The Victorian budget “sets a new bar” for government support of technology and startups and has been broadly welcomed by leading figures in the sector.
Treasurer Tim Pallas unveiled the state budget on Tuesday, marking a “fundamental shift” in the state government’s support for tech and startups.
Large-scale initiatives included the $2 billion Breakthrough Victoria Fund, which will provide cash to local businesses for research and development, adoption and commercialisation over the next decade, the $61 million Victorian Startup Capital Fund for early-stage firms and the $25 million Venture Growth Fund for scale-ups.
The state government also unveiled the $10 million Women Founder’s Angel Sidecar initiative, which will provide funding to early-stage companies founded by women.
The state’s innovation body LaunchVic has also received funding assurance, with $10 million allocated annually over the next four years.
The placing of tech and startups at the forefront of Victoria’s economic recovery from the COVID-19 pandemic should be applauded, SEEK co-founder and Square Peg Capital co-founder Paul Bassat said.
“It is really great news to see some specific initiatives in the Victorian budget for the startup sector. Both the Victorian Startup Capital Fund and Women Founder’s Angel Sidecar Fund are welcome initiatives that will help drive funding for startups in Victoria,” Mr Bassat told InnovationAus.
“We are seeing technology businesses disrupt incumbent businesses in a wide range of industries and these emerging technology companies usually operate on a global rather than a local business,” he said.
“It is critical that Australia produce its share of startups that become global technology winners and funding for these startups is a critical component of producing more world-class technology companies.”
The messaging behind the budget and its focus on the tech sector is crucial. AirTree Ventures partner James Cameron said.
“The signalling behind this budget is just as important as the way it is spent. This is a budget that sends a clear signal that innovation is not a dirty word in Victoria. It’s an acknowledgement of something our industry has been shouting about for years, that the tech industry can be a key driver of jobs and can play a key role in reviving the economy,” Mr Cameron told InnovationAus.
“Most importantly, it sets a new bar for the level of government commitment to innovation, and one that other states and territories, and indeed the federal government, will hopefully follow.”
With little action or funding at a federal level, state governments have stepped up to fill this gap, CyRise chief executive Scott Handsaker said.
“If you think about the recent initiatives from the federal government and Scott Morrison saying he wants us to be consumers of technology, that’s pretty disappointing and frustrating. He did backtrack but it’s emblematic of their approach at the moment,” Mr Handsaker told InnovationAus.
“Certainly, from an innovation perspective, it does feel like the state governments are taking the lead, and I hope the feds start to notice.”
He also said the budget is good recognition of the rapid development of the Victorian startup ecosystem.
“I’m very excited by the increase in interest from the state government in startups. This is a validation that the Melbourne ecosystem is genuinely growing and genuinely helps drive the economy,” Mr Handsaker said.
“Often it’s really hard to get governments to take notice of startups and actually acknowledge that small, innovative, fast-growth companies are the ones where the jobs get created.”
But there is a general agreement that the true test of the large venture growth funds announced by the Victorian government will be in the details.
Mr Cameron said it’s important that the funds directly address existing gaps in the market.
“Historically, governments have proven to be pretty crap at picking winners in the startup space, but we should reserve judgement until we see how they plan to manage these funds and what the investment criteria will be,” he said.
“Direct government investment like this can have a real impact where there is a genuine market failure, and at the moment the numbers suggest that the biggest funding gap is still at the pre-seed to Series A stages.
“There’s plenty of growth capital available for companies who are at Series A or beyond and scaling, so I think it makes less sense for the money to be directed at these later stage companies.”
Mr Handsaker said the $60 million Startup Capital Fund needs to focus on creating new venture capital funds rather than just topping up the existing funds.
“I like that if the problem they’re trying to solve with it is they want to create more venture capital funds, that would be an excellent initiative. The nature of capital in Victoria and more broadly in Australia is that there’s lots of capital but it’s concentrated,” he said.
“There are five or six really big funds that take up 50 or 60 percent of capital, and the rest is spread amongst smaller players. If this can generate more venture capital funds so there are more opportunities for entrepreneurs to go and pitch then that’s great. But if the money just goes into the current VC funds then I think it’s a poor use of money.”
The budget also allocated $50 million for Victorian companies eligible for the Commonwealth’s research and development tax incentive, providing for up to 80 percent of the forecasted refundable tax offset.
This will be a “lifeline” for some startups, Mr Cameron said.
“This will be a huge and immediate boost for a hell of a lot of startups in Victoria, and is an absolute lifeline for many in our industry,” he said.
The fund for female-founded startups will also help address the imbalance of funding in the startup sector, he said.
“It will take a lot more than this to truly address this imbalance of course, but the onus is rightfully on us in the private sector to do the heavy lifting here to address this gap,” Mr Cameron said.
Mr Handsaker also welcomed the longer-term funding assurance provided to LaunchVic.
“I thought the original philosophy behind it was solid, and I’d like to see them get another four years to execute that vision. It’s a good acknowledgement that these things take time to build,” he said.