Minister for Industry and Innovation, Christopher Pyne, has revealed glimpses of the Government’s innovation agenda: a push for innovative ways to drive economic growth and productivity. Retail equity crowdfunding, “angel” tax breaks and venture capital are touted to be high on this agenda.
All sounds promising and exciting, particularly for SMEs and small business start-ups. There will no doubt be a few boxes to be ticked to progress some of these initiatives but let’s get the dialogue happening.
Take crowdfunding for example. Crowdfunding is a relatively new and innovative source of funding new ventures, allowing individual founders of for-profit, cultural, or social projects to request funding from many individuals, often in return for future products or equity. Equity crowdfunding opens up new sources of capital for start-ups and businesses requiring cash injections.
New legislation in the pipeline will hopefully pave the way for a fair and open playing field which needs clarity for any crowdfunding model to be effective.
Another means of funding innovation is through venture capital (VC) and a key initiative that Australia definitely should pursue. VC is a valuable but niche source of capital for a small cohort of an economy’s highest potential young firms. Many of these firms are involved in ‘new knowledge’ industries, particularly the early commercial application of new technologies.
Research conducted through the development of the Institute of Public Accountants (IPA) Australian Small Business White Paper supports the development of a government-backed VC scheme. This also follows positive trends for such schemes in the UK, Finland, Denmark and New Zealand.
A key issue is the perceived lack of return for potential investors. There has been a persistent, unattractive level of returns to a majority of investors in VC activity since 2000. This has led to waning interest from institutional investors, resulting in a decline in VC investments. Hence, a need for government support for VC will be critical in the “inner revolutionary’ plan going forward, most likely to be best achieved with a hybrid funding model that involves both public and private investors.
The IPA’s Australian Small Business White Paper puts forward recommendations for VC schemes, including the establishment of a pilot scheme to pool public funds with private sector VC firms exclusively for capital investment projects for small and medium-sized enterprises developing new R&D products or services.
The White Paper further expresses that the scheme should involve a maximum public exposure of $2 million on an equal basis with private sector VC firms.
In all of this, innovation holds the key. To turn that key, greater collaboration is required. The White Paper research tells us there is insufficient cooperative behaviour between Australian businesses, creating a barrier to the spread of existing innovations to a wider cross-section of firms. This represents a significant lost opportunity to the economy.
Actions are required to promote increased innovation across the SME sector, including more government support for research and development by small and medium-sized firms, and government support for firms to adopt existing technologies and innovation. There also need to be better linkages between cutting-edge research universities and industry.
The Australian Small Business White Paper suggests that the Government could provide tax breaks for companies acquiring new technologies not developed in-house, along with a tax allowance for companies investing in intellectual property protection in-house, and a tax allowance for companies that generate licensing income from in-house new technologies.
Buzzwords and catch phrases aside, let’s hope the dialogue gathers momentum as these initiatives to support small businesses, particularly those innovative and entrepreneurial newcomers to the market, will be important to their survival and future growth, and for that matter, Australia’s economic wellbeing.
Wayne Debernardi is the General Manager of Media & Communications for the IPA.
