'Urgent action needed' to save start-ups

The chair of ASX-listed Catapult says many of Australia’s tech start-ups are headed for bankruptcy due to the coronavirus pandemic.

Catapult Group International executive chairman Adir Shiffman poses for a photo on January 27, 2016 in Melbourne, Australia. (Photo by Wayne Taylor/Fairfax Media)

A new petition is calling on a freeze for proposed R&D tax changes, with Catapult chairman Dr Adir Shiffman declaring that many of Australia's tech start-ups are heading for bankruptcy due to the coronavirus pandemic.

According to Dr Shiffman, start-ups with revenues of less that than $20m are cutting jobs aggressively and urgent action is needed to save these jobs, and stop a large portion of the tech industry from going broke within months.

"The situation has become dire very quickly," Dr Shiffman said. "Balance sheets are always fragile and in the past two weeks many capital raisings that were almost closed have fallen over. Additionally, revenues have plunged as enterprise clients free budgets, cancel subscriptions or simply don't pay bills.

"The major expense these companies have is their people, and every single one of them is being advised to stay alive by cutting costs to conserve cash. So lay-offs have begun and are rapidly gathering steam."

The proposed reforms, which are currently before a senate committee, would bring in a refund cap of $4m and create a tiered system for R&D tax payments, based on an 'incremental intensity' calculation, measured by R&D expenditure as a percentage of total business expenses.

Dr Shiffman said the government should instead freeze those changes and fast track future FY20 R&D tax incentives for companies with less than $20m revenue, paying them in April 2020 and based on a start-up's FY19 claim.

Dr Shiffman has started a petition to that effect, with signatories including Daniel Petre, Atlassian co-CEO Scott Farquhar, Canva boss Melanie Perks and Iress CEO Andrew Walsh.

"Starting and growing a company is certainly hard enough without a global pandemic. We need to do everything we can to help protect small businesses and jobs across Australia during this time," Ms Perkins said.

Scott Farquhar said that as the co-founder of Atlassian he interacts with a lot of founders who depend on the R&D tax concession to pay staff.

"Ensuring that it gets paid early would make a huge difference to many of the best and brightest companies who will thrive at the far end of any downturn," he said.

"Any adjustments can be made once FY20 annual returns are lodged," Dr Shiffman said. "I would also add an extra payment to the first $200,000 to save even more jobs, and given the sudden change in circumstances, I would quickly suspend the current Senate Review into proposed changes to the R&D tax incentive for six months, until we see how COVID-19 plays out. The Senate Committee isn't able to run the public sessions right now anyway.

"This government has been very proactive and fast in taking action focused on averting a dramatic rise in unemployment, and continue to make good decisions. This is an easy decision that Minister Andrews and the Treasurer can make quickly and immediately save thousands of jobs that are on the chopping block right now."

He said if action wasn't taken, the COVID-19 shock risks sending Australia's start-up ecosystem back a decade.

"This is the industry that the next generation of Australians are relying on to help our country move from an exporter of primary resources to an advanced economy exporting IP-based products," he said.

Minister Andrews was contacted for comment.