Startups left behind in the Asian Century

- January 7, 2013 4 MIN READ

Innovation. It’s the undisputed catch cry of the day.

Big business and start-ups alike have become overly liberal with their use of the term and encourage relentless innovation and disruptive thinking every chance they get.

However, big business is fraught with bureaucratic structures and established procedures, while the large accounting and legal services firms are shackled by the chains of their core product offering.

It is the lean start-up that has the most room to move and treads the most fertile ground, primed for not only innovative thinking but also for action. Action to turn this thinking into something more than a few multi-coloured marker squiggles on workshop paper or self-serving ideas captured on company web-pages that resemble something from one of the many DIY Geocities sites of the 90s.

The Asian Century whitepaper was supposed to be the Australian Labor Party’s landmark answer to the emerging economies of Asia, particularly that of China, Japan, India, South Korea and Indonesia. It was to be our roadmap and response to the fact that within only a few years, Asia will be both the world’s largest producer and consumer of goods and services.

Yet this whitepaper, like many a corporate boardroom spiel, company-wide email and end of year junket, indiscriminately played the innovation card. In fact, ‘innovation’ was littered throughout the report no less than 90 times. So what does this mean for Australia’s innovative thinkers, creative types and fledgling start-up scene? Sadly, not much.

This 320 page document included an entire four, count them, four paragraphs dedicated to ‘supporting financing for innovation’. And while these four paragraphs touch on some existing initiatives such as the Commercialisation Australia (CA) grants and the Clean Technology program, there’s little by way of forward thinking or new incentives to support what Deloitte Private partner Josh Tanchell refers to as Australia’s greatest resource, entrepreneurs.

These fluffy paragraphs would not be out of place in the plush teddy section at Toys R’ Us, right there next to Tickle Me Elmo, or maybe one of the Care Bears, I haven’t quite decided.

The CA grants, while a commendable initiative, are a dollar for dollar incentive, and therein lies the reason why uptake of the grants is so low. Deloitte’s recent Silicon Beach report found that only 21% of Aussie start-ups accessing grants were doing so through CA. Getting a start-up off the ground is difficult stuff and having to front 50% of your start-up costs is no easy feat, particularly if taking the gamble and committing to projects on a full time basis on a stomach full of Maggi noodles, without a steady stream of income.

The fact is that while a full-time job can help fund your start-up, it can also hinder its progress and in a fast moving climate where first to market often wins, the inability to focus all of your creative juices on a single project can hinder progress, sacrifice results and ultimately discourage having a crack.

It’s hard to imagine having a red hot go while working 40 hours a week. This does not even take into account the often overlooked late nights, weekends, domestic duties and other social and family commitments. Yes, it is difficult to see any other reason why uptake of the CA grants is so low other than the fact that it is a dollar for dollar initiative.

Lean start-ups today are finding it easier to get out in the real world and test their ideas through enabling technology platforms such as crowd-funding, crowd-sourcing and a slick application of bootstrapping. But when it comes time to scale, Australia is skating far behind the United States and with all things remaining constant, nothing other than a Steven Bradbury esque slip up on the part of our Monday night football loving peers will see us closing the gap.

Deloitte found that in the US, comparable companies raise 4.8 times more capital than Australian companies in early stage investments and raise an astronomical 100 times more capital when ready to scale. Scratch that previous comment about Steven Bradbury, at least he was in the final race, we’re struggling to bust out of the heats at this rate.

To add further insult to injury, the red tape island we call home stings those who open their wallets to start-ups with capital gains tax, makes selling company equity notoriously difficult and often restricts bidding for government contracts to ASX 100 listed companies.

Australia must do a lot more to incentivise investment in start-up companies and consider additional tax breaks and the lowering of red tape, particularly with respect to employee stock ownership plans (ESOPs)

The lack of foresight shown by the whitepaper is quite disappointing considering wealth of start-up activity in Australia. We have a wealth of co-working spaces including Hub Melbourne and Sydney, Sydney’s Fishburners and the nation-wide Jelly spaces to name but a few as well as programs and funding platforms such as Pushstart and the fast growing AppVillage through to Starfish and Blue Chilli.

While these platforms are helping to provide some relief, they could do with a hand from the policy makers.

The Global Entrepreneurship Monitor this year found that more than 10.5% of Australians are engaged in some sort of entrepreneurial activity and one would not be wrong in assuming this number to be much higher under different conditions.

Having said all of this, we aren’t short on start-up success stories when you consider Jetts Fitness, BigCommerce, Shoes of Prey, UberGlobal and enterprise software poster child Atlassian, but this success is in spite of the funding climate. A more robust funding climate would inspire new heights of innovation, rather than just get the conversation started, generate economic growth and place us in poll position, not only geographically, but strategically, to take advantage of the Asian revolution.

Gillard’s whitepaper is to start-ups what Charles Darwin’s Theory Of Evolution is to the faithful and the underlying message is one which tells aspiring entrepreneurs, in no uncertain terms, that if they want to access the capital required to give their ideas wings, then they should knock down a can of Red Bull and start packing their bags…and take their money spinning and job creating disruptive thinking with them.