Better, smarter support needed for Australian innovation
"If we want Australian companies to go global, we need to teach and prepare them...", says Jana Matthews, program director for ANZ Innovyz START. Photo: Michele Mossop
At first, the Prime Minister's proposed $1 billion investment to boost jobs by supporting start-ups sounds good. But is it enough and is it focused on the right kinds of programs to accelerate the growth of more companies?
The February announcement included a $350 million investment fund to stimulate private investment in start-ups and has received a mixed reaction from Australia's entrepreneurial community.
Since the funds are to be allocated over multiple years, and the amount is the same as last time, it doesn't feel like a boost. And some are concerned that the dollars will go to the “established funds” making it more difficult to create new ones.
But is money the problem? Departing Google Australia managing director Nick Leeder thinks the reason founders are leaving Australia has more to do with the lack of a critical mass in the Australian ecosystem than a lack of initial funding. He may be right – but one element that's clearly missing in the ecosystem is access to sufficient money to enable companies to grow from start-up to the next phase.
Australians have developed and/or been involved in crucial elements of some amazing technology: black box flight recorder, inflatable escape slide, ultrasound, bionic ear, plastic spectacle lenses, electronic pacemaker, multi-focal contact lens, spray-on artificial skin, anti-flu medication – the list goes on and on. With perhaps the exception of the bionic ear, very few people know of Australians' involvement in these inventions because they were commercialised elsewhere. Australians are very inventive, but they don't do nearly as well commercialising their innovations.
We need a more robust entrepreneurial ecosystem in order to grow companies and create large numbers of jobs.
The government's overall plan appears focused on three things: creating a platform for more venture capital investment in
Australian start-ups and SMEs; creating innovation precincts and helping Australian businesses win abroad; and having Australian SMEs become vendors and suppliers to bigger companies and government.
I'm all for incentivising private investment in venture capital funds and angel syndicates, but we need two more things in order to get more angels to participate. We need education so they understand how to spot opportunities, structure the deal, then work with the company; and we need more clarity and certainty around the tax implications of making an angel investment.
Sector specific innovation precincts are a second strategy. But 8 per cent of what entrepreneurs need to know to scale and grow companies is common to all companies, regardless of the sector.
Who wouldn't like a web-based "Yoda on your shoulder" (or your mobile device or laptop) with answers to your questions and knowledge available any time? Government funded programs and resources designed to help companies grow need to be virtually available to any company anywhere in the country.
Helping SMEs get contracts with government and corporations within Australia is also important. Assuming they are all qualified to do the work, I suggest the following:
• Create a mechanism for SMEs suppliers and large corporations to find each other. The business model could be a double-sided digital platform that links SMEs with large corporations.
• Help SME's learn to market and promote themselves, to sell and close deals - something that does not seem to come as naturally to Australian entrepreneurs as it does to American ones.
• Large corporations and government departments need to be encouraged to be more proactive about finding SME vendors and a lot more comfortable working with small companies.
A 2009 report revealed that minimum thresholds for SMB participation in government IT contracts were not being met. In fact, of a potential $247 million of IT work, only $58 million was being done by SMB suppliers. If SMEs had access to more and bigger contracts, odds are that they'd grow faster and create more jobs.
Without doubt companies in Australia will need to go global in order to scale. But going global is tricky. When I helped the New Zealand government design programs that enabled companies to go global, we emphasised the need for a strong infrastructure, reserves or a robust cash flow to cover initial losses in the new country. If we want Australian companies to go global, we need to teach and prepare them for what's required to be successful when going global.
The government could do several things to strengthen the ecosystem: incentives to get individuals to invest money in venture funds and incentives to angels to invest in companies.
More education – of entrepreneurs about how to commercialise innovation, grow companies and go global – and of angels to help them get comfortable with the mechanics of investing in technology companies. We need more accelerators to help founders commercialise innovation. And finally, we need to showcase our successful entrepreneurs both within Australia and all over the world.
Australian start-ups could be an engine of job creation. But they need a stronger ecosystem to support them until they grow big enough and smart enough to become global companies.
Dr Jana Matthews is program director for ANZ Innovyz START. She has written seven books, is a co-founder of the Kauffman Centre for Entrepreneurial Leadership and designed the Kauffman Fellows Program.