The Commission of Audit Completely Fails To Understand The Benefits Of Government Support For Startups

Commission of Audit head Tony Shepherd, who lead the government’s commission of audit (Photo: Getty)

Last week saw the public release of the National Commission of Audit report on the review on the performance, functions and roles of the Commonwealth government, with wide ranging recommendations across a broad cross-section of programs and expenditure.

I want to focus on one key recommendation associated with the government’s current programs for innovation: that Commercialisation Australia (CA) be abolished.

An audit is supposed to be based on evidence. What amazes me is that the evidence to support the recommendation for cancelling CA seems to be very limited, even non-existent. The report is one of the weakest I’ve read in relation to assessing the benefits or otherwise of support for commercialisation and innovation provided by government, and the potential benefits to the community.

The rationale provided for the cancellation of Commercialisation Australia was “The intellectual property, and any profits arising from these new ideas remains with the business, and there are no clear public benefits arising” and continues with “However, skills and finance can be acquired from the private sector, and there is no clear reason for the Commonwealth to provide this assistance in competition with private sector providers.”

Adrian Bunter

It would seem that the National Commission of Audit either didn’t read the submissions made in relation to innovation or just totally ignored them, nor does it appear that they looked through the list of Commercialisation Australia grant recipients, which is available publicly on the Commercialisation Australia website. It would also seem that they don’t understand the basis of the CA program – it doesn’t compete with the private sector for providing finance, rather it actually leverages private sector capital and reduces the need for government to try to “pick winners”. Rather than being cancelled this should be encouraged more.

I won’t go through the fact that thousands of jobs are generated by innovative startups and these contribute to the economy and paying taxes, etc. as there are plenty of other people who have already commented on that. And they are 100% correct.

Let’s look at just one company that received a CA grant of $250,000. Let’s have a look at the benefits it has contributed to the wider community. Let’s see whether there have been any clear public benefits arising from supporting innovative companies.

Ingogo is a company that received a CA grant and has also been backed by a range of angel investors including members of Sydney Angels, with co-investment from the Sydney Angels Sidecar Fund.

Ingogo is a company that has been working in the payments sector, specifically targeting the public transport sector and taxis. They developed an innovative solution that challenged a large incumbent player, one that hasn’t appropriately innovated for many years. Ingogo showed that the Australian consumer was paying too much to the incumbent provider via the surcharge charged on all credit card payments processed in taxis.

According to the Australian Taxi Industry Association the taxi market in Australia is worth approximately $4 billion per annum. Paying with a credit card generally incurs a 10% surcharge on top of the taxi fare. If only 15% of taxi payments are via cards this represents about $60m in surcharge payments every year being paid by Australian businesses and consumers.

Ingogo’s innovations and use of technology has shown that it is possible to provide payment services in taxis for a service charge of only 5%. This innovation and increased competition has likely contributed to the recent decisions in NSW and Victoria to recommend reducing the service charges for taxi payments to 5%. This alone could save Australian consumers $30m per annum. If you ask me, this sounds like a pretty good benefit to the wider community.

This is just one example of the hundreds of companies that have received assistance from the CA grant program. There are plenty of other examples that also show significant benefit to the wider community.

Are the programs offered by Commercialisation Australia perfect? No they aren’t. Can they be improved? Of course they can. But, they are valuable and contribute greatly to helping companies innovate and commercialise those innovations. And right now the program is the best we have. Killing these programs now and not replacing them with something that is better will not be beneficial to anyone.

There is still plenty of work to do if we want to build a strong and viable early stage ecosystem. Commercialisation Australia is definitely one of the pieces of the puzzle.

Note: The writer has an indirect interest in Ingogo Pty Ltd via the Sydney Angels Sidecar Fund.

Adrian is an executive director of Venture Advisory, a specialist telecommunications, media and technology financial advisory firm operating out of Australia and Asia. Adrian is also on the Executive Committee of Sydney Angels, Australia’s leading angel investment group.

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