A sharp government focus on the research and development tax incentive is the most important thing it can do to help grow of the local tech industry and drop planned cuts to the scheme, Blackbird Ventures’ co-founder Niki Scevak says.
Blackbird Ventures has just announced the closing of a $500 million new fund, with the backing of Australian Super, Future Fund, Telstra Super and Hesta, making it the largest venture capital firm in Australia.
The disruption and tech accelerations brought about by the COVID-19 pandemic has created opportunities for startups and tech firms, Mr Scevak said, and the government should look to expanding the RDTI to support them, rather than cut it as it is planning to do.
“The government loves to do 100 things versus one thing, but the one thing should be the research and development tax incentive. Ninety-nine per cent of the help the government gives the startup community is the R&D tax grant,” Mr Scevak told InnovationAus.
“They should do just that one thing and do it incredibly generously and well. The more tech champion companies we have, that’s really the only path for our future and the best way to nurture them in the early stages is via the RDTI grant. It’s an incredible initiative that has helped the ecosystem get to where it is today.”
Legislation currently before Parliament would make a series of reforms to the scheme, amounting to a $1.8 billion cut to the program. Under the changes, a $4 million cap would be introduced for smaller firms accessing the scheme, likely reducing the size of the tax offset for most startups.
“The confusion created is a terrible thing, and the limits to the amount of R&D companies can claim would really disadvantage companies that are building something with incredible technical depth,” Mr Scevak said.
“Even if they just left it alone that would be a win. Over time they should think about making it more generous, rather than the stance of the last couple of years around the eligibility of software R&D and limiting it for startups.”
The RDTI has allowed companies including Canva, in which Blackbird was an early investor, grow from just the founders to large businesses employing thousands of Australians in well-paying jobs, Mr Scevak said.
“Canva was two employees less than seven years ago, and now they’ve crossed over 1000 employees and will hire many more. Once you get these champion companies, that’s just a huge engine for growth in the best kinds of jobs, that pay the highest tax rates,” he said.
“We need to be supporting and nurturing that at the beginning with the RDTI – that ensures champion companies are creating jobs in the future.”
As part of the economic recovery from the ongoing pandemic, Australia should look to produce its own tech products rather than just consuming those built overseas, he said.
“We can complain as a society about Facebook or Google not paying tax in Australia, but at the heart of it is that is Australia consuming technology that’s being created in America. If Australia is to succeed, we need to create the companies that other countries complain about Australia getting all the tax revenue from,” Mr Scevak said.
The near-unprecedented societal and economic change brought by COVID-19 will open up opportunities for startups, he said.
“Startups in some theoretical sense require change. There has been a whole host of change brought about this year, and really for companies that are starting that offers the oxygen or angle of attack they can create to win their first customer,” Mr Scevak said.
“When there is lots of change there are lots of opportunities for startups. Even though this is a big negative change, on some level it is a huge volume of change that opens up opportunities for new companies to start. That’s why we’re so excited to invest money in the next couple of years in that environment of extreme change.”
Blackbird Ventures invests in startups in the very early-stages, typically pre-product and pre-revenue. Among its portfolio is the likes of Canva, Culture Amp and SafetyCulture.
The firm has just closed its fourth fund at $500 million, and has brought in Atlassian co-founder Mike Cannon-Brookes as a part of its board.
The fund was raised during the COVID-19 pandemic, with Blackbird’s plans to build a wider base of investors around the world halted and a number of planned trips to Hong Kong, Singapore and the United States cancelled.
“It all happened in the last couple of months. It certainly wasn’t easy and I wouldn’t recommend people try to raise in such an environment, but it’s a testament to the startups we’ve been able to invest in previously and their success and the unwavering belief from our investors and overall the resilience of tech companies in the face of COVID,” Mr Scevak said.