James,

Your concern about the direction of this resonates with my own reaction when I read the discussion paper and the content of it started to sink in. It seems like the government have their heart mostly in the right place but my fear is that in a public service bone headed way they are going to blow a lot of money and miss the point yet again. Even though the discussion paper seems to have many of the right ideas there are still worrying bits in the way they have worded things.

As a frustrated former member of a now struggling startup I have a long list of things that emerging companies need and could wax on about it for hours. While government money is in there it is far from the top of the list or the most critical requirement. From my experience budding entrepreneurs need things like:
* Smart money (i.e. investment that will add value well beyond the cash injection)[Govt hand outs are not smart money]
* Acative advice and support from people with real start up business experience
* Trustworthy value for money service providers (e.g. accountants, lawyers, grant experts, marketing and sales consultants etc)
* Real and practical help with very early market validation of their idea/technology
* Real and practical help with establishing the fundamental machinery of a properly fuctioning company
* Introductions to the right people that will open doors for them (i.e. access to the right networks)

We also need to build a long term critical mass of experienced players in the start up and commercialisation space to provide a community and network to nurture our exciting new companies and a talent pool for them to draw on. Too many people float in and out this space and gain only limited experience because we lack a sufficient critical mass of activity in technology start ups to keep people in the game long enough for enough people to gain sufficient experience.

Thanks for starting this discussiona and I look forward to how it evolves over the next few days and contributing anywhere I can add some value.

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James Tuckerman Reply:
August 17th, 2009 at 5:03 pm

Thanks Richard. Just before drafting this post, I went about sharing my own thoughts using the Government’s Smart Form. I really look forward to sharing them over coming days. Many reflect your opinions about expertise, which, in my opinion, is what most startups lack and don’t have the resources to acquire.

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Let me assure everyone that Brendan Lewis was absolutely not privy to the work on the Innovation Review last year, and his itinerant presence in my offices has mainly been in conjunction with his Churchill Club functions.

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James Tuckerman Reply:
August 18th, 2009 at 9:15 am

Thanks for your input Terry. My remarks were merely put forward to demonstrate that Brendan lives, breathes and works at the forefront of innovation in Australia (and moves in the right circles). I know that you are a person with a genuine passion to bring about change (and worked extremely hard last year to try to make that happen). What I can’t understand is how over-complicated and drawn-out this process has become. And when did it get so ‘cloak and dagger’?

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I too agree that grants are important but not the most important thing that government could do.

What small innovators desperately need is metaphorical OXYGEN, including:

- Better access to prospective government customers so that we may showcase disruptive technologies.
- Less negativity from prospects along the line that technologists are just out to “sell” something. Well yes we are trying to sell something, but it’s because experience tells us that there is a market need that we might meet; that is, that someone might need to buy something!
- Government procurement processes that encourage some technological risk taking (or even allow it to any degree).
- Tender specifications that allow for the unexpected in responses (that is, disruptive technologies). Too often, big government IT projects discourage innovation by setting out detailed specs which in effect forbid anything that’s unusual. By forcing innovations out into the appendices of tender responses (“optional features”) when tenderers are competing on price, disruptive technologies are excluded by the rules of the game.

While Cutler and others have said that SMEs are pivotal in the innovation system, I have to say that there is little or no structural recognition of this fact. For instance, there is no way at all for SMEs with their own IP to engage with our two largest publicly funded R&D labs: NICTA and CSIRO.

But what we SMEs need most of all is business! More than any amount of funding, the first customer for a startup R&D business is absolutely priceless. The most powerful stimulus a government could provide might be to create mini-markets with lower hurdles of winning that first modest customer, even in a proof-of-concept mode.

Cheers,

Steve
Lockstep Technologies.

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Jan Bingley Reply:
August 17th, 2009 at 7:10 pm

Hi Steve and other Anthill readers

With regards to your comment that there is no way at all for SMEs to engage with CSIRO, I wanted to let you know that CSIRO has three established mechanisms targetted specifically at SMEs to enable them to engage with CSIRO:-

One: via the SME Engagement Centre http://www.csiro.au/solutions/SMEEngagement.html
This centre was established to assist SMEs navigate their way through CSIRO or indeed the rest of the Innovation Sector so they can obtain research services/ collaborate/partner or receive general advice or support.

