Investing in growth...by "Getting the growth dividend from Australia's intellectual capital...and taking industry risks to provide national certainty about economic futures..."
Today is a milestone in the promotion of new venture driven growth for Australia, as the Industry Research and Development Board formally licenses the Fund Managers selected by the Board. It is a milestone, but not the endgame. There is still more work to be done to secure the objectives behind this initiative.
The Innovation Investment Fund (IIF) has two basic objectives: getting money into the start up ventures that are commercialising Australian R&D, and growing our pool of experienced venture managers.
In essence the IIF is about new job creation. The growth of technology based start-up ventures is what will lead to high value employment opportunities and wealth creation for Australia. If Australia does not get involved in this, if it does not move to address emerging global markets, then as a nation we will soon not be able to compete.
As a country we have not been doing enough to capitalise on our extensive public sector investment R&D, to get a return on our national intellectual capital. Too much taxpayer funded basic research is being taken offshore via multinationals, because there has been no other path to market. It has not created the jobs we need here, it is not creating wealth for Australia.
As a country, we are not getting the growth dividend on our resources of intellectual capital.
The IIF is an overdue and absolutely pivotal initiative, but it is not enough by itself. We and the Government are seriously underestimating the situation if we think the IIF scheme will solve for everything. It is essential that we do two other things:
If we don't tackle these issues, and tackle them quickly, Australia will not get the proper returns on the IIF scheme.
The IIF will be successful when it changes the investment culture in Australia. It will not be successful if it only draws on existing lines of funding. There needs to be an environment created in Australia where management teams can find funding from a broad base, both locally and offshore.
So, where do we stand at the moment?
Until we totally change this culture within Australian institutions the status quo will continue.
Today we have a situation where Australia's largest institutions and key superannuation funds (including the enormous superannuation funds of Commonwealth government enterprises) invest significant amounts of dollars in US ventures but scarcely anything in new Australian ventures.
Can we accept a situation where domestic superannuation funds and Australian taxpayers' investments in their own futures are funding innovation, jobs and growth in the US and elsewhere, anywhere but in Australia? The IIF will be successful when it helps to facilitate change in Australia's investment culture.
We also need to be able to tap into offshore capital markets if investee companies are to have a clear growth path beyond their initial start-up. We need to create a sustainable market environment which allows today's start-ups to become successful players in global markets.
There have already been some positive outcomes to reassure us that we are on the right track with the IIF initiative. The first is the growing level of awareness about the range and depth of potential investee companies and the fact that we have a substantial choice of companies in which to invest. The only problem might be that we are not going to have enough funds to give to them and to follow through in underwriting their growth.
The second positive outcome is that the licensing process has encouraged interest in this area beyond the five funds that the Federal Government through the IR&D Board has so far been able to finance. The extent of this flow on or "spillover" effect will be the ultimate test of the national benefit of such government incentives in response to market failure.
Another encouraging sign is the growing number of visits from US investment houses and analysts. But I need to reiterate the note of caution that tax reform is needed if we are to be able to translate this interest into action.
Some people and a few established investment houses have criticised the IR&D Board for not channelling the IIF money into the tried and true financial "names" in the sector. This criticism misses the whole point of what the IIF scheme is trying to do. We are trying to build new capability and plug a major gap in the existing market. The selection process was a rigorous one based on the assessment of relative merit.
We aim to create new professional investment teams and new technology based start ups that, for Australia to have a chance to be successful, will need to become the household names of the 21st century.
There are plenty of risks with programs like this. In fact, the inherent need for initiatives like this is that the existing financial institutions are so risk adverse that they do not see the opportunities under their noses.
Of course some of the investments will fail. If they did not the IR&D Board will have failed to back the right approach. The bottom line is that Australia must take industry risks to provide certainty about economic futures".