Navigator Insights

Government Support for Start Up Sector

Australia in its latest budget axed several start-up funds and among the victims of the budget reform are the Innovation Investment Fund (IIF) and Commercialisation Australia (a $213 million grants program for start-ups), two important pillars of a support system for Australian technology and innovation.

IIF was established to seed venture capital firms and innovative Australian companies. SEEK, one of Australia’s most successful companies was an early beneficiary of the program.

Likewise, Commercialisation Australia – a government initiative offering funding and resources to businesses, researchers, and inventors looking to commercialise innovative intellectual property – will also be killed. Commercialisation Australia has so far supported over 500 companies with grants in excess of $200 million. These changes are of particular concern to SMEs and development-stage companies that access and rely on these funds.

So what do these changes mean? Well, at a time when it appears Australia’s mining boom may not always jack up its economy, reduced access to Government start-up funding risks losing big thinking start-ups that may well go on to become larger industry players supporting local employment, research and development, and economic benefits.  This is particularly so when access to venture capital funding in Australia is also more difficult than in other larger markets, such as the US.

Commercialisation Australia and the Innovation Investment Fund have been at the receiving end of a lot of criticism. For example, two of the three groups that received government support through the Innovation Investment Fund in the last funding round failed to match it with ­private funds. The solution is not to abandon these initiatives but rather work to improve them.

The New Zealand government has identified innovation as a key to economic growth and is trying to bring in policies to support innovation.  The government established and funded Callaghan Innovation and now it’s reaping the benefits as Callaghan Innovation continues to provide New Zealand’s start-up economy with research and development grants to local technology businesses. R&D spending is up 18.9% over the past two years and New Zealand’s high-tech manufacturing companies are spending on average 8% of revenues on R&D. It is expected that ICT sector in New Zealand will be the biggest contributor to the country’s GDP by 2020.

The NZ government also announced two new tax measures in its 2014 budget to help drive start-up research and development. While the Australian government in its latest federal budget has reduced the R&D tax incentives at the same time the New Zealand government has provided businesses with a $60 million tax break on research and development spending over the next four years.

The New Zealand government provides a number of initiatives for new start-ups.  There are a number of different programmes and schemes available, ranging from business start-ups and growth grants to support for charities, researchers, scholarships and much more.  So companies can get to their next milestone without getting watered down by too many angel investment rounds early on. Some of these initiatives are:-

  • R&D Growth Grants – aimed at businesses experienced in research and development in New Zealand, to support an increase in investment.
  • R&D Project Grants – designed to support businesses with smaller research and development programmes and those new to R&D.
  • R&D Student Grants – to support undergraduate and graduate students to work in a commercial research and development environment, bringing greater capability into New Zealand businesses.
  • NZTE Capability Development Vouchers – NZTE Capability Development Vouchers are available to businesses to use as partial payment towards the cost of capability development and training.
  • Financial guarantee products for exporters – The Export Credit Office (NZECO) sells a range of New Zealand government backed trade credit insurances and financial guarantees that mitigate credit risk, and can assist exporters or their international buyers’ access to credit.
  • Incubators – The NZ government through the Incubator Support Programme helps boost growth and success of New Zealand start-up businesses through a range of services and funding.

There will always be debate over how much and the ways in which support should be given to start-ups by central government.  What is reassuring is that government has identified innovation and the creation of new businesses as a key economic driver and has taken action to bolster the sector.