Turnbull’s Innovation Statement: #ideasboom

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Marcus Holmes

Other, wiser, people than I have commented all over the internet about this, but there haven’t been many opinions from the actual startup community about the #ideasboom statement, so I thought I’d share my opinion on it all. At length.

Obviously I’m looking at this from the point of view of startups, especially Perth startups, and all opinions are my own except where stated. The statement contained a whole bunch of measures, some of which are applicable to startups and some not, so let’s look at some of them:

Improved bankruptcy conditions: Name one startup that went bankrupt. When startups fail, we know we’re failing months ahead of time and we manage it so we don’t go bankrupt. I understand the rhetoric behind “helping people to survive failure”, and I guess there’ll be one or two startups that are helped by this, but it feels like it’s more aimed at conventional businesses (that do go bankrupt) rather than startups.

Crowd-sourced equity funding: The problem that crowd-sourced equity funding (CSEF) solves is the amount of regulation (and hence cost) involved in taking a company public. That regulation is entirely under government control, so if it’s necessary then it needs to apply to all forms of share purchase, and if it’s not necessary then remove it. Allowing some companies to sell their shares to the public via crowd-funding platforms and not via the ASX makes no sense at all. If the regulation and reporting requirements can be removed for CSEF companies, then why can’t they be removed for all small companies?
The government doesn’t seem to be doing any deep thinking with this (Turnbull himself has gone with “what New Zealand said…”). I predict there will be at least one major CSEF-funded company failure (probably borderline fraudulent) in the next few years that will leave a lot of very pissed-off funders demanding that “something be done about it”. The government will respond with regulations requiring proper Due Diligence on new CSEF funding raises, and off we go on the road to multiple types of public company insanity.

VC tax breaks: because the problem for VC’s investing in startups was always how much tax they were paying. Not that it matters for Perth, because we don’t have any VC’s. If it encourages more VC’s to form, then I guess that’s good, but my understanding is that VC funding is limited by risk appetite not tax efficiency.

Investor tax breaks: In terms of the wider tax incentives, it’s good but again it doesn’t seem to actually be fixing anything, just rewarding people for doing what they were already doing. Also, as others have pointed out, these tax changes don’t come into effect until July, so all investment activity will stop for six months and then we’ll get a flood. Not helping.

Access to previous losses: this is useful 🙂 Startup entrepreneurs are usually serial entrepreneurs and onto the next idea before the previous one is entirely dead, so being able to carry losses over is good.

Incubator support in the regions: Startups don’t thrive in the regions because we need the network effect of working alongside other startups. So helping incubators in the regions isn’t as useful as it sounds. But spreading the startup word to the regions is good, as long as everyone understands it won’t do a single thing to keep entrepreneurs actually in the regions.

The Australian Innovation Network: Really?… like any startup is going to go to a government “portal” for anything except information on how to navigate the labyrinthine bureaucracy. But obviously no government initiative can happen without some half-arsed IT project fiasco to make the lobbyists happy.
Just in case you thought there might be a conflict of interest on this one: no, I’m not even remotely worried that people will stop reading //SN and get their startup news from a government “portal”.

Share Scheme Disclosure Reforms: The problem is the way that Employee Share Schemes are taxed, not how they are disclosed. What the startup sector needs is completely tax-free share option schemes for founders and early employees, but we’d settle for share option schemes that load sweat equity with a reasonable tax burden, and only in the event of a successful exit.

Connecting Research and Innovation: (sweeping generalisation based on anecdotal evidence warning) The problem with university commercialisation is that universities don’t like taking risks. They want an existing company with deep pockets to licence their research for a nice fat fee every year. They don’t want to start a new company that takes a lot of effort and money and will probably fail. They don’t want their researchers taking time off from productive research to play at being entrepreneurs. Connecting university researchers with business advisors and helping them with commercialisation won’t help if the university won’t let them use their own research to start the business (yes this happens).

Funding Research Changes: anything to help destroy the publish-or-perish mindset is good, but again, getting academic research into the hands of industry isn’t about startups, because we can’t afford the licence fees.

Digital Marketplace for Government IT Procurement: shortcutting the government IT procurement process is a cute idea, but whoever dreamed this up has no idea what it takes to be involved in a government project. The godawful procurement process is merely a forerunner, a taster for the horrors that lie within government “best practice”.
In order to get government IT ready to be able to deal with startups there would need to be a complete overhaul of government IT staffing, procedures and training. This whole area is littered with the graves of small businesses destroyed by procedural bureaucracy. Encouraging startups to go here is questionable at best.

STEM inspiration and education: this is great, but it’s going to be 10 years at least before we see any results. Meanwhile we’ve got a backlog of newly-graduated geoscientists with good maths but no mining construction boom to work in. Some help retraining them into practical tech would be good…

Entrepreneur visas: it makes sense, and giving more points for STEM qualifications in the points test is great.

It’s easy to be scathing, especially when it’s the government and they’ve got their hands tied because politics and special interests. But the Libs are going to have to go the extra mile on this subject to get over the hatred of every techie: they killed the NBN and we will struggle to ever forgive them for that.

Famously, the government needs to “get out of the way” and allow startup founders to get on with building our businesses with a minimum of intervention, regulation or taxation. I’m not sure this statement does that much, but at least it introduces the #ideasboom to the conversation. After the ridiculous Abbott years when the government actively killed innovation it’s nice to have the welcome mat laid out, even if it is a bit grubby.

Reactions from other knowledgeable people around the intertubes:

“So fucked” – Pete Cooper a “leading startup mentor” who was a bit unhappy about the lack of funding for incubators. File under “pissed off he didn’t get any money” – http://www.businessinsider.com.au/so-fked-leading-startup-mentor-pete-cooper-drops-a-bomb-on-malcolm-turnbulls-innovation-statement-2015-12

Steve Carroll at RSM pulls apart the implications for R&D, pointing out that we’re in a competitive market for R&D spending with other countries, so we need to up the game more: http://www.rsm.global/australia/insights/tax-insights/review-innovation-plan-hits-and-misses

Financial Review takes a poll of prominent startup CEO’s, generally positive as you’d expect: http://www.afr.com/technology/innovation-statement-paul-bassats-verdict-20151207-glhgl9

The Conversation’s punishing set of charts on innovation in Australia: https://theconversation.com/australias-innovation-problem-explained-in-10-charts-51898

ABR isn’t very happy either:  http://www.businessspectator.com.au/article/2015/12/9/technology/last-thing-we-need-innovation-policy-run but then they also published this which sounds really negative at first and then spins off to a good place:  http://www.businessspectator.com.au/news/2015/12/10/technology/does-turnbull-really-get-innovation

One thing I did notice on reading the main authorities on this: they’re not contrasting the parties’ positions on the subject, only assessing the Lib statement on its own. I suspect this is because Labour doesn’t have a position yet, apart from the general “we support innovation” blandness. What would it mean for the startup community if this turned into a key election issue?
Especially in WA, where apparently the Libs’ new-found enthusiasm for tech startups is only for resource-related tech startups. If Labour seize on this and make it an election battleground, with WWW2017 looming, we could have Interesting Times. I’m going long on popcorn 🙂

If you’re interested, the whole statement is online at http://www.innovation.gov.au/

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Picture of Marcus Holmes

Marcus Holmes

Gentleman Technologist and co-founder of Startup News. His vision has made //SN a sustainable media cheerleader for the startup community. Former CEO of Phnom Penh Post, he can be found somewhere in S.E. Asia coding away...
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