Dangerously stimulative ideas for saving the Aussie startup industry

This week I was part of an industry roundtable sharing issues we see arising from the pandemic. We also had ideas on the measures the government might take if it wanted to shield the startup industry from some of the worst effects. Here’s mine…

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Photo by Jason Leung on Unsplash

Accelerators and incubators are the nurseries of innovation in Australia.

Most are funded by large organisations for which startup innovation is non-core. Those organisations will be facing plunging revenue forecasts at a rate faster and deeper than any in living memory of the individual, perhaps even of the organisation.

Innovation budgets will likely be among the first to be cut, so that will hit our accelerator and incubator community hard.

Founders will keep starting new startups without accelerators and incubators but at greatly reduced rate.

They will be lower-risk ideas, and yes, sure, that sounds like a good thing until you understand that this also corresponds with lower returns if they succeed. “Low risk startup” = “traditional small business”.

Traditional small businesses are not attractive to venture investors.

Without startup deal flow from accelerators, the thriving growth in venture capital will be cut off at the knees in a few years’ time as that ‘lack of rainfall’ passes through the ‘river system’ towards them. Their ESVCLP and VCLP funds won’t be able to look offshore for deal flow so their managers and LPs may be trapped with stalling or failing funds.

We’re still a tiny percentage of the economy so I understand why we’ve been neglected in stimulus announcements so far, but I don’t know if Fed gov understands that these stimulus measures so far have no effect on early-stage startups. They don’t help the vast majority at all.

They don’t have a lot of assets so increasing the capital purchase write-offs to $150k does nothing for them. Everybody has a laptop and a monitor already. Even our hardware startups don’t usually need another 3D printer, they need their Shenzen manufacturing partner to get production capacity back online and they need a low-interest line of credit to bridge the gap to revenue.

If you’re prepared to let SMEs spend $150k and write it off immediately, maybe let tech startups spend their $150k on things they actually do need to spend money on — contractor payments, marketing, SAAS subscriptions (especially for Zoom!). Give them a break from PAYG and BAS.

Just before the pandemic really hit, some of us in Australia were starting to call out the alarming plunge in angel and seed round investing in 2019. Last year angel investors and venture LPs were moving their focus to growth stage investment and away from angel and seed stage investing.

Now those same investors are leaving the market in droves, worried about all their other failing investments, worrying about the struggling property development, professional services or hospitality business they own that created the money they’ve been investing in tech with. Starting to think maybe they might have to help support friends and family financially for a year or two until there are jobs back in the economy.

We need them back and investing instead of lining their pantry with cans of beans and toilet paper.

Step up to offer them really generous tax benefits from investing in startups. Not just ESIC and ESVCLP. Let them write-off upfront some or all of their investments in tech startups like they used to be able to do in Australian-made film and TV, and primary production schemes. If their investment in an ESIC-compliant startup fails, refund some or all of that loss (currently all they get is a CGT-free return if the investment succeeds, when of course most don’t).

For those crazy enough to not just invest their own money but to put their hand up and be an early-stage fund manager, step in with government money to help close out that raise. Do you have a measurable track record of successful investments either as a partner in another fund, or as a tech angel investor? Can you show us some third-party commitments to the fund? Here’s 50% of the fund raise, from $2.5M up to $10M.

I know, I know, none of this will ever happen. As long as I’ve been in long pants, Australia has been the country in which the predictable always happens. Australia is a game of mates and our industry doesn’t have the mates we need for any of this to happen. But maybe we’re scared enough right now of the unpredictable future that someone who might have mates in the right places might see this. Or something like it. And act.

Thanks to Maria MacNamara for organising the session and inviting me.

I’m Alan Jones, an EiR for startup accelerators, GP at M8 Ventures. Previously investor, founder, and early Yahoo PM. Opinions mine (but should also be yours).

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