MATT BARRIE: Turnbull's innovation statement shows we finally have a government that gets it

Freelancer CEO Matt Barrie. Image: Supplied.

We could have done significantly more for innovation, but at least we’re finally on the right track. As for science, brutal cuts and the message is loud and clear- from now on the CSIRO needs to think about commercial outcomes.

Malcolm Turnbull has released the new National Innovation & Science Agenda, a mix of funding and reforms targeting four main areas: Talent & Skills, Culture, Startups & Capital, Collaboration & Commercialisation, and Government as an Exemplar. These were the four areas discussed at the Prime Minister’s Round Table on Innovation which I attended back in October.

Ironically the participants at the conference that made the most sense at the time were the ministers themselves. Innovation Minister Christopher Pyne, the Prime Minister and particularly Cabinet Secretary Arthur Sinodinos in my opinion remarkably expressed some of the deepest thinking at the event (although I will have to say that what partially contributed to this was that there were too many people at the event from too many fringe interest groups and the discussion frequently got sidetracked- all the action happened with the feedback before & afterwards).

For the sake of brevity, I won’t get into each of the issues that need to be addressed by the country in each of those buckets, other than to repeat what I said back then- they are the right four areas to focus on. As a starting point, this is very much a relief after decades of governments that just haven’t got it.

Yesterday’s announcement contained a fairly detailed list of reforms and funding. As a result, the immediate analysis in the media was sparse, as a number of complex issues were attempting to be addressed, and I think that it will take a little time before everyone gets their head around all them, particularly as a lot of detail is yet to come for each of the items. And the devil is always in the detail.

So with that caveat, my initial thoughts based on what has been released so far is as follows:

From a science perspective, first off I will say that I am not an expert how best to fund basic research in this country. It’s pretty clear however that the sector has taken a brutal beating. Significantly more has been cut out of science in the last two years than is being provided by this funding package. Hundreds of millions of dollars have been cut from the Australian Research Council, ANSTO, Cooperative Research Centres, and so on.

Turnbull is bluntly telling the CSIRO and DATA 61 (formerly NICTA) that from now on they need to contribute to paying their way by commercialising their research better. No longer does Malcolm want them sucking on the Government’s teat. In the past few years they’ve had a large amount cut from their budgets, and under this new agenda only to have a fraction handed back to them to be used only under specific conditions. Together with the tweaks to university research funding, it’s clear that Turnbull wants to change the incentivisation structures in the way the country does research.

For the CSIRO the last year or two must have be a bit of a shock. Firstly, Australia’s pre-eminent scientific research organisation is now run by a venture capitalist (to be clear, Larry Marshall is a great guy and also a good friend of mine). In the Innovation Statement, the CSIRO gets back $70 million of the $115 million cut, but these funds don’t go into their operating budget, they go instead into a fund for commercialisation (along with all the revenue from the CSIRO’s WLAN licensing) which is targeted to grow to $200 million in funding over time. A further $20 million is provided to expand the CSIRO’s Accelerator programme to include other publicly funded research organisations to more rapidly prepare their research for commercial adoption.

I do not believe that the CSIRO’s primary mission should be to commercialise, but I don’t think having at least some focus on commercialisation is a bad thing. The CSIRO still receives approximately $1.3 billion and has 5,000 staff for basic research. Should the CSIRO receive more funding? Undoubtedly. Countries like Israel and Korea spend about double what Australia spends on R&D as a percentage of GDP. Should less than 10% of the budget be focused on commercial outcomes? In my opinion it’s a good thing because commercialised research funds future research, taking the load off government and removing political risk from our future.

As for NICTA (Australia’s Information and Communications Technology Research Centre of Excellence), to be honest I never quite understood why it was set up in the first place. It always seemed to me to be an attempt at CSIRO 2.0 but with a primary goal of commercialisation. If NICTA had knocked it out of the park with one raging commercial success to prove the model, perhaps the organisation would have survived independently. After 13 years, back in August a slimmer version of this organisation was folded into the CSIRO and is now called Data 61. In the statement $75 million of the $84 million previously cut has been given back, however the organisation has been repurposed to solve specific government problems. Gone are the days of NICTA being a daycare centre for the intellectually gifted, it’s now the Government’s software engineering team. While it’s a big blow to the aspirations of the original founders, this organisation might turn into something incredibly useful for the Government.

From an innovation perspective we could have done more, and some of the items could have gone further, but thankfully we are finally on the right track. The reforms and funding are finally being targeted at the right areas. Yes, a lot of the funding looks like it is just recycled money cut from other past programs, but at least we finally have a government that “gets it”. Arguably, the spending is more efficient and better targeted.

While some of the reform is a little middle of the fairway and not the world’s best (as some of us might have hoped), at least the Turnbull Government shows a clear understanding of the key problems we need to solve, and is moving in the right direction.

