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Published 19 February 2013 09:18, Updated 20 February 2013 07:32
Founder of location-based mobile app Roamz Jonathan Barouch says it is good news that the government is realising Australia has problems in the tech industry, but the lack of early-stage financing is only one missing piece of the puzzle. Photo: Michele Mossop
Paul Smith and Jessica Gardner
Leading Australian technology entrepreneurs have warned that unfavourable conditions for fledgling technology start-ups mean the country remains at risk of being left behind in the fast-growing global digital economy, despite a fresh $350 million round of equity funding pledged on Sunday through the government’s Innovation Investment Fund (IIF).
Industry figures have long lamented the inability of the Australian tech sector to spawn a major global player, and despite some positive sentiment about relevant sections of the government’s Industry and Innovation Statement, the prospect of an “Australian Facebook,” remains distant, experts said.
As part of its $1 billion plans, the government announced a $350 million round of equity funding through the IIF program to attract private sector investment in largely tech-related growth sectors. It also said changes to tax concessions would facilitate “angel” investment and give certainty to private sector investors. Plans to promote success stories of new Australian firms to global venture capital markets were also included.
But leading figures in the increasingly vocal tech start-up community were largely unimpressed, suggesting the program was a rehash of previously unsuccessful efforts to ape Silicon Valley. High profile tech export Freelancer.com chief executive Matt Barrie said the local tech start-up ecosystem was making very little progress and was unable to participate when big global players showed an interest.
“My response to [the announced funding] is basically ‘ho-hum, big deal’,” Mr Barrie said. “They’ve announced funding which is roughly on par in terms of nominal dollars to 1998, but when adjusted for inflation, the industry is in a worse position in terms of funding from government.”
He added the technology sector globally was going through the “greatest boom of our times”, yet Canberra was effectively reducing its investment.
Mr Barrie added that aside from a renewable energy fund raised by Southern Cross Ventures, total local venture capital raised in 2012 was $40 million. This has been on a downward slide for the past two years, he said. “At this rate start-ups in Australia are better off hitting up [former NSW minister] Eddie Obeid for money than they are going to a venture capitalist.”
US venture funds, such as Accel Partners, Peter Thiel’s Valar Ventures and Sequoia Capital – which were in Sydney last week – are outpacing the local venture industry as they look to fund Australian start-ups. “They’re all in town doing deals, and the Australian venture capital industry is in a position where it can’t raise enough money to participate in the deals that are being done today.”
Founder of location-based mobile app Roamz Jonathan Barouch says it is good news that the government seems to be waking up to the fact that Australia has problems in the tech industry, but that the lack of VC and early-stage financing is only one missing piece of the puzzle.
He says countries that are serious about fostering innovative tech companies have better tax arrangements. Israel gives tax concessions to investors who support start-ups, he says, allowing them in some cases to write off 100 per cent up front.
He suggests the pipeline of entrepreneurs can grow by devoting resources to universities and high schools to encourage the study of maths, science and entrepreneurial courses.
Copying Canada’s start-up visa program will also be a leg-up to the sector he says. The plan allows migrants who start new businesses to gain permanent residency and introductions to Canadian companies.
“The cynic in me says this is being announced as it’s an election year and we are starting to see the government getting hit for being asleep at the wheel in regards to fostering innovation in Australia for the last five years,” Mr Barouch said.
The local IT industry is still attracting attention in some corners of the market. Victoria Capital, for example, was set up by Seek co-founder Paul Bassat and investment banking stalwart Tony Holt in October 2012.
The pair wants to invest in growth-stage businesses in technology, media, online and related industries. They will seek to garner investor support on a deal by deal basis, in Australia, New Zealand and other offshore markets including Asia.
Mr Bassat, whose brother Andrew still runs Seek, and Mr Holt, a longtime banker most recently at Macquarie Capital, will draw on their business networks, believed to include family offices, institutional investors and high net worth individuals.
General manager of luxury car hire app Uber David Rohrsheim says tech companies need to prove themselves before local investors are keen to pile in to them.
“The typical Australian investor is weary of tech investments, and I’m not surprised,” he said. “Australian high-tech success stories are few, so they aren’t bandied about in conversation as often as speculative resource opportunities. Whereas in San Francisco everybody knows somebody who made it big in tech.”
This story first appeared on The Australian Financial Review.