Two: via the AGP Program http://www.csiro.au/partnerships/AGP.html
This program was established two years ago to provide funding to qualifying SMEs to assist them with acquiring research services to enhance their existing IP or develop new IP. The funding is provided with expectations of a return however the terms are matched with the SMEs business and funding models.

Three: via the Australian Biotech Growth Partnerships http://www.csiro.au/resources/Biotech-Growth-Partnerships-Info.html
This program is similar to AGP above – that is adopts flexible business models to allow SMEs to engage with CSIRO to access research services and innovation, however is targetted at the Biotech sector.

The three programs above form the central part of CSIRO’s strategy to engage with SMEs as flexibly as possible and all three programs have had a great deal of take-up by the Australian SME sector.

Jan Bingley
General Manager, IP, Licensing and Technology Transfer Support
CSIRO

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Stephen wilson Reply:
August 18th, 2009 at 6:47 am

Thanks Jan.

To clarify, the type of engagement I am looking for as an innovating SME is to find a commercialisation vehicle for *my* IP. The engagement offered by CSIRO’s SME Centre and AGP is all about delivering CSIRO’s IP outwards to SMEs. I know of no conduit for externally generated innovations to be evaluated, qualified and thence brought into CSIRO or NICTA for commercialisation.

Perhaps the CCI will be the right type of vehicle.

Cheers,

Steve Wilson
Lockstep Technologies.

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Hi James, this is a very good topic for ‘innovation’ debate in Australia. I am a great supporter of ‘by business for business’. This is why i started InnoFuture conference and the resultant InnoFuture Momentum network for Australian innovators to get access to the best and, importantly, diverse thinking about innovation and to be able to connect in discussions and pursuit of excellence.

Two issues bother me:
1. Commercialisation: In the whole discussion about commercialisation, as a marketer, i ask: what happened to market insights? Why does ‘commercialisation’ arise as a separate box, totally detatched from insights? If we are innovating with a purpose/identified need in mind, commercialisation should be a natural step in the process of marketing communication and strategy. The only place where i see ‘commercialisation’ possibly standing alone and naked, waiting to be given some marketin clothes, is when an accident happened in a lab and a ‘eureka’ moment was had by some scientists where they discovered something remotely or greatly useful and now need to find where the market is that can use the stuff. Have we all forgotten that the role of markeeting is to discover customer needs and tell them about our solution to those needs? Or has marketing been also degraded to ‘flogging’ things that have been thoughtlessly made without any prior purpose. Or, maybe, we need to go back to ‘innovation 1.0′ which tells us that ‘need is the mother of all invention’?

For the past three years through InnoFuture i have been showcasing business innovation models, which tell us how to go about generating good ideas and creating cultures in organisations that think creatively about solving emerging customer/world’s problems. It is all about thinking holistically about the problems we keep creating as a humanity. The rest should be marketing 1.0.

2. Government role in innovation: While government grants are great for those select who managed to get them, it is a wrong approach. It is a classic case of ‘giving the poor a fish instead of a fishing rod’. Where the government should extend its magic mantle, is promoting knowledge, opening all stops to create access for small businesses to learn how to create markets and working with existing good business forums to facilitate access to knowledge. Every small and medium business should be able to tap into colelctive thinking and experience of great Australian business forums (like InnoFuture). We cannot rely on Government ‘honeymoon’ handouts any more than we can rely on the size of our local market to support even the best innovation efforts. Australia needs to start thinking big and bring the world closer to us, while at the same time we need to put higher value and respect on our national and natural heritage. National pride/identity is an important part of the innovation solution and future success on the global market.

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i like Kim Karr. He recently gave us $64k COMET for an innovation.

It’s not a lot but will keep the lights on for a while. Would have gotten a lot more from the defunkt Commercial Ready grant. R&D Tax grant is a huge help for us.

will watch this space for any progress from CCI, but i agree that such grants are no substitute for private-sector investment. (they just extend timelines a little between funding rounds)

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There is no need for the government to allocate any money for innovation. Here is a system that will foster as much innovation as we can handle for no cost to the government except the exercise of a little innovation.