Culture & Capital

Firstly, two big reforms  I think will be transformational for early stage funding in Australia:

  • Making it easier to access crowd-sourced equity funding; this legislation has huge potential to help bridge the “valley of death” in funding of early stage technology companies in Australia. While I have not seen the detail (and was pushing for a higher cap), I am very pleased to see that the cap on funding is $5 million per year. This will go some way to allow enough to be raised for startups to reach a meaningful milestone which allows a step up in valuation. In other jurisdictions the limit is too low, which risks companies flaming out without being able to achieve an upround. I do think however than continuing to base thresholds on turnover is just sloppy drafting. A payments business with $5m in turnover at 1% margin is at a very different stage than a SaaS business with $5m in turnover.
  • Tax incentives for early-stage investors; this is something that I had been pushing heavily for and I am extremely pleased to see it in the package. While it didn’t go as far as the UK’s successful Enterprise Investment Scheme which offers a 30% rebate up to £1,000,000 per annum, even at 2/3rds the rebate for half as much I think this will also be a big wind in the sails for financing early stage technology companies in Australia and is the smart way to do it- by crowd funding the equity rather than the old way through government handouts.
  • Increasing ESVCLP size to $200m (remarkably, there are a number of new $200m funds starting up by experienced entrepreneurs- small for Silicon Valley, but big for Australia), changes to insolvency laws, the incubator support program, and change to predominantly similar business test for accessing losses are all small changes but show that the right thinking is being applied to solving specific problems.
  • However the taxation of Employee Share Schemes are still not fixed despite yet another tweak. Please fix so that Australia’s flagship technology companies like Atlassian, Envato and Freelancer can play on a globalised, level playing field for the recruitment of talent and not be penalised for staying in Australia.

 

Talent & Skills

This is a section where I am most excited about the reforms.

  • The funding of $51 million for educating the next generation of students in technology is phenomenal. I really hope that Dr. James Curran of the National Computer Science School is front and centre for making the items that this funding is earmarked for happen. In my opinion he is Australia’s best computer science educator for K-12 and has done a phenomenal job over the last number of years doing so off the smell of an oily rag. Inspiring, providing technical literacy and connecting the dots in the minds of our next generation of smart young kids on how to progress into STEM careers is the single biggest thing we can do to bolster the technology industry and Australia’s future economy.  I recognise it is also difficult at the federal level to reform education given it is the remit of the State Governments to deliver. I also hope that not a single cent of this funding goes to the Australian Computer Society.
  • Likewise $48 million to inspire Australians—from pre-schoolers to the broader community—to engage with STEM, and $13 million to encourage women into STEM – simply phenomenal.
  • I also applaud the creation of a new Entrepreneur Visa for entrepreneurs with innovative ideas and financial backing and making it easier to get permanent residence for postgraduate research graduates from Australian institutions with STEM and ICT qualifications. Australia’s technology industry is currently powered by foreign graduates (two thirds of computer science grads!). This is great reform which will be of significant help until the first two programs above result in greater home-grown graduates.

 

Collaboration & Commercialisation

This area is really tough and the reforms proposed here are the weakest, most likely because it is the toughest nut to crack. Australian universities are woeful are commercialisation and industry linkages – the rate of collaboration on innovation between industry and researchers is the lowest in the OECD.

The same lecturers that taught me in 1991 when I was at the University of Sydney are still there teaching today. It’s no wonder that we are so bad at commercial outcomes when many of our academics have frankly never had a job outside of university. This is dramatically different from Stanford, where I did my Masters in Electrical Engineering. There, half of my professors had already started huge technology companies. Mark Horowitz taught me VLSI design, but had also started RAMBUS, the company known primarily for their development of RDRAM. John Hennessy was Dean of Engineering, but had already founded both MIPS, fabless semiconductor company that developed the MIPS architecture and a series of RISC CPU chips based on it, and Atheros, a developer of semiconductors for network communications & wireless chipsets.

  • There’s some mention that academics will have to think about commercialisation as Engagement will be measured by research income from industry and other end-users, but it’s a bit wishy washy what it means.
  • There’s some point funding here so some areas of excellence- quantum computer, agritech and information security (an area I taught adjunct at the University of Sydney for 14 years) .

 

Government as Exemplar

There’s a few neat things here:

  • The first is a big one- government will have an open data policy, making de-identified and non-sensitive public data openly available by default so the private sector can use it to create new products and business models. It will also make it (mostly) free, and centralising it at data.gov.au. This is an excellent step and will allow the creation of all sorts of innovation products and services. I would go even further down the track and say that all government services should be accessible by an API. A nationally significant geocoded address database will be made available- great.
  • To make it easier for smaller businesses to compete for government’s $5 billion a year spending on ICT, a digital marketplace based on the UK’s model will be created. We could do a lot more here with government procurement, but it’s a good step in the right direction. The UK Trade & Investment organisation incidentally is extremely pro-active and has helped my company in numerous ways. As a role model, Australia should be doing a lot more of what UKTI does.
  • Government will crowdsource and fund solutions to a small number of problems via the Business Research and Innovation Initiative. Indonesia already does a similar thing with hackathons. It will be interesting to see how this works out.
  • NICTA (now called Data 61) is now the Government’s software engineering team, which while I am sure might have a number of detractors internally, might actually become quite useful for the Government when you think about it like that.
  • Innovation & Science Australia will be created, which will be a new independent body responsible for strategic whole of government advice on all science, research and innovation matters, chaired by Bill Ferris, which will advise government broadly on the four areas above.

 

Conclusion

There’s lots here, and some really good things despite the overall reduction in funding to the sector. Of course, as always, the devil will be in the detail.

Ultimately we will need to spend significantly more on R&D in this country to catch up with the likes of Israel and Korea, or to even achieve Turnbull’s vision (perhaps, legacy) of a truly agile and innovative country, but it’s not a bad first step.

Matt Barrie chief executive of global freelancing and crowdsourcing marketplace, Freelancer.com. This post originally appeared on LinkedIn. You can read the original article here. Follow Matt Barrie on Twitter.

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