.”

A stimulus to support startups will have a “far-reaching impact”, the submission adds, with innovations also supporting the healthcare, agriculture, energy, defence and manufacturing sectors, among many others.

“All companies are now technology enabled companies,” it says.

Speaking to SmartCompany, Alex Scandurra says if the plan is to get more people into skilled work once the coronavirus crisis has passed, startups will play a vital role.

When they’re scaling, startups hire large numbers of people, and fast, more so than “a medium or large enterprise that doesn’t have that growth trajectory”, he adds.

R&D Tax Incentive

The submission echoes earlier calls for accelerated changes to the R&D Tax Incentive scheme, calling on the government to provide streamlined criteria and to bring forward next year’s payments for companies with revenues of less than $20 million.

The amount of the payment would be equal to that made in the 2019 financial year, with any adjustments necessary made next year.

It also suggests implementing a two-year guarantee that claims for software development will not be rejected, and that payments are made on a quarterly basis, rather than annually.

“Expanding RDTI funding on a temporary basis until new legislation is passed will provide the most significant and impactful form of financial support across the entire sector nationally,” says the submission.

Last week, Aussie entrepreneur and investor Adir Shiffman launched a petition calling for similar measures in relation to the R&D Tax Incentive Scheme.

Initially, the petition had a goal of 500 signatures. At the time of writing, 3,270 have signed, and it has a new target of 5,000.

“That’s a no-brainer,” Scandurra says.

“It costs the government nothing, it’s just a matter of getting it done now.”

At the same time, this is a package that directly keeps people in jobs. Businesses cannot conduct research and development without having the people to do it.

“That financial assistance goes straight into productive work that is effectively funding people to stay in jobs,” Scandurra explains.

Wage subsidies

While it’s not completely clear yet (SmartCompany has required clarification from the government), it’s possible that the wage subsidy package announced yesterday may not be available to many startups.

For a start, it’s available for businesses that have seen a decrease in revenue of 30% or more, suggesting pre-revenue businesses may not get a look in. There’s also some confusion as to whether this refers to a 30% drop year-on-year, or in the past month, something that will make all the difference to many, many startups.

As far as Scandurra can tell, there’s not much in any of the government’s stimulus packages that directly supports startups, or helps them keep people employed.

But, employees are some of a startup’s greatest assets, and losing them could be catastrophic.

“We’re calling for some wage subsidies on a per-employee basis, so the companies can retain this vital talent,” Scandurra says.

The submission suggests wage subsidies of $20,000 per employee, recognising “the disproportionately high cost of losing and reinstating talent”.

“This is all about intangible assets,” Scandurra explains.

“Unlike many businesses, [startups] can’t sell some property or some assets and divest. Their entire asset base is the intellectual property,” he says

“If they start to lose that vital talent, then their entire business falls apart.”

At the same time, staff is often a startup’s biggest cost. And, even with the PAYGW relief, and payroll tax refunds or waivers (depending on the state), the support available here is “tiny in comparison to an actual wage bill”.

Access to capital

Even before the outbreak of COVID-19 access to capital was a serious challenge for early-stage startups. The new economic environment just exacerbates the problem.

The submission requests various support measures to help keep these business in business.

First, it suggests expanding the eligibility criteria for the early-stage innovation company scheme, incentivising angel investors and getting private capital moving through the market.

“A black swan event like COVID-19 will make investors even more risk-averse in the absence of urgent action,” the submission says.

“Policies that lead to a paradigm shift increase in equity investment in startups and scaleups rather than the current approach which is regarded in the industry as incremental and restrictive.”

It also seeks support for businesses that were gearing up for growth, suggesting tax rebates on software-as-a-service contractors, marketing, sales and hosting, plus immediate grant funding.

Finally, it calls for support to retain support infrastructure, such as startup hubs, incubators and accelerators, which the submission calls “a gateway for new entrepreneurs into the community”.

Stone & Chalk has itself waived membership fees for three months, and has made all of its services virtual, even adding additional support for startups affected by the coronavirus crisis.

Specifically, the AIC suggests an “incubator lifeline” of $10,000 per current member, up to a total of $1.5 million per location.

It also calls for grant funding of up to $500,000 per regional hub, to deliver online programs and help workers transition into new roles.

Is innovation a priority?

The submission seems to call out a government that hasn’t always been particularly pro-innovation, or supportive of the tech industry in general.

“The innovation ecosystem cannot solve this problem alone — government intervention and investment is essential​,” it says.

It calls on the government to take a new approach to the startup ecosystem, leaving its inconsistency and indifference in the past, and working with the community instead.

“Due to the immaturity of underpinning knowledge infrastructure and inconsistency of regulatory treatment across the operating contexts of startups and scale ups, ​government as a partner with industry assures the structural transition to the new economy​,” the submission reads.

Scandurra says the AIC made the submission last week, and he knows it’s being considered in “parts of the government”, he says.

“As to how much prioritisation they’re placing, I don’t know.”

But, he says he’s hopeful the needle can be moved.

“Call it a double-edged sword of optimism and dogged determinism,” he says.

“Because if they think any of us are going away or giving up on what our country needs, then they’ve got another thing coming,” he adds.

“We’re always going to collaborate with the governments that listen and that understand the role this sector will play in bringing Australia to the new economy.”

But hope is one thing. When asked if he actually expects the government to be receptive to the submission, “I think it’s 50/50”, Scandurra says.

At the moment, there are people in government who understand the importance of the sector, he explains. But there are others who are more old-school, and don’t necessarily appreciate what is at stake here.

“I think we’re still battling really hard to help people understand that even though this is a small part of the existing economy, it’s probably one of the most important parts of the future economy,” Scandurra says.

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