The government provides a place for organisations to register innovative projects and to describe why they are innovative, how it is going to make money, etc. That is let people put up business cases and they are approved by a “vote” from the general public or by a committee that evaluates them or by Anthill readers. That is, someone says – yes that idea is innovative and can appear on the website. Anyone can also appeal against projects on the grounds that they are not innovative but they must give reasons why they are not innovative.

The government now permits banks to give zero interest loans to investors who can use the loans to invest in any of the approved projects. The loan conditions are:

The investor puts down a 10% non interest bearing deposit to get a loan of 100%.
The investor must invest the loan in any of the innovative projects.
The investor must agree to pay back the loan from earnings from the innovative project.
The bank gets to keep 5% of the non interest bearing deposit when the loan is paid off.
The investor gets back the other part of the deposit.
Loans when on deposit attract no interest.
Loans cannot be used to purchase existing assets (like another company)
Any project that gets the money must report to the investors on a monthly basis the state of the investment and any money given back to investors must go to paying back the loan first and not go to investors.
If the investor sells their share of the investment they must pay back the loan.
Anyone who goes against the spirit of the scheme and tries to divert the investment to projects or uses other than the advertised project will banned from ever getting another zero interest loan and forfeit their existing loans and deposits.
Any director of any company that goes against the spirit of the loan agreements will also be banned from ever participating either in putting up projects or getting loans.
The Government agree that banks who give such loans are not liable for the money created from the loan. This means that banks do not have to show the loan as a liability to the bank as required by legislation. Another way of saying this is that the money created by the loans is guaranteed by the government. (As from last year the government already guarantees bank deposits so this is not something new). As this money is newly created credit money and as it does not generate interest or earn interest and as the bank does not have to have balancing assets then it costs the bank “nothing”.
Banks will charge transaction fees and they have to report on the status of the loans and the projects to the government.

If loans are never repaid and the project is a failure then this means the fiat money supply has increased. If the loans are repaid and the project earns more money than expected then the fiat money supply also increases. Provided the amount of money increased via successful projects minus the amount the money supply increased via failed projects then there will be no increase in inflation.

As everyone who understand this system will want to get some of these zero interest loans it is proposed that the government issue the right to get zero interest loans and give them equally to anyone in Australia who registers for a loan. The right to a loan will be saleable. As a starting point it is suggested that the government issue everyone in Australia the right to a maximum of $1000 of loans. That is if everyone takes up their loans then that will be $20 Billion dollars available for innovation for no cost to the government.

My innovative project that I will put up on the website is a company that will build systems that enable banks to administer such loans and also build the infrastructure for the government to run the website and to monitor the overall innovation project. The company will earn money – like the bank – from transaction fees. I will seek investment to build this system and what you get from your investment will be revealed via the innovative projects website. However, anyone who wants to invest in this company before it is listed can contact me. It is intended to get most of our investment by buying the right to loans rather than direct equity investment.

The same system can be used to fund any investment. It is suggested that the government set up another set of zero interest loans for projects that will result in the reduction of green house gases in the atmosphere. The conditions of the loan are slightly different from above but the principle is the same. If the government issued the right to get a loan of $1500 for ghg reductions to every person in Australia for the next ten years then we can confidently say that Australia will have zero net emissions by 2020.

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As a startup looking for funding we appreciate all of the above. Our feeling is that culturally, Australians generally are still too risk averse when it comes to backing new ideas. Until we change this, I don’t think we will really solve the problem. We need to make early stage investment attractive and de-risk it for potential investors. There are plenty of ideas out there – they just have trouble getting the backing they need.

What about something like creating really massive tax offset incentives for early stage investment into start-ups for investors etc? What about a scheme for government matched funding for when angel/high net worth individuals invest in a company? Could this too easily be exploited? (not sure if these schemes already exist so please forgive my ignorance)

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I agree with Margret Manson that private enterprise should fund business start-ups and innovation. Public servants by in large have had little experience in business and consequently cannot relate to their problems and needs. There’s also a fundamental reluctance in us all to want to assist a business, in which we have no commercial interest, to be successful.

From my experience over several years, with the old Commercial Ready Program, there was a whole industry, both public and private, that developed around it. Workshops, training courses and networking events flourished. That is, just about everything, other than real help to directly access funding.

