A fundamental shift in the culture of the nation, better access to capital and support from the government is needed to put Australia’s start-ups on the national agenda, according to Communications Minister Malcolm Turnbull.
Australia was no technological “backwater” when it came to innovation, Mr Turnbull said, but changes were necessary to ensure start-ups received the support they needed from both government and the business sector to thrive.
He was being interviewed by Alan Kohler for a television segment of The Australian’s Cracking the Code series, in partnership with GE.
“We’ve got to stop talking ourselves down. If you keep on describing yourself as a backwater you’ll become one eventually,” Mr Turnbull said.
“The centre of the technology sector world is Silicon Valley. There is no doubt about that; that’s where most of the companies are, that’s where most of the big money can be accessed, and so naturally as it gets bigger the network effect means that more and more people gravitate towards it.
“But there is a lot of innovation in Australia and in fact there is much more venture capital available to Australian start-ups and technology companies now than there used to be.”
He acknowledged that while the start-up scene was showing signs of blossoming, anaemic levels of investment at the second and subsequent rounds of capital raisings were holding some companies back.
“I think there’s plenty of seed capital from individuals, financial investors and so forth. It is getting to that next stage, when you want to raise not a million dollars but you want to raise 10, or 15, or 20, or 30, that is a challenge,” he said.
“That’s where there is still a big gap in the market here. But it is starting to be filled. There are billions of dollars in the VC Limited Partnerships that have got special tax concessions that have been established, and there is money in the market.”
Mr Turnbull said the federal government was close to finalising its model for crowdsourced equity funding in a move that would open up new avenues to capital for the nation’s fast-growing technology start-up ecosystem.
Earlier this month the government released a consultation paper into how public companies could access crowdsourced equity funding. It suggests investors who want to take stakes in unlisted public companies through crowdfunding would be able to invest a maximum of $25,000 in a year.
Mr Turnbull said it was important to get the details on the scheme right. While the government was close to finalising the designs on a new crowdfunding model, he said it needed to be balanced with the right consumer protections.
“With crowdfunding you’ve got a trade-off between consumer protection on the one hand — you’re relieving people of the prospectus provisions so they can raise small amounts of money online — but you also want to be able to access the aggregative power of the internet so you can raise a serious amount of money, millions of dollars from lots of small investments. So getting that balance right is the key.”
Mr Turnbull also pointed to the role that the ASX could play in funding new start-ups, saying that while access to small sums of capital was easy to come by, entrepreneurs should increasingly look to the ASX for larger raisings.
“I think one area, one thing we don’t do a good enough job at, and I think the ASX can do better here, is promoting the stock exchange as a means of financing start-ups, or second, third round money for start-ups,” he said.
“I mean it is so much cheaper to get listed on the ASX than it is on Nasdaq, for example. And Australians are much more used to investing in listed entities than in unlisted entities. So now that people are used to the tech sector, the ASX should be an opportunity for greater access to capital.”
Mr Turnbull also pointed to a raft of government initiatives aimed at fostering growth in start-ups, such as changes in the May budget to provide tax breaks for small businesses, change the tax treatment of employee share schemes and lift the depreciation threshold for individual assets up to $20,000.
“If you want to encourage people to move on to digital platforms, if you want to encourage people to get up in the morning and say it’s not good enough to do everything the way we did it yesterday, we’ve got to change,” Mr Turnbull said.
“Then what better way to achieve that by setting an example, and that is what government seeks to do ... What you need is a change of culture, and that’s why it’s important for people to talk about it.”