Time to ‘tap into super’ to back start-ups, say tech leader

What’s wrong with tapping into super to trigger the tech boom? We need to find more money for R&D through novel sources of funding.

Damian Kassabgi, CEO The Tech Council.

As we saw at the Paris Olympics, Australia punches above its weight when it comes to sport. Encouragingly, we’re also making inroads as a serious competitor in areas of industry, including the tech sector.

Over the past decade, there has been a significant increase in venture capital investment in Australia’s tech sector. This increased 18-fold between 2014 and 2022, enabling more tech companies to grow and thrive in Australia.

While Australia lags on early-stage tech funding compared to other countries, we are on track to catch up to the US by 2030 on a per capita basis. When it comes to leveraging tech to harness broader productivity gains and the ability to fund our later-stage companies, however, we are in danger of being left behind.

While many emerging tech companies focus time and effort in attracting investment at the start-up stage, Australia underinvests in tech beyond Series B funding compared to our global competitors, hampering the ability of emerging tech companies to scale.

It’s critical for tech start-ups and, indeed, policymakers to understand later-stage funding for Australian tech companies is not a “tomorrow problem”. If these companies cannot scale from Australia, they either won’t survive or won’t stay – and both are lost opportunities for our country.

Similarly, there is an opportunity to work smarter and take advantage of the productivity gains offered by tech adoption in businesses across the economy. This means ensuring we are growing a workforce with the skills to adopt and build emerging tech.

Better tech adoption can make our businesses more successful. ASX200 firms that invested in innovation were more likely to survive and grow than average firms based on data from 2005 to 2016, and small businesses that accelerated their tech adoption grew revenue more than other small businesses, according to analysis from AlphaBeta and the Office of Innovation and Science Australia.

Faster tech adoption can also make our government services more cost efficient, saving taxpayers $12bn over 10 years through reducing cost-to-serve, and a further $3bn from improved cyber resilience, according to research from Mandala.

Increasing tech adoption will require the tech sector, government and business community to work together. As the tech sector, we need to thoroughly understand government and business barriers to adopting new technologies. Government needs to ensure policy settings encourage tech adoption, including support for measures such as employee training. The Australian business community will need to invest more in technology and think differently about risk.

We also require a greater focus on investment in R&D to ensure businesses are working smarter. This will increase our global competitiveness and improve national productivity. According to the CSIRO, every dollar invested in R&D creates $3.50 in economy-wide benefits. However, Australia underinvests in this space, spending only 1.7 per cent of GDP on R&D. This equates to just 60 per cent of the OECD average of R&D investment, at 2.7 per cent of GDP.

This has become a somewhat systemic problem. Australia has invested less than the OECD average for the past 30 years (except in 2008) when R&D is measured as a percentage of GDP.

Raising investment in R&D will require work from both business and government. To meet the OECD average, Australia would need to lift the business component of R&D by 1.1 percentage point and the government component by 0.1 percentage point, based on 2021 figures. This is equivalent to more than doubling business R&D investment and increasing government R&D investment by 50 per cent.

To achieve these outcomes, the tech sector in Australia needs patient, long-term investment. This is particularly the case for deep tech. Australia is at the forefront of quantum research and development, which has made the need for access to capital even more critical.

While some government reforms, such as dedicating funds from the National Reconstruction Fund to growing the tech sector, have been a step in the right direction, other sources of capital need to be leveraged.

One area of untapped capital investment is superannuation funds. Australians have more than $3.8 trillion in super funds. They could be a significant source of funding for tech start-ups and scale-ups, especially if investors understand the amazing growth potential afforded by our emerging tech sector. Government policy should play a role in encouraging super funds to invest in long-term, high-performing sectors such as tech. Reforms that only measure short-term gains tend to deter investment into tech; however, the long-term nature of superannuation investment is particularly congruent with the ongoing capital and scale-up lead time needed to build successful tech companies.

While some baulk at the idea of using super as an investment vehicle for tech development, the example provided by world-leading tech start-ups founded right here in Australia – companies like Atlassian, Canva and Paytron – illustrates the potential opportunities. We know that if just 1 per cent of superannuation was invested in tech and innovation, it would inject more than $30bn into the ecosystem.

The race to the podium as a global tech hub is continuing at pace. If Australia wants to remain a frontrunner, we need to look at new ways of fostering start-ups and scale-ups with ongoing investment to ensure they’re able to go the distance.

Damian Kassabgi is the chief executive officer of the Tech Council of Australia.

EMBARGO FOR INNOVATORS, 18 OCTOBER 2024. Innovators List cover, featuring William Jeremijenko and Ruby Jones of Aquila. Photo: Nick Cubbin