As well, most of these events attracted large numbers of consultants, wanting to profit from providing services to start-ups, with relatively few innovators and start-ups. When seeking funding, businesses can ill afford to waste time and money on unnecessary events and many of the consultants that frequent them.

Also, from what I’ve seen, Governments, both State and Federal, are quite risk averse when it comes to handing out money. Many past recipients, were already successful enterprises, and thus quite capable of funding their own innovations and ventures. Successful companies already have in-house resources to devote to sourcing and managing government funding.

I have thought for a number of years, like has been said by previous respondents, Richard Wraith and Kevin Cox, what would do most assist innovators/startups like us, would be to have ideas and/or technologies assessed, verified and validated by some recognised authority, like a University or Government Body.

If innovators and start-ups could submit technologies and/or business cases, in confidence, for evaluation and recognition of commercial and revenue potential, attracting private venture capital funding would be a lot easier, even in a risk adverse environment.

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G’day all (a gorgeous morning coming-up over Melb, btw)

Thanks James – good forum you’ve kicked-off here and yes, the esteemed Mr. Lewis’ call *is* catchy and presents with it an underlying disturbing element – the basic premise of which (as I see it) is this:

- Government identifies that innovation is the key to Australia’s mid-long term survival (Agreed – it certainly ain’t in flogging off natural resources, irrespective of how ‘innovatively’ this might be undertaken).

- Government allocates a healthy sum of cash to help seed Innovative projects (While agreed that Gov support shouldn’t replace investment dollars, investment dollars in such a risk-adverse space are hard to come by, so … Yippee! At least some support dollars are better than none and they can get the wheels moving if managed properly).

- Government then presents itself complete with commercialisation experts. (Eeeek! Brendan’s alarm will be justified if careful consideration is not given to whom those are who determine which of the submissions get support and which do not).

It is possible, of course, to have business savvy individuals working with -or for – Government to help give advice for where opportunities lay and which of the tenders put to them are most likely to succeed in the commercial world, but one would have to think that those who are best at business are in business, not Government. It’ll just boil down to who makes the calls and how business savvy they really are.

I too have been intrigued by how the Dept of Innovation plan to tackle the ‘under-investment in innovation’. Happily, I’ve been invited along to a workshop this morning in Melb by the Dept of Innovation where – so I understand – they’ll be presenting their thoughts for our comment.

I imagine I’ll have something to contribute back to this forum later today.

Until then…

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Brendan Lewis and James Tuckerman’s remarks have real resonance.

It is clear the government (and by govenment I mean not only Min Carr but the mostly the bureaucrats) has no real understanding on innovation as a driver of growth. I suspect “Innovation” is just this goverment’s buzz-word-of-the-moment version of Richard Alston’s Digtal Economy hot sauce that became NOIE

I’ve got to say that any company in small business with an R&D base, reagdless of the industry, is not lacking in “innovation” – they must be rolling in it otherwise they would be out of business. Innovation tends to be stifled where oligolpolies rule not where start ups play – and that’s why we are so far behind the world in innovation in our retailing industry or pharmacy industry for example and why start-up companies such as 4 yo old Springsource can be acquired or for USD$420m by VM Ware.

And that’s why I am amazed that the Government continues to seek advice from those people who would not appear to know innovation from an endoscope.

Proof 1: the word from the COMET Advisors, AusIndustry and other govt money dispeners is that they are all being interviewed by the govt and asked what the new Commecialisation Institute should actually do (lets not forget that we already have a perfectly good – and very good – privately funded Institue of Commercialisation based in Queensland). ($5 will get you $10 that they will appoint some bureaucrat or old warhorse to head it up – ie someone who hasn’t actually commercialised anything since the dinosaurs rueld the Earth)

Proof 2: Have a review of the list of the 24 appointees to the Government’s new “Information Technology Innovation Advisory Board” ( http://minister.innovation.gov.au/Carr/Pages/ITINDUSTRYINNOVATIONCOUNCILMEMBERSANNOUNCED.aspx). Clearly an exercise of choose the right State, the right sex and the right profile and ignore the relevance.

