Australian start-ups must be about more than new apps and marketplaces

04/04/2017
Marin

The start-up and innovation “ecosystem”, as it’s often (regrettably) termed, can be a funny place.

In Australia, we’re not quite sure what it all means, but we know we want a part of it. Every second day, a new app or marketplace is churned out of one of the emerging accelerators and co-working spaces that also seem to be popping up out of the ether.

We can now do our banking, skip the coffee queue, or even hire a puppy on demand from our smartphones. We can organise for Bob from Richmond to fix our fence, or Susie from Manly to drive us to the airport.

But in our rush to find “an app for that”, are we losing sight of what true innovation looks like?

Intelligent and more patient capital that appreciates over the longer-term is more appropriate for deep technologies …

Intelligent and more patient capital that appreciates over the longer-term is more appropriate for deep technologies that often have an incubation period of upwards of six or seven years. iStock

Skipping the coffee queue may save us a happy few minutes each morning, but the impact isn’t necessarily life-changing, or brimming with long-term impact. And this is where the ecosystem in Australia seems to be facing its greatest challenge.

Regular versus “deep” technology

As the use of technology becomes so ubiquitous, there is a growing need to distinguish between two categories of “tech” start-ups. On the one hand, there are those who use regularly available technology or simply implement new business models. On the other hand, there are those who create unique, hard-to-reproduce technology based on scientific discovery and meaningful engineering innovation.

The latter technologies – “deep technologies” – are more often created in areas of enormous impact, such as medicine, agtech, clean tech, advanced manufacturing, big data or AI, and robotics.

They are the businesses and technologies that will create the industries and jobs of our future, and which have the potential to put Australia on the map.

More, not less, government funding and support needs to be allocated towards these types of deep technologies, and yet our dollars don’t seem to be dedicated accordingly.

A conceptual challenge

For some reason, deep-technology companies are often not considered a part of the “start-up and innovation ecosystem” targeted by the federal government’s Innovation and Science agenda.

It’s almost as if the seriousness of what is being produced by deep-technology start-ups renders them outside of the start-up category.

And yet, these deep-tech start-ups face the same funding and growth challenges faced by any other start-up that may be creating something more tangible to consumers.

In fact, they may face more challenges, if you factor in the additional dedicated (and expensive) infrastructure needs, and complicated intellectual property requirements.

Some help has been forthcoming.

Certain state and federal initiatives have been instrumental in assisting our ecosystem to grow, including the deep-tech start-up ecosystem.

In 2015, the federal government revised the tax treatment of employee share options. Instead of being taxed at the point of issuance, the government allowed the option of tax being paid at a much later date.

This enabled cash-strapped start-ups to entice highly-skilled, STEM-educated teams through the provision of company equity, as opposed to salaries that have the potential to cripple growth. This helped start-ups select and retain valuably skilled workers here in Australia.

In 2016, the Victorian government developed a policy of funding start-ups based in incubators, given the risk-reduced, vetted profile of incubated start-ups. The result for us here at Cicada Innovations alone was that more than 60 per cent of our start-ups received minimum viable product (MVP) grants following the policy move.

Current scrutiny of the R&D Tax Incentive will also hopefully help to further improve conditions for regular and deep-tech startups.

Funding gaps

But, if we look in particular at our deep-technology start-ups, there are still some gaps in terms of connecting these start-ups with the research institutions needed to feed their IP.

We have some truly world-class research institutions here in Australia, and yet we somehow still rank last in the OECD for collaboration between researchers and business.

Finding ways to place PhDs into industry, and educating industry on the processes and needs of research institutes, will be crucial to addressing this. Start-ups and SMEs (not just large global players) need to be able to tap into research from our publicly-funded research institutes.

We also now seem to have more money than ever for quick-and-easy seed and even series A rounds. However, intelligent and more patient capital that appreciates over the longer-term is more appropriate for deep technologies that often have an incubation period of upwards of six or seven years.

Finding investors willing to put in these hard yards can be challenging, and requires education, assistance, and possibly incentives.

The bottom line is recognition.

Change the dialogue

In the end, a first step is to change the dialogue, and recognise that start-ups exist in all industry verticals, not just in the “fast and dirty” apps space.

Secondly, recognition of the dichotomy between regular and “deep” technology start-ups can help governments tackle the very different challenges faced by these two very different categories.

Because only with this greater understanding of the multiple “minisystems” housed within our greater ecosystem can we truly begin to help both categories to flourish, not just the easy one.

Written by Petra Andrén, CEO of Cicada Innovations

This article was originally published in the Australian Financial Review.

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