How to fix Australia’s tech ‘quiet collapse’ and become a smart economy

Tech investment is languishing in Australia and start-ups aiming to make the country smarter are losing out on government cash to bigger companies.

Adrian Di Marco, founder of Technology One, says big companies should not be getting R&D incentives. Picture: Lyndon Mechielsen/The Australian

Australia is missing its chance to become a tech leader with the current investment landscape not designed to back businesses aiming to deliver the so-called smart economy, while start-ups are losing out on government cash to bigger companies.

That’s the assessment of some of Australia’s top venture capital funds and tech entrepreneurs.

Tech investment has “barely budged” since the pandemic, languishing at 1.7 per cent of GDP, prompting the federal government to tap Tesla chair Robyn Denholm to helm a review aimed at overhauling Australia’s research and development incentives.

Adrian Di Marco, TechnologyOne founder, said bigger companies should not be getting R&D grants, which should be reserved for start-ups.

“I can’t believe big companies get R&D grants. NAB, CBA, even TechOne, it’s crazy. You do R&D for the right reason which is it will make you stronger, better, more competitive,” he said.

“I don’t mind R&D going to the small start-ups. That’s essential. And what people don’t realise is that when they take R and D, that should go to the small start-ups, and they give to the big companies, that’s start-ups that don’t get it. They should make it easier for start-ups to access R and D grants, not harder.”

Tidal Ventures managing partner Grant McCarthy says the current system isn’t designed to back the businesses driving that transformation.

Tidal Ventures operating partner Grant McCarthy says governments and superannuation funds can help transform Australia from being reliant on natural resources to value-added tech.

“But the current system isn’t designed to back the businesses driving that transformation. Investment is heavily weighted towards large, low-risk assets like property and infrastructure, leaving early-stage and especially growth-stage tech underfunded,” Mr McCarthy said.

“To change that, we need targeted policies that incentivise the development of core technology and IP, alongside structures like early-stage venture capital limited partnerships to channel capital into innovation and applied R&D.

“With the right incentives, structures, and funding, Australia is well-positioned to lead in vertical AI and deep tech. The opportunity is here — we just need to back it.”

Robyn Denholm is leading a review into government R&D incentives.

Darin Soat, a former investment banker who created the How Money Works YouTube channel, says Australia is experiencing a “quiet collapse”. He said Australia has become “so wealthy by getting lucky in a few key industries and then by going all in on keeping those industries alive by any means necessary – including its own long-term viability”.

Concerns about that viability being undermined further arose when Jim Chalmers visited the US last month and encouraged Australian super funds to deepen their investment in American companies in an attempt to placate Donald Trump and gain a tariff exemption (which failed).

Synchron co-founder and chief executive Tom Oxley said Dr Chalmers’ move was “not good” and would fuel further brain drain – driving top tech talent from Australia’s shores – and said super funds should be backing local tech.

Dr Oxley was critical of Brandon Capital securing government funding. “If you get given the money that you didn’t quite earn, you didn’t make the bet, you didn’t sort of figure it out, you didn’t crack the mould, you didn’t have the in – I don’t think that’s the way to do it,” Dr Oxley said.

Synchron co-founder and CEO Tom Oxley was critical of governments tipping money into VCs.

Michael Tolo, general partner at Australia’s biggest venture capital firm Blackbird Ventures, called for greater transparency of government funding.

“The most important thing is that we are being transparent about the outcomes intended with all government funding – optimising for investment returns, ecosystem growth or job creation in a given sector all have merit – and we are reporting against them consistently,” he said.

“A model succeeds when it meets the intended outcomes.”

Blackbird general partner Michael Tolo.

In regard to super funds, Mr Tolo said the local tech sector was not expecting subsidised funding.

“Super funds have a serious responsibility to secure and grow our retirement savings. I don’t think that we should expect subsidised financing from them or dictate where their capital should be invested,” Mr Tolo said.

“However, when world-class start-ups emerge from the local ecosystem, nothing would make me prouder than to see super balances benefit. As an ecosystem, we need to make sure that we remain the best custodians of their capital.”

Tech Council of Australia CEO has been pushing for changes to the way super funds invest. He said Australia needs to swing from an investment culture obsessed with dividends to focus more on US-style capital growth to insulate its future.

He said if Australia could lift R&D spending to 4.6 per cent of GDP, it would inject an extra $38bn worth of productivity gains into the national economy by 2035. That number would rise to $167bn if tech investment rose to 6.9 per cent of GDP.

“Just 1 per cent of superannuation is about $30bn worth of capital, so we’re not talking about risking retirement savings,” he told The Australian last year.

“When we look at the returns on VCs (venture capital funds), we see there are very good returns from the tech sector on companies that do R&D. But we do think there is potentially more room around transparency of how superannuation money is spent.”

Originally published as How to fix Australia’s tech ‘quiet collapse’ and become a smart economy