If you remove the bureaucrats (with MBAs – who don’t actually innovate but write reports about it), the academics (who tend not to innovate but write reports about it), the ‘its my turn now’ CEOs of local multinationals (who tend to stifle innovation in local industry in case it competes), the investors (who are well known in industry to only invest in safe companies not innovative ones as its too risky), and the various union and association reps (who can’t get a job with an innovative company), you’re left with maybe 6 people, ie ONLY 25% WHO HAVE ACTUALLY MADE SOMETHING INNOVATIVE AND ACTUALLY SOLD IT.

Proof 3: Same goes with the Innovation Australia (this time in AusIndustry http://www.ausindustry.gov.au/InnovationAustralia/Pages/InnovationAustralia.aspx – basically the old IR&D Board but everyone’s jumping on the ‘Innovation’ bandwagon, probably to get Govt money) – another sex/state/industry selection – and a motley crew of worn out lawyers, investors and professional Directors. Don’t believe it – check their CVs. What would they actually know about hands on innoivation at the SME scale?.

So a call to arms my friends – where are the CEOs and founders of the innovative and succesful australian SMES ? Lets band together and tell the government that what they are doing is simply not what the Industry needs. We need godo avcie form expericned exporters, we need good market feedback from the market insiders (whos doing what to whom in silicon valley), we need a simpler, easier and more supportive financial R&D support system, we need access to cutting edge tools and breaking information…. and the list goes on

I’d love to see representatives from some of the profitbale and innovative companies come forward and tell the Government it like it really is rather than the same old bunch of out of touch academics IP lawyer, investors and bureaucrats

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Stephen wilson Reply:
August 18th, 2009 at 11:53 am

I came forward on ‘what it’s like to be an innovating SME’ in my submission to the Innovation Inquiry last year: http://www.innovation.gov.au/innovationreview/Documents/651(L)-Lockstep_Technologies.pdf

To reiterate a couple of points in my submission (amplifying that what SMEs need most is early customers, not just cash):

‘At present, the only access that small innovative companies have to government as potential customer is through tenders in which we play small and largely ineffective roles under large prime contractors. We need to sell our proposition first to the big players, in the context of a tender that normally has already been frozen. This curtails our ability to demonstrate something innovative and unexpected to government.’

And

‘We wonder if a fraction of the infrastructure and resources of NICTA could be applied to seeking out, evaluating and incubating intellectual property originating from Australian SMEs. We appreciate that this might represent an extension to NICTA’s mission, but as an existing concentrated engine room of commercialisation, it seems like a logical place for an IP clearing house that could help progress innovations by way of extra prototyping, bench testing and the like, and showcase them.’

Cheers,

Steve
Lockstep Technologies.

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Raymond Hardy Reply:
August 18th, 2009 at 12:06 pm

Steve, I agree wholeheartedly. Its not just the money.

I also feel that we really need information from the front lines – the silicon valleys of this world etc with market info – scuttlebutt from the streets on deals, investments, competition etc, rather than Austrade charging us $220 for some market research

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The underlying problem with funding innovation is the bias in the way the financial system works. The financial system is geared to the preservation of assets rather than the generation of new assets.

Let us assume we have an old business using an old technology that has no debt. That business can sell its goods cheaper than a new business using a new technology that has debt and repayments even if the new technology produces a cheaper product because the new technology has to support debt and interest.

It is even worse than this because the businesses with old technology that have the funds to invest in the new technology will not do so while ever it is making money from the old. This is the fundamental problem with Telstra and the introduction of broadband and is the reason why it is so hard to get renewables to compete with burning fossil fuels. To read more about this read “The Innovators Dilemma”.

This is the reason that will never have innovation flourishing until this bias is eliminated. This can be achieved by finding a socially acceptable and financially sound way of funding new assets. This can be done with zero interest loans as previously suggested.

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Hi Kevin (and others),

I fully agree with your statement regarding the bias of established players with regard to the preservation of the status quo. Again as a start-up, this is exactly the same “resistance” and mindset we also receive from the market when we propose a new innovate solution to the age old problem of micropayments.

Regards,

Harold

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James,

I think an important step in creating an early stage capital market is to establish the framework for early-stage entrepreneurs and investors to get together. It is then necessary for capital supply to be supported by a well developed management support programme to ensure there is a good chance of success and a reasonable return to investors on exit.

Innovation Australia started the process by introducing it’s ESVCLP program. This program provides incentives based on success rather than “on the way in”. Perhaps the other ideas suggested could be considered in the context of this program.

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