Over the weekend, the Federal government announced another funding round of AU$350 million that will flow through its Innovation Investment Fund (IIF) and trickle through venture capitalists to startups. While any funding is welcomed by startups, some feel that the government is throwing buckets of money at the wrong problem.
Speaking to ZDNet, Roamz Founder and CEO Jonathan Barouch said that it was positive that startups were becoming an important focus of the government, but said that the funding was "too little, too late".
"The reality is, in the US, $700 million is one single, late-stage round for a technology company," he said.
"I think they'd be far better off working out other ways of unlocking venture capital, of getting wealthy individuals into Australia, and to help mentor the next wave of entrepreneurs."
Barouch argues that the Federal government shouldn't be trying to fund winners, even if it is via VCs that have more experience picking good bets, but to concentrate on encouraging private investors to help out startups earlier.
"What you really need to do is allow investors to have favourable treatment if they're taking risks and betting on Australian companies that are going to grow in the future," Barouch said.
"One way you might do it is ... if an angel invests in a startup on day one, write off the full amount of the investment. You put $100,000 in, and you get the equivalent of a $100,000 tax reduction."
There's too many companies in Australia that are failing simply because they ran out of money. That's not something you would see in the US.
Pollenizer, an online venture builder that helps grow startups in Australia and the South East Asia regions, has a similar line of thought. Its CEO, Phil Morle, told ZDNet that there's a gap in the startup lifecycle where entrepreneurs are left exposed in the lead up to when they are actually in a state to apply for venture capital.
"There is a gap, which is funding companies while they're discovering themselves and understanding what they are, and there's too many companies in Australia that are failing simply because they ran out of money. That's not something you would see in the US," Morle said.
He too wants to see private investors given greater tax breaks if the current funding situation changes; for example, due to a change in government after the next election.
"I'd definitely want to see private investors given some sort of tax concession for taking an interest in and financially, or otherwise, supporting early stage companies that need a yank up," he said.
"Our community has lit up a little bit this morning because there's been some references in the media to the fact that there's been some tax concessions for angel investors, but no one is quite clear on what that is."
Morle is referring to the Gillard government's Plan for Australian Jobs (PDF) announcement on the weekend, which promises new venture capital tax arrangements.
"Changes to venture capital tax concessions will provide incentives to private investment in startups, and help Australia to be a competitive destination for investment capital," the Minister for Innovation and Industry Greg Combet said in a statement.
The plan states that it will "improve tax treatment for private sector investors, and to facilitate increased investment in venture capital by domestic and foreign investors, managed investment trusts and 'angel' investors", much like the concessions that Morle and Barouch are arguing for.
But the new tax arrangements are actually enhancements to the existing Early Stage Venture Capital Limited Partnerships (ESVCLP) and Venture Capital Limited Partnerships (VCLP) programs, the new, full details of which are not yet fully available on the Department of Innovation's website.
What is known so far is that changes to the ESVCLP program will decrease the minimum investment capital required from $10 million to $5 million. In contrast, Pollenizer, which focuses on helping startups that fall in the "gap", raised $1.1 million from investors recently and has high hopes of being able to use just that funding to reinvest in its existing portfolio of startups, while generating new ones.
The known changes to the VCLP program are intended to make foreign investment more attractive, but still maintains the $10 million minimum.
At the ESVCLP stage, the risk has gone and you're basically asking for growth capital for something that is already proven.
Neither of the programs in their known state address the issue of bridging the gap, according to Morle.
"The gap is in how do you fund a business prior to the venture capital stage, where all of these initiatives start. The argument can be that at the ESVCLP stage, the risk has gone and you're basically asking for growth capital for something that is already proven."
Shadow Innovation Minister Sophie Mirabella has also expressed her frustration at the lack of clarity around the proposed tax breaks, and would have to wait until the proposals are formalised before assessing it.
"We will assess any detailed proposal and the bills presented to the Parliament, but at the moment, the funding basis for the Prime Minister's package is unclear and creating confusion. The Prime Minister needs to release and explain the financial modelling used for all the promises made in the package," she told ZDNet in a statement.
In the meantime, Barouch warned that if Australia doesn't pick up on the opportunity it has been handed, it could miss it altogether.
"We've got a huge opportunity. We're right next to countries where the internet is exploding, and smartphones are the first taste of the internet all across Asia. We'd be kind of silly to go from the mining boom to nothing when there's clearly a tech boom happening, and Australia's in a wonderful position to capitalise on it."