This is the second article in a series where CapitalPitch co-founder Jeremy Liddle will explore different aspects of the government’s innovation statement and the potential impact they will have. You can read the first article here.
The innovation, startup and investment community rejoiced in December 2015 when our new prime minister chose to make the statement about innovation and science the first priority policy decision of his tenure.
Fast forward to May 2016, with an impending election, we must ask the question of our government: “Are you investing public money based on sound decisions for the future prosperity of Australia or are you buying media opportunities and votes?”
Let’s look at the support for the 21st century investment and education vehicles that have, in many other economies around the world, produced game-changing technology and startups like Airbnb, Dropbox and Stripe.
There was no additional announcement about this in the budget but let’s hope that there is real action on this.
“Supporting startups through incubators and accelerators”
Innovation.gov.au states that:
“The Incubator Support Programme will offer competitive matched funding to support the development of new incubators and accelerators in regions or sectoral areas with high innovation potential and to boost the effectiveness of high performing incubators including support to expand their services and engage a commercialisation adviser to help them access other government services and programmes.”
There is also access to research and technical talent and an online innovation network.”
The government has committed, out of $1.1 billion, $8 million to this sector.
In comparison to countries such as Israel, Singapore and New Zealand, this commitment is lacklustre to say the least. The government needs to be looking at significantly more investment for program operational expenditure and matched funding for alumni of the programs with a focus on the programs creating innovative startups that are scaling up and creating jobs.
Incubators and accelerators like ATP innovations, Pollenizer, Startmate, Springboard Enterprises, BlueChilli, Muru-D, iLab and River City Labs have seen thousands of investors, mentors, program managers and founders invest time and money into supporting startups that will commercialise Australia’s innovation.
The leaders from these programs have also invested years, hundreds of hours and hundreds and thousands of dollars of their own money helping our Government determine the policy and potential regulation changes for its new found love of innovation.
The reason behind why these programs are so critical to the ecosystem is important.
Kauffman, OECD, Stanford, EY and various other research all agree that it is young businesses (under five years) and the top 5% of high growth businesses (measured by employees) that create 72% of the net revenue growth and 67% of net job creation in our economies.
Traditional business education simply does not cater to the creation of high growth, technology enabled startups that are commercialising innovation. Government must support these new programs, at scale, in order to have a leveraged impact on the ecosystem.
In Sebastien Eckersley-Maslin’s article, you can see the lack of government support for these programs.
One of the best global examples of support for incubators and accelerators, which produces proven positive results, is Israel.
In his article Eckersley-Maslin states:
“Since 1991, the Israeli government has deployed $660m in funding to incubators with a five to one matched funding program in eligible startups in incubators. The money is offered as a limited recourse loan, payable out of revenues (4%) with no penalty on early repayment. Since 1991 (as at August 2015), 24 incubators had been created and 1,600 startups funded with a 50% success rate. (Success is defined if the startup later raised funds greater than the government contribution.) $220 million has been recovered by the royalty and repayments (so net $440 million) and there is an additional recovery through the tax on salaries from the people employed through those startups. Importantly however, $5.1B of foreign investment has gone into those successful companies.”
The real kicker regarding the government is that, instead of throwing the bulk of the investment into the programs that have proven some level of success in Australia already, they are going to instead going to invest a significant proportion of the $8 million taxpayer’s money into bringing new, flashy, international programs to Australia with the support of international companies such as Microsoft (which in 2014 paid only $31.2m tax on $567.7 million revenue).
The announcement that minister Pyne made recently around $280,000 in funding for MassChallenge, whilst being a quality program that we are eager to engage with, seems to be timed as an opportunity for a media release and public image campaign leading up to the election.
Companies like Microsoft, and our government, should be focusing on finding the highest impact incubators and accelerators in Australia and scaling them up. The ROI will be significantly higher and the long term impact for Australian jobs, productivity and our future industries significantly better.
The platform CapitalPitch has created accelerates startup investment with a series of software, tools, systems and methodologies that are provided to startup investment stakeholders such as accelerators and incubators to help them create more investor-ready startups; thereby raising more money and creating more jobs.
Many incubators and accelerators struggle to create a sustainable economic model for themselves which has in the past led to poor decisions at the expense of some startups; with this in mind, we have also created a revenue sharing model to help these programs become financially sustainable independent of Government funding or sponsorship. Ultimately these programs must become financially sustainable and we are here to help them.
Our first formal accelerator partnership, which we are extremely excited to announce, is with Springboard Enterprises Australia, founded 14 years ago and chaired by Topaz Conway.
Springboard is a highly-vetted expert network of innovators, investors and influencers who are dedicated to building high-growth technology-oriented companies led by women.
I’m personally very excited by this partnership because it is such an amazing program with great success already, for which we can provide an improved capital raising platform and sustainable financial model so they can scale up and positively impact even more amazing women.