James Riley
January 27, 2016

DataStart may take startup equity

DataStart may take startup equity

Wyatt Roy: Keeping an open mind about startup equity

The Commonwealth is considering a significant expansion of its DataStart program as an ongoing mechanism for finding data solutions to government challenges, and to help fund new companies, Innovation Minister Wyatt Roy says.

It is also investigating a procurement structure that would enable government to take an equity position in the startups that come through the DataStart program. This would potentially allow profit generated through an exit to continue funding the program.

DataStart was launched in November as the first incubator created as a partnership between Federal Government and the private sector. The program announced its winner last week, with health startup CohortIQ earning a nine-month incubation through Pollenizer, and $200,000 in funding from DataStart corporate partners, RightClick Capital.

CohortIQ aims to use public data to use hospital and open data to reduce costly and avoidable hospital admissions each year – estimated at $235,000 annually.

The Right Click investment is expected to value the embryonic CohortIQ at about $700,000, although the contractual arrangements had not yet been finalised. The Government, which is funding the incubation, did not take equity in the company.

Mr Roy said he was open to finding ways for government to participate as an equity partner in startups it assists, noting that this is a model used successfully overseas. But he said equity was not the only way value was returned to taxpayer, and that government was not in a hurry to define such a scheme.

“If [CohortIQ] is successful, it will reduce the demand on hospital waiting time, to ensure fewer Australians are in hospitals – which ultimately saves the tax payers money,” Mr Roy said.

“So whether it’s through tax returns on income tax, or business tax for a successful company, or in this case less money spent on hospitals, the taxpayer is getting a return [on this investment] that is different to taking equity,” he said.

“In some jurisdictions around the world the government does take equity, and I am open minded about that [in the future], but that was not the idea of this program.”

DataStart was under development within the Communications Department prior to the spill that installed Malcolm Turnbull as Prime Minister. It is now under Prime Minister & Cabinet after Mr Turnbull took data policy with him to his new job.

PM&C officials are understood to be pleased with the DataStart results, with this first round attracting 200 founder-applicants, and unearthing quality ideas and people.

The initial DataStart was focused entirely on engagement with the startup community, and encouraging the broader use of open government data. The program designers are now considering a set of more targeted programs.

The issue of funding is not yet resolved, and probably won’t be known with certainty until budget night in May. But the fact that it is one of the Prime Minister’s signature projects is going to get it over the line.

What form that funding takes – and how the program will be integrated into the Australian Public Service’ existing procurement regime – are the more interesting questions. The issue of equity is being actively looked at, but it is not a priority. Expansion and take-up is the frontline KPI.

If DataStart’s first outing was a broad generic program aimed at raising awareness around public data, its expansion will focus on more specific issues. Either through incubation programs that engage on a specific government challenge, or on a specific set of public data.

And while the initial DataStart program focused on the creation of a business, and the creation of revenue, the next might focus instead on a social good that does not necessarily have a revenue model.

DataStart is also expected to be used as a model for other government departments to run their own startup engagement programs.

While Pollenizer had been awarded the initial DataStart incubation relationship through an open tender process last year, PM&C is expected to go to market again to find partners for the ongoing program.

It is unlikely that the program will sign a single relationship. It is understood PM&C’s preferred model would engage multiple incubator partners across multiple geographers to ensure its reach into the startup community is both deep and broad.


DataStart's first program also announcement three runners-up, which also received prizes. They were:

• Mezo Research was also invited to join Pollenizer for a nine month incubation program (funded by Pollenizer)
• Gemini3, a job sharing platform, was offered six months mentoring and coaching with Pollenizer Sherpa
• The founder of Comployment, a small business compliance tool, was given a scholarship to the Founder Institute program.

 

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