Back ‘big bets’ with $15bn reconstruction fund: Tech sector

Australia’s $15 billion reconstruction fund should focus on “long-term, strategically important investments” in critical technologies that inherently carry higher risk, according to the country’s newest technology industry group.

In a submission to the Industry department consultation, the Tech Council of Australia broadly welcomed the yet to be developed National Reconstruction Fund (NRF), arguing that it will help address “funding gaps requiring patient capital” for startups.

Funding gaps emerge from “differences between development timelines and those of commercial investors”, who typically expect a return within five years when many new technologies often take more than 10 years to develop.

“The NRF is a landmark investment in our nation’s industrial and technological capabilities which will drive Australia’s future prosperity and security,” the Tech Council said in its submission to one of two consultations into the fund currently underway.

But the group, which now represents more than 140 technology companies, also warned of the potential for the fund to become a “major financial risk for the government” if the fund was “designed and targeted poorly”.

It wants the government adopt a “dual objective” for the fund, much like Main Sequence Ventures and Breakthrough Victoria, using the $1 billion carved out for critical technologies to back investments offering both a strategic and financial returns.

“A strategic return could be assessed against a range of outcomes including: ensuring critical tech investments contribute to Australia’s technology leadership, national security and/or economic resilience,” it said.

“Requiring the NRF to achieve a ‘strategic return’ provides it with a clear objective and also ensures differentiation from private investment sources.”

The view is broadly shared by the Australian Information Industry Association, which said in a separate submission to the consultation that “benefiting the country should… be the sine qua non of investment decisions”.

“By investing in areas of comparative and strategic advantage, the fund can yield dual benefits of commercialisation for economic benefits and solving pressing national challenges,” the AIIA’s submission said.

The Tech Council said the fund should focus on “long-term, strategically important investments which are important to Australia (the ‘big bets’ that will be transformative) and require patient capital to scale”, with a benchmark rate of return that reflects this.

It also wants investments to be supported by sound economic analysis to “fill genuine funding gaps, rather than compete with, or crowd-out, existing investors in areas that are already well served by the market”, and avoid including “overly prescriptive investment targets”.

Decisions should be made “independently from government”, with “individual investment decision… made by an appropriately skilled investment committee dedicated to critical technologies and enabling capabilities”, the Tech Council said.

“This governance model will allow the NRP to adopt an efficient due diligence model… In bureaucratic systems, the due diligence may only begin after the opportunity arises and involve several layers of approval, which significant slows down the time to decision,” it said.

Both the Tech Council and the AIIA have also called for the government to focus on reforms that complement the NRF, including those that boost skilled migration and, in the case of the AIIA, procurement.

“The federal government spends over $8 billion annually in BAU ICT yet this significant procurement power has not seen a noticeable uplift in local tech ecosystem and in fact, there is often a cultural and organisational reluctance to work with SMEs,” the AIIA said.

“We would like to see an environment where Australian companies are back-in, supported and can grow from government procurements, not just grants and a focus of the NRF should be ensuring the right conditions are created during make-or-break seasons of growth in capability amongst strategic Australian companies to prevent brain drain and departure from Australian shores.

“The NRF should focus on creating Australian Intellectual Property, retaining Australian Intellectual Property and the export potential thereof.”

Do you know more? Contact James Riley via Email.

1 Comment
  1. Digital Koolaid 1 year ago

    Justin, maybe you didn’t choose the headline, but betting and investing are separate concepts. That’s why there are two words, not one. Switching from betting to investing in the first paragraph makes the point. The Tech Council is right to state that the ‘big bets’ that will be transformative – when they fail. Bye-bye to your patient capital at scale. Scale zero. Their other statements are gibberish – really, what are “overly prescriptive investment targets”? Why do people say / write such illiterate nonsense? Why do other people take it seriously? Absolutely – private decisions should be made “independently from government” – and independently of government money. If you want to head down to SportsBet – play with your own money. Get your hands off mine.

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