Australia’s startup effort could work. Here’s how
Australia is behind the curve on startups. That might come as a surprise for anyone in the tech world in other English-speaking countries, but Australians familiar with the scene are well aware.
However the economy is changing, forcing the federal government and its state governments to launch a multi-billion-dollar, multi-fund effort to get the country up to speed.
Many people think a government-led program in — well, anything — is doomed to fail because of bureaucratic red tape or simple incompetence. But business acceleration has benefited from government programs in the past.
The one country that Australia should examine in real depth is Israel. I say “should,” although it seems Canberra has definitely taken a hard look at the Jewish State’s approach to R&D. While certain sources of Israeli hi-tech prowess aren’t applicable to Australia’s situation — the military for instance — there are tactics worth borrowing that can accelerate Australia’s rise as a fully-fledged tech juggernaut in several industries.
Here are four key components of Israel’s startup success that Australia should not only consider, but continuously study.
1. Government incubation program
As Israel saw an influx of highly-skilled immigrants from the Soviet Union in the early ’90s, the Office of the Chief Scientist (OCS, and more on them in a minute) launched the Technological Incubators Program in 1991 to foster new businesses from Israeli scientists and researchers. The initial six incubators have become the starting point of a program that currently encompasses over two dozen programs.
Australia already seems to be following suit. The National Innovation & Science Agenda promises matching funding to establish new incubation programs and augment existing ones.
2. “Yozma” for venture capital
With $100 million in tow, Israel set up 10 venture funds in 1993 in a program called “Yozma” that matched private investments 2:3 (40% government, 60% private). The government funds eventually recouped their investment with 50% interest and then — and this is a major point — the funds were made private. The terms for buying out those 40% stakes were extremely favorable, so long as the funds were successful.
Not all of them exist today, but one that does is Jerusalem Venture Partners (JVP). JVP along with certain other Jerusalem-based investors has helped drive that city’s growth, with some considering it not so far behind Tel Aviv. What is also worth considering about Jerusalem is its emphasis on biotechnology commercialization, something that will be a critical component of a successful Australian effort to turn its world-class research into successful startups.
3. The Office of the Chief Scientist and a matching grant program
Israel is one of the few countries in the world with a Chief Scientist, a position created in 1969 as a division of what is now Israel’s Ministry of Economy. Over time, the office was endowed with a massive budget to run an investment matching program which covered as much as 90% of research costs for Israeli companies. But instead of grants, the funds of the early ’90s were actually loans that had to be paid back once companies reached a certain measure of success. That maintained a level of liability in the startups that received them, adding some fiscal responsibility to the repertoire of company founders who might not have had so much business acumen when they decided to go entrepreneurial.
But Australia also has a Chief Scientist, as does each of Australia’s states. Imbuing them with large budgets for a similar scheme might have a compound effect that Israel’s OCS couldn’t. A combination of federal and state funding would send additional money into the ecosystem, enticing even more foreign capital to make the leap across the Pacific from the U.S. or China. Australia is in a more advantageous starting position in 2016 than Israel was in the early ’90s, which could mean it will be easier to attract foreign capital without the aura of conflict that preceded Israel’s reputation when it launched its innovation strategy over 20 years ago.
As of last year, Israeli Chief Scientist Avi Hasson managed a budget of ₪1.45 billion (~US $383.5 million). Speaking to Science Magazine in May, Australian Chief Scientist Alan Finkel declined to comment on the size of his earmarks. But if enthusiasm for a science czar and funding R&D can coalesce into a powerful and responsible federal office in Australia, flanked by several state chief scientists who can also pursue growth strategies, Australia will be well on its way. But it will need one more essential thing.
Gall. Audacity. Risk-taking. Confidence, but not quite arrogance.
Being a chutzpan means you are more aggressive and not afraid to take risks (it also means some negative things, but those are less critical). It is inherent in the Israeli mindset that pushes people to found businesses, fail, and then regroup. That sort of audacity has to be encouraged in Australia, and it is likely that in a culture where people are far less accustomed to that attitude, it will be a select few personalities who will be able to utilize it.
But Australia also needs that attitude among its investors, perhaps more so than its engineers or researchers. Investments have been far too safe in Australia over the last few decades in the property and resources industries to have fostered a more aggressive attitude toward investments in novel technologies that require high amounts of capital even before startups see revenue (not even profit).
There is something to say about being more conservative to avoid investing in something because it’s en vogue. No one wants to push along a bubble in any industry. But Australia’s investors are under accustomed to these sorts of risks, which needs to change. More than half a dozen acquisitions of Israeli startups by stagnant but cash-flush mining and resources firms in Australia demonstrates there might be an eagerness to get the hang of it. As long as would-be venture capitalists and angels can instill into themselves the idea they will lose on many investments, they can push the tech economy to keep pace with other countries.
Geektime recently had the opportunity to visit Australian science, technology, and innovation firms through an Australian Department of Foreign Affairs and Trade-sponsored international media visit.