Why Cutting Australian Startup Support Will Drive More Good Ideas Offshore And Hit The Budget Bottom Line

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Atlassian is an Australian software company worth an estimated $3.5 billion. It’s one of the biggest startup success stories this country has produced. When their payday comes it’s unlikely Atlassian’s IPO will be on the ASX.

Australia is awash with passionate entrepreneurs developing stunning ideas, but many complain they don’t receive the support needed to grow and put down roots here.

Such complaints are about to get louder if budget leaks around cuts to startup funding materialise.

The Commission of Audit’s recent report, recommending a $9 billion annual cap on government R&D spending (it seems we’re shifting from the Clever Country to the Capped Investment Country), is fuelling speculation Commercialisation Australia, the government body which provides grants to startups, will be axed in tomorrow’s budget.

According to an AFR report industry sources say the government is likely to cut the $213 million grants program along with the Innovation Investment fund, which leverages private sector capital investment with dollar-for-dollar support.

The Australian Private Equity and Venture Capital Association came out swinging when the razor gang’s recommendations included both the CA program and IIF on its hit list. There’s more on why venture capitalists hate the COA report here.

Getting rid of these programs with the belief that the private sector will fill the gap is a short-term expenditure fix and deeply flawed thinking.

Australia is a hotbed for digital economy startups, including Atlassian and Freelancer. However a low appetite for risk from investors has seen some of our strongest tech startups fly the coup in search of funding and support. Government not only helps patch over a market failure, it helps ensure that subsequent capital investment, IP and jobs remain in Australia rather than heading offshore – namely Silicon Valley, where both investors and government value and understand how valuable some of these ideas can be.

Freelancer regional director, Nikki Parker told Business Insider that Australia’s startup scene is just starting to fire up but all too often she’s seeing promising startups head to the US and the UK where governments are “working hard to cultivate a strong start up community both by providing funding and providing networking opportunities”.

“It is painful to see that these brilliant entrepreneurs do not see Australia as an option,” Parker said.

“The Australian start up ecosystem is really starting to thrive here and we should not be cutting funding or making it even more difficult for Australian entrepreneurs to build their businesses in this country.

“For years we have seen some of our top minds head overseas and find success – ultimately benefiting foreign economies.”

Freelancer’s recent IPO on the ASX is an example to other Australian startups that there are opportunities Down Under for growing tech companies but Parker explained the government still needs to hold the flag and “support this dynamic community”.

“The tech sector and start up space have the potential to stimulate our economy for decades to come and if we cut funding now at this crucial time in its development we as a country risk severely losing out,” she said.

If you think a little further down the track, there’s no doubt these companies will return to Australia in some form, but by then they’ll have the global infrastructure in place to ensure an Apple- or Google-style tax structure is in place to reduce their tax burden here. Suddenly a few dollars saved in the early stages of company’s growth could cost millions of dollars in foregone government revenue down the track.

Speaking to a number of startup founders at the CeBIT tech conference in Sydney last week the consensus was it is becoming easier to source seed funding in Australia but if you’re in need of either bigger amounts or more advanced funding rounds companies still need to go offshore.

Cutting public programs like this won’t improve business confidence in Australian startups and will most likely see the exit of future big players continue, taking jobs and knowledge transfer opportunities with them.

Tech startups are an important part of Australia’s future economy, especially with mining investment dampening. Australia’s diverse and highly connected population makes it a great economy to validate an idea.

There is potential for Australia to have a simmering startup sector, but lacklustre government support for our post-Holden/Toyota/Ford-manufacturing economy won’t get it to the boil.

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