Australia scales back start-up funding schemes

Commercialisation Australia, a grants program for start-ups, has also been axed and the federal government will no longer provide funding for National ICT Australia, an information and communications technology research institution.

The cuts, revealed in the 2014-2015 federal budget, are part of plans to deliver annual savings of A$845.6 million ($795 million) over a period of five years. The government also intends to reduce R&D tax incentives, delivering cash gains of A$550 million. The broader goal is to generate A$39 billion through savings and new revenues.

The Australian Private Equity & Venture Capital Association (AVCAL) criticized the budget for failing to set out a longer-term vision for the economy but instead focusing on short-term solutions of deep spending cuts.

"Abolishing the Innovation Investment Fund represents a major set-back to Australia's capacity to foster a stronger venture capital industry that can drive businesses in the new corridors of economic growth for our future," Yasser El-Ansary, AVCAL's CEO, said in a statement.

The Industry Innovation Fund was set up in 1997 as a co-investment scheme whereby the government licenses fund managers and provides capital for investment which must be matched at an agreed ratio by private sector LP commitments.

In February 2013, the previous government said it would commit A$350 million to the fund. The previous round of funding, which took place in 2006, saw A$200 million made available to create up to 10 new funds.

A report issued by AVCAL in 2013 found that VC-backed companies in Australia spend an average 200 times more on R&D per employee than other businesses. In addition, despite accounting for just 0.01% of national GDP, VC-backed companies are responsible for around 10% of overall business R&D expenditure.

New initiatives were announced that are intended to support nascent businesses. A total of A$484.2 million over five years has been earmarked for the Entrepreneurs' Infrastructure Program, which includes a fund that will support the commercialization of ideas, job creation and supporting small businesses.

However, AVCAL noted that this sum is only slightly over half what was previously allocated to various innovation-focused industry programs.

There is also the Medical Research Future Fund (MRFF) will be seeded with A$1 billion from uncommitted funds in the Health and Hospitals Fund. The final target is A$20 billion, to be reached by 2019-2020.

The fund arose from the McKeon Review conducted last year, which found that Australia had strong medical research capabilities but a poor track record in converting this into health and commercial benefits.

Last year, the government also announced that it would contribute A$125 million to the A$250 million Medical Research Innovation Fund (MRIF). The MRIF is modeled on the IIF, with the government providing half the funding and the private sector putting in the rest.

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