If governments act like a VC, they need to be made responsible like one

There’s an old adage in the acting business that you can’t become a household name back home, without first cracking Hollywood.

In the wake of PsiQuantum’s success, and another underwhelming Federal Budget, that could be extended to the startup sector too, with growing unease in the local ecosystem that the government doesn’t fully understand or appreciate us.

It’s been a volatile few years for the sector, with unprecedented highs followed by major lows.

However, when the government unveiled its flagship investment vehicle, the National Reconstruction Fund – part of its ‘Future Made in Australia’ agenda – in 2022, there was much optimism. The $15 billion war chest was designed, it said, to ‘diversify and transform Australia’s industry and economy through targeted investments.’

For the thousands of startups in priority areas that the fund – and indeed the entire Future Made in Australia agenda – targeted, it seemed to herald a new era of innovations and ideas. That moment was fleeting.

The National Reconstruction Fund welcomed ‘independent investment decisions guided by an investment mandate’. So far, it has lacked investment, lacked decisions, and lacked a guiding mandate.

As every day passes, there are more questions than answers.

With the government increasingly acting like a VC, it must be held accountable, and show responsibility to its shareholders: Australian taxpayers.

Responsibility and accountability

The controversial investment in PsiQuantum was shrouded in secrecy. The tender process lacked transparency and appeared to be anti-competitive, with many suspecting that a decision was made, then the process reverse-engineered.

To both the Australian taxpayers who fund it and the Australian startups eager to engage with it, the entire process sends a concerning message.

If it wants to act like a VC, it must be treated like one.

VCs must maintain transparency, effective communication and prudent financial management. They’re required to provide regular updates on the performance of its fund and the progress of its portfolio companies, all while ensuring its decisions align with shareholder interests and ladder back to agreed and established investment strategies.

Every investment must be preceded by thorough, open and transparent due diligence.

These are just some of the principles and responsibilities that are the foundation on which all great VCs – not just here in Australia, but globally – are built. They’re not a ‘nice-to-have’, they’re a necessity.

In our biggest VC, the Australian government, they’re a necessity too.

Future Made In, not By, Australia

If we’ve learnt anything from recent events, it’s that while the government wants a Future Made In Australia, it doesn’t have the courage to back a Future Made By Australia.

For an Australian founder, building an Australian innovation in inner-city Melbourne, it’s hard not to feel despondent.

I’m not alone in feeling that way.

The incentives to back Australian based companies are distorted, and similar to the frustration many of us face with Telcos. Often, the only way a loyal customer can secure a better deal with their current provider, is to port their number to a different provider in order to get the special deal that’s only on offer if they were a customer of a different provider.

It’s increasingly the same for the government needing to back an overseas tech company. For them, Australian-based startups are just like the loyal telco customer that has already been captured, and needs no strategy for retention.

The Federal Budget again underwhelmed. And without a clear vision of which technologies and companies the government has chosen as a winner, many founders are left guessing what, if any, support we’ll receive to help us remain competitive as other nations show more ambition and in a world dominated by Chinese science, technology, and manufacturing prowess.

The government is all in on quantum computing, or all in on one quantum computing startup. But in technology, nothing is certain and we currently have our flanks exposed in many other areas such as AI, Engineered Biology, and Materials.

It’s time that the government, like all good VCs should, reveals its North Star, and the technologies, companies and strategy that will get us there.

There’s innovation to be harnessed here if we stop being drawn to Hollywood names.

Cortical Labs founder and CEO Dr Hon Weng Chong

For a Future Made In Australia, rather than By Australia, read History Made In Australia, rather than By Australia.

For years, Australia’s automotive industry was powered by international giants like General Motors, Ford and Toyota – all of whom have pulled out of the market in the last decade. General Motors’ departure saw Holden, the local subsidiary go defunct.

If we invest only in foreign companies, with no basis to remain in Australia, what’s to stop them from pulling out when it is convenient, or when government subsidies dry up?

That’s a warning we should heed.

Australia is responsible for some of the most truly transformative innovations that we today take for granted, from WiFi and refrigeration to the Cochlear Ear and medical applications of penicillin.

Many of the most significant innovations of tomorrow are being constructed in minds, labs, offices and computers across Australia, but if our biggest VC, the government, doesn’t hold itself accountable like one, we’ll be dining on former glories as the rest of the world moves forward.