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High-growth tech sector left out as government picks areas for grant

HISTORY tells us bureaucrats are not in the best position to assess value for investment when it comes to channelling government funds into industry.

A case in point is that the latest stream of the government’s Entrepreneurs Investment Program (EIP) support is restricted to just five sector types — none of which relate to the area which holds the greatest growth potential for our economy; high-growth technology enterprise.

Earlier this year, StartupAUS published a research paper that brought together a wide overview of the Australian ecosystem, and highlighted that not only are we among the least active developed economies when it comes to backing high-growth new ventures — but that our public investment lags that of countries such as Singapore and South Korea.

That is why it is bitterly disappointing to see the government tag just five sectors as areas worthy of research grants under the latest stream of the EIP.

They are food and agribusiness, advanced manufacturing, medical technologies and pharmaceuticals, mining equipment, technology and services, and oil, gas and energy resources.

The sector bias in the EIP might have made sense 20 years ago, but it does not today.

We cannot judge our future by our successes of the past. The global possibilities today within the high-growth technology sector are huge. Twitter, Facebook, Google — none of these enterprises even existed 20 years ago.

Today, they are not just multi-billion-dollar companies, they have created entire new industries that employ tens of thousands of people. By 2033 high-growth tech companies could be contributing $109 billion and 540,000 jobs to the Australian economy.

What would happen if an Australian Twitter, Dropbox or Facebook tried to launch on our shores?

Looking at the support available, they would receive a clear message that the government does not value them, and they would see a dearth of local venture capital. Most likely, they would either give up or move overseas as quickly as possible, and Australia would have lost a billion-dollar opportunity.

The list of sectors to be supported by the EIP is dominated by low labour-productivity industries such as agriculture that have been historically important to Australia but which are not likely to be a source of economic growth in 10 or 20 years time.

No other developed economies are preferentially supporting their “old economy industries” in this way — even New Zealand is firmly on the path to supporting tech companies and has visibly shifted its emphasis from primary industries and tourism to knowledge-intensive companies, regardless of their sector.

Our government needs to understand that tomorrow’s companies often arise from industries that don’t exist today. If we are to take advantage of the wave of global disruption that is coming to every sector in every developed economy, we need to have open and smart processes and support for innovation.

All is not yet lost, however. Despite the challenges, we are seeing the birth of a vibrant and sustainable tech start-up ecosystem in Australia, with new companies and ideas with huge potential to create value not just at home, but also derive it from overseas markets.

It also appears that rules on the taxation of employee share schemes and venture crowd-funding are about to be changed to bring Australia in line with the rest of the world.

Finally, the details on the most vital stream of the EIP for Australia’s start-up ecosystem, the “Commercialising ideas stream”, has not yet been announced.

In a recent open letter, StartupAUS called on the Department of Industry to ensure that the funding cap is at least $1 million, that no sectors be favoured, and that input from investors and trusted advisers be strongly taken into account.

Regardless of what happens with the EIP, exciting new start-ups will continue to be born in Australia. Whether they get an even playing field, and the same funding and development opportunities as start-ups founded in countries such as New Zealand, South Korea, Singapore and the United Kingdom, remains to be seen.

The government has a huge opportunity to show the tech industry, and the public at large, that it gets the way the world is changing.

I have been lucky to have founded and developed some successful businesses within Australia. I would like to see others repeat this success and see Australia gain its rightful place in the world economy. Like many of the most active supporters of Australian start-ups, I am pushing for Australia to wake up and put some support into digital innovation because it is a national imperative.

Australia’s long-term economic future is in grave peril if our government insists on concentrating support for commercialisation of innovation in industries that rely on taking diminishing resources out of the ground, and excludes new ideas and industries that are changing the world.

This article first appeared on The Australian. View the original here.

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