A year is a long time in a start-up
We entered 2016 buoyed by the Federal Government’s Innovation Agenda (announced on 7 December 2015). The year that followed was extraordinarily unpredictable – our election/Brexit/Trump. It was expected that the visionary long-term innovation plans would be stymied by a lack of consensus in Canberra following the Federal election.
This article quickly considers the year that was. Start-ups are full of surprises – some great, others not so.
Research and development reductions
The Government’s backpedal on R & D expenditure was a surprise. Substantial budget cuts, reducing the incentive from a total of $2B to $600M, were a harsh blow to the start-up community in 2016.
StartupAUS has been lobbying for quarterly refunds of the payable incentive to provide much needed cash flows during critical development stages. This is a would-be gamechanger, but it does not appear to be on the Government’s agenda at present.
‘The Incentive offers immediate assistance to innovators, but also provides a longer-term benefit through the spillover of knowledge gained from R&D and the flow on effect that has on the broader economy. It is estimated that for every $1 of tax foregone under the Incentive, at least the same amount or more is returned in taxes later on.’ – KPMG Partner David Gelb and Director R & D Incentive Georgia King Siem ‘Incentivising Innovation: The Broader Equation’, (2016) KPMG, 2.
The 1 July 2016 investor tax incentives, which included increased tax exemptions for venture capital limited partnerships and new start-up tax offsets were a welcome win.
The tax offsets introduced a 20% non-refundable carry-forward tax offset (capped at $200,000/individual/year) and a 10-year capital gains tax exemption on investments held for more than 12 months. Eligible small to medium-sized enterprise (SME) must have less than $1M annual expenditure and $200,000 income. foundU’s first round investors have been able to take advantage of this incentive.
Government ICT contracts for start-ups
Historically SMEs have been overlooked in favour of larger players.
The Government’s Digital Marketplace has offered about $15M worth of business projects to innovative start-ups. $15M is 0.25% of the Government’s $5.6B ICT spend (2014-15). A step in the right direction is the target of 10% announced by Angus Taylor MP (Assistant Minister for Cities and Digital Transformation).
‘To do it well, the government will need to make sure it is open to risk, and will need to be comfortable dealing with young fast-moving companies.’ – StartupAus chief executive – Alex McCauley
Other Innovation Agenda news from 2016
- The new Entrepreneur visa to allow entrepreneurs with more than $200,000 in funding from a specified third party to commercialise ideas in Australia was introduced on 10 September.
- The Bill passed to create Innovation Australia, the body tasked with overseeing the Innovation Agenda implementation process, was passed on 13 October.
- Applications for the Business Research and Innovation Initiative, which provides an opportunity for start ups to access $1M for business research challenges, closed on 30 November.
- Equity crowd funding regulations were brought into Parliament at the end of November after several revisions.
- Insolvency law reform measures, which includes allowing start-ups with sound business models more leeway to trade while insolvent during critical phases have reached the submissions stage in Parliament.
- Submissions for the employee share schemes plan closed in December.
The foundU view
foundU has been following the Innovation Agenda rollout closely. In a perfect world, we would love to see the Innovation Agenda reforms implemented overnight. If 2016 taught us anything it is that the world is far from perfect and very unpredictable – much like a start-up.
Steps in the right direction will get you to your destination and it is often unlikely to be as quickly as you would like.
The team at foundU wishes you all the best for the festive season. Rest, relax and re-fuel for more steps in 2017.