When Commercialisation Australia was launched in January last year, many entrepreneurs, frustrated by previous government-backed funding schemes such as Comet, were sceptical of its impact.
However, the organisation, which offers up to $2 million in matched funding to help start-ups’ skills, executive hires, commercialisation and proof of concept, is steadily building itself a favourable image among small businesses.
With more than $50 million dished out to innovative entrepreneurs since its creation, Commercialisation Australia still has cash to play with, after being given a $278 million war chest until 2014. It will get $82 million a year from then on.
Doron Ben-Meir was appointed CEO of Commercialisation Australia last April. He has personally founded several start-ups, as well as working for a number of leading VC firms, including a stint as CEO of Prescient Venture Capital.
StartupSmart spoke to Ben-Meir about the challenges faced by start-ups attempting to get government funding, as well as get his tips on how to land a grant.
Doron Ben-Meir: I think it has a lot more substance than the old Comet program. It is a lot more useful for start-ups – it provides skills and knowledge and up to $2 million in funding, which is much more substantial than what was offered before.
There’s a team of case managers on board now that provide a lot of value. The focus is on money but the case manager function is important as they won’t tell you what to do, they will work with you to move things along more quickly.
This means you’ve got the right person there at the right time, another brain by your side.
We’ve brought in new people and put additional resource into the case manager team. There’s 22 of them now and they are high calibre people who are new to government programs as they’ve come from the private sector.
This has added significant knowledge, such as biotech and fund raising. We’ve also moved away from a siloed mentality to helping start-ups. It’s just not useful.
For example, if a case manager in Queensland can provide help to a Victorian business, we will put them in touch. The managers are motivated and incentivised to bring in extra help and participate with others.
Well, I’ve been involved in