Australia must use Covid to embrace reform, says venture capitalist Paul Bassat

Square Peg co-founder Paul Bassat says Australia risks becoming branch office economy if it fails to grasp unique opportunity.

Paul Bassat. Picture: Aaron Francis

One of the nation’s top venture capitalists says Australia risks becoming a branch office economy if it fails to grasp the once-in-a-lifetime opportunity presented by the Covid pandemic to make radical policy changes to set the country up for growth through the next decade and beyond.

Warning that Australians were currently sitting on “a slow-burning platform”, Square Peg Capital co-founder Paul Bassat said the nation was failing to embrace quickly enough what the post Covid-world would look like in sectors such as education, healthcare, retail and financial services.

“The single biggest obstacle is that things are pretty good in Australia. I sort of feel we have a slow-burning platform. I do think that across the board, there is a lack of understanding about how the world is changing. It feels like we have lost a bit of our appetite for really driving change,” Mr Bassat told The Australian.

“Our education system feels like a 20th century system for a 21st century world. What has happened as a result of this dramatic period of change during Covid is CEOs and entrepreneurs can re-imagine what the post-Covid world should look like. The bear case for Australia is that it becomes more of a branch office. Decisions are made out of different markets and the best jobs are overseas.”

Mr Bassat’s comments follow a recent survey by The Weekend Australian of chief executives of more than 80 of the nation’s largest companies that found all were pushing for reforms to tax, industrial relations, education, childcare, aged care, infrastructure and skills development in the post Covid-world.

Business Council of Australia president Tim Reed has challenged governments to leverage the spirit of collaboration fostered during Covid to introduce productivity-enhancing reforms that will accelerate real-wage growth.

Mr Bassat said the politics of reform were now “demonstrably easier than a year ago”.

“There is a much greater openness to change in the community. To say ‘Let’s try to do things better, let’s have a long-term focus’. Political leaders have more authority than they have had for some time. If you look at how Australia has responded to Covid, we’ve seen a much more common approach than we have seen out of America,’’ he said.

“Covid demonstrates that we as a society are prepared to make sacrifices for the common good. You can harness that mindset, that kind of buy-in from Australians. I’m not suggesting we take our eye off the ball when it comes to Covid. But Covid has illustrated our ability to achieve pretty amazing outcomes when we get galvanised behind a goal.”

The federal budget introduced accelerated depreciation schedules for big capital investments, from which the government is hoping to stimulate $200bn in business investment in new machinery and equipment.

It hopes this and other tax measures will boost the economy by $12.5bn over the next two years and create an extra 50,000 jobs.

Mr Bassat, who is also an Australian Football League Commissioner, said while some CEOs had been very clear in their narrative about having a vision for long-term growth, for most of the S&P/ASX 200, the focus was still simply on short-term profitability.

“The higher dividend payout ratio the better. That is another example of where policy gets in the way — our dividend policy means shareholders demand payouts. These companies are caught in a trap because the market expects them to continue to deliver short-term outcomes,’’ he said.

Mr Bassat, who co-founded online employment giant SEEK with his brother Andrew in 1997 and served as CEO and then as joint CEO from 1997-2011, also served as a director of Wesfarmers from 2012-2018.

However, he said he would not be returning to public company boards in the future.

“If you think about the role of a director, there is an operational piece, a strategy piece and a governance piece. In a young early stage company, the largest amount of time is focused on the first two. That is the stuff I really enjoy,” he said.

“In a public company board there is more focus on governance and that is something less suited to my skills set. I loved my time at Wesfarmers. But I am passionate about getting involved in companies pretty early in their journey.”

Square Peg Capital, which invests in early stage companies largely focused on technology, last month closed a raising for its fourth fund at $600m, with backers including Commonwealth Bank, industry super fund Hostplus and Sydney investment firm Roc Partners.

Mr Bassat said Australia should be applauded for producing global technology winners such as software giants Atlassian and Canva and buy-now, pay-later juggernaut, Afterpay.

“But we need to produce more and more of these companies. The most important element is having more and more amazing people start these businesses. We need more and more of the smartest people saying, ‘I am going to solve some of these global problems using software. I am going to build these businesses from Australia’,’’ he said.

“The amount of talent in Australia that says ‘I want to start big globally relevant businesses — to say I want to be the best in the world at what I do’, that has changed dramatically in the past 10 years. We are seeing many more talented founders.

“We are good in this country saying we are going to build a great infrastructure project. We need to have a similar mindset in relation to our intellectual capital.”