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The startup industry's new year resolution should be to stop asking for taxpayers' money

Mark Lester as Oliver Twist asking for some more gruel during the filming of ‘Oliver’. (Photo by Chris Ware/Keystone Features/Getty Images)

The year has kicked off with a stark reminder of Australia’s need to develop new lines of economic activity.

China’s devaluation of its currency has been shaking stock markets around the world, crushing market capitalisation of companies in developed economies, including Australia.

The alacrity with which the Chinese are pushing down the value of the yuan has surprised markets and suggests a deepening concern in Beijing about the true state of the world’s second-largest economy.

As trillions of dollars in market value disappeared during last week’s sell-off, Australia’s comparatively tiny market was like a dinghy being tossed about in a raging sea. The Australian dollar fell and the ASX200 posted its worst-ever opening week for a year and is down 6.2% in 2016. US markets were off by similar amounts. It underlined yet again how Australia’s economic destiny has become so tightly intertwined with global demand.

The disintegration of the mining sector’s contribution to overall economic output has so far been met valiantly by an upswing in construction activity in the eastern states as well as a tourism sector reinvigorated by the fall in the Australian dollar. But there is now an acceptance that Australia needs to look for new sources of growth. Malcolm Turnbull stepped straight into the breach last year declaring it was time to unleash an “ideas boom” and develop the high-growth, high-skills technology, science, and services sector to help fuel the next stage of growth in the Australian economy.

Turnbull travels to the US at the end of this week and part of his mission will be to sell Australia as a trade and investment destination to the US Chamber of Commerce. He has a lot of selling points: as a place to come and live and work, Australia has an enviable offering. Clean beaches. Good schools. Great food. Friendly, tolerant people. Proximity to and a shared time zone with Asia which, despite the ructions we are currently seeing in global markets, will continue to grow its middle-class consumer cohort in the decades ahead.

But there are challenges. Australia is painfully far from other western, advanced countries. It’s eight hours just to Singapore from Sydney, and 10 hours to Hong Kong. We work when the rest of the developed world is sleeping. Our universities aren’t exactly setting the world on fire in global rankings, leaving the graduate pool struggling to compete as a workforce offering to any high-end company thinking about coming here.

The currency is now worth 30% less than it used to be, and likely to fall further. If you’re considering coming here to work for a few years, your money doesn’t travel as well and could even fall in value over time. Property has become nauseatingly expensive on the east coast. And our cities, especially Sydney, are ghost towns in the evenings, thanks to a legacy of poor planning that has made CBDs uninhabited, and the seemingly ever-increasing spiral of legal restrictions apparently designed to discourage people having fun after 11pm.

These are dissuasive for the type of young, disruptive companies that Turnbull wants to see growing in Australia.

The prime minister’s desire to see a more “innovative” and “agile” nation are really about making the economy more productive, and establishing new sources of economic growth, through advances in products, processes or services that increase profitability and competitiveness. This concept is as old as the wheel, but in this age, the advances in various industries are usually driven by technological and scientific innovations that come from start-ups.

The success of the Atlassian IPO last year and the continuing momentum behind other companies such as Canva, Freelancer, Campaign Monitor, and Shoes of Prey shows Australian entrepreneurs are capable of growing new businesses with original, disruptive ideas from the ground up. But the technology industry here is still best described as nascent. The multi-billion dollar question is how to build it into a significant component of the economy.

Having watched the start-up sector in Australia for more than five years it is clear that many people in the industry – for whatever reason – seem to think that the weakness in the industry is the fault of “the government”. Conversations often quickly move on to how things could be improved, usually through co-funding of capital investment, seed grants, and rent reductions.

In other words, by spending taxpayers’ money. And unless you’ve been living under a doona developing an app for the past five years you’ll know there’s not much of it around these days.

Last year, a group of entrepreneurs gathered in Sydney for a one-day “policy hack” designed to quickly put together recommendations for government on supporting the future of the tech industry in Australia. Two of those ideas were:

Achieving gender equality by providing a $100m Federal Government co-contribution fund for female-led ventures, and a detailed program for male ‘champions for change,’ where men support women in the ecosystem by putting their money and brand on the line.

And:

Encouraging universities to engage with industry by boosting research and development funding to universities and tying it directly to engagement with industry, as well as a funding increase of $300m to encourage strategic staff and student secondments in tech-based companies.

Not that either of these ideas is bad in itself but that’s an ambit claim on $400 million in two sentences. (Turnbull did announce $13 million to encourage women and girls into technology and science careers, but it’s spread over five long years. As for universities engaging with industry, why is this a $300 million problem? You’d be within your rights to ask why universities can’t just get on with it.)

What startups say they want from government, according to the 2015 Startup Muster.

To underline the point, last year’s excellent Startup Muster report, which is the largest survey of the views of the Australian startup community, found that the No.1 thing – by a large margin – that government should be doing to support startups is “provide funding / grants” at 34%. This compares with “reduce red tape” at 6% and “get out of the way” – probably one of the most common desires you’ll hear from most people in standard industries.

The start-up sector in Australia needs to be careful about creating brand problems for itself. There are more than 2 million businesses actively trading in Australia and only 1% of those, according to the ABS, has more than 200 employees. The overwhelming majority of these small businesses get by without any government grants or special tax concessions.

This is an issue which, in recent months, many people in the startup industry have started to raise themselves in conversations.

All of this is not to argue that government shouldn’t be involved. It most certainly has a role to play in the cultivation of new industry. But not every government action needs to cost hundreds of millions of dollars of scarce taxpayers’ money. Take the changes to bankruptcy, for example, in Turnbull’s innovation statement: a simple reduction in the default period of bankruptcy from three years to one year is the kind of thing that can greatly encourage risk-taking among entrepreneurs.

There are other things within the power of government that are low-cost but can have a high impact. One of the most unfortunate moves by any government in this whole area was last year’s decision by the NSW government to give the Australian Technology Park complex in Sydney to the Mirvac / Commonwealth Bank consortium, over the bid by Atlassian. Mike Cannon-Brookes and Scott Farquhar had envisaged a major hub with Australia’s biggest tech startups, including Fishburners, venture capitalists and the University of Technology Sydney.

Instead, it was given to the nation’s largest bank, albeit with some promises to include some startup liaison on the site. Perhaps more than any company in the country, the Commonwealth Bank doesn’t need government to be making line-ball calls in its favour over the kinds of companies that could be a platform for Australia’s future economic growth.

It also runs counter to NSW Premier Mike Baird’s stated determination to try and turn Sydney into a magnet for venture capital investment. Baird told me last year that “as the steward of a pretty big economy” it was government’s role “to facilitate, to grow, to encourage, to provide the framework, and that his government would be “aggressively pursuing it”.

“Should we be investing in terms of startups?” he said. “If you facilitate a space, land, incentives for the best of the world to come, well, it should take care of itself.”

Instead of this growth “taking care of itself” the tech industry in Sydney now feels like it will have to fend for itself. If politicians are serious about facilitating high-growth, high-risk companies there are simple approaches they can take, such as corporate tax breaks for technology-based micro-companies in their early years or running policy through light-touch innovation committees to ensure new industry is prioritised in government decisions.

A new wave of sophisticated, more strategic thinking is required on the policy front in the startup sector. The attitude reflected in the Startup Muster report that the best thing government can do is to make money available is unhealthy. In some ways, it’s even defeatist: the concept that government’s role is to make grants available is probably not something that crossed the mind of the likes of Mark Zuckerberg or Jeff Bezos when they were starting out.

Australia is playing catch-up in this space and as a nation has some unique challenges such as its relatively small population and a skills deficit that will continue to be a drag on momentum in the technology sector. These are gaps that government can help to close through immigration policy, fostering access to bigger markets (through free trade agreements and the “landing pads” announced in the Innovation Statement), and continuing education reform and investment.

The prime minister is the best ally that the startup industry can have right now. In sharp contrast to Tony “I’m not a tech head” Abbott, Turnbull is a true believer in the capacity of Australian entrepreneurs to create new jobs, wealth, and products that can shape the future of the nation. Looking for company handouts given the pressures on Australia’s fiscal position is not only reckless, but risks a backlash from hard-working Australian entrepreneurs who’ve built their businesses and had nothing but the sticky fingers of the tax office raiding their pockets every step of the way.

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