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Don't believe the gloom on government support for start-ups

Tuesday, 12 June 2012 | By Michael Fox

There have been numerous articles and blog posts recently lamenting the lack of government support for Australian start-ups.


In our view, nothing could be further from the truth:


1. There is very little bureaucracy involved in starting a business in Australia


To start a tech business in Australia all you need to do is:

  • Register a business name. The new national business name register just made this process even simpler.

  • Choose a business structure, most likely you'll choose to set up a company.

  • Register a trademark. IPAustralia has a trademark headstart program which makes this process fast and easy. We could have avoided some hassles had we done that when first registering the trademark Shoes of Prey!

  • Register a domain name. It's a simple process to register both .com and .com.au domain names.

2. Research and Development (R&D) Grant


The government provides an amazing benefit to tech start-ups undertaking R&D work in the form of the R&D Grant, and the program was improved starting from the 2011-2012 financial year. Under the recent changes, we now receive a cheque from the government at the end of the year giving us back 45 cents in the dollar for all the R&D expenditure we've undertaken during the year! In 2010-2011 we received back $20,661.51 and this year the figure will be significantly higher.


The cashback component applies to businesses making a loss, which most tech start-ups will be. The benefit comes in the form of tax credits for business making a profit. To receive the 45 cents in the dollar back you forgo the future tax losses on your R&D spend, equivalent to 30 cents in the dollar but you're getting more than that back and, more importantly, you're receiving it back sooner and as cash – exactly what a start-up needs to help get its business off the ground.


The R&D grant is designed to encourage investment by Australian businesses in R&D, and it works. Knowing that we'll receive this money back at the end of the year allows us to invest more in R&D than we would otherwise and has allowed us the luxury of hiring more software engineers to experiment with new projects than we could afford to otherwise.



Image credit.


3. Export Marketing Development Grant (EMDG)


Small to medium Australian businesses who export product overseas are able to claim the EMDG and receive 50 cents in the dollar back on their overseas marketing spend. Two thirds of Shoes of Prey's sales are to overseas customers, and we invest in AdWords, Facebook, PR and other marketing activities to promote our product to overseas consumers. Last year, we received $38,825.40 back from the government as part of this grant and this year it will be significantly higher.


The EMDG is designed to encourage and assist Australian businesses to export their products and for us it works. We're able to make export marketing investments we would otherwise not be able to afford.


4. Commercialisation Australia


Commercialisation Australia is a program established by AusIndustry to assist early stage businesses develop and commercialise their products. Four different programs are offered:

  • Skills and Knowledge - Up to $50,000 to access specialist advice and services
  • Experienced Executives - Up to $350,000 to engage a CEO or other senior executive
  • Proof of Concept - $50,000 to $250,000 to prove the commercial viability of new IP
  • Early Stage Commercialisation - $50,000 to $2 million to take a new product, service or process to market

Commercialisation Australia funds a percentage of the money spent on each of these activities. For example, for the Early Stage Commercialisation Grant the program funds 50 cents in the dollar of the money the company spends on commercialisation activities.


Now that we've raised $3 million, we've applied for an Early Stage Commercialisation Grant to help us scale our operations and international distribution channels. We find out in late June whether we've been successful.


5. 66 Oxford St. Darlinghurst, Sydney

The Sydney City Council own a building at 66 Oxford St. that is apparently earmarked for renovation or demolition, so finding a long-term tenant to lease the space wasn't going to be easy. Rather than leaving the building vacant, they opened it up for creative and technology businesses to use it as office space, for free! Numerous tech start-ups have based themselves out of there and the project has gone so well the council is looking into opening two more spaces on William St. Darlinghurst for the same purpose.


6. Support for Venture Capital


The government is aware that venture capital for start-ups in Australia lags behind other countries, particularly the United States. A number of government programs are designed to help encourage and grow the ventures capital industry in Australia. One of the best is the Innovation Investment Fund (IIF) where a venture capital firm can have the funds they raised matched dollar for dollar by the government. One of our investors, Southern Cross Venture Partners has an IIF backed fund (though this isn't the fund that invested in Shoes of Prey).


With these programs on offer a tech start-up can quickly, cheaply and easily set itself up, gain free office space in inner city Sydney, raise capital from an IIF backed investment fund then have 45% of their R&D work funded, 50% of their overseas marketing costs funded, and have other parts of their business, like early stage commercialisation activities 50% funded by the government as well.


That's an incredible amount of support for Australian start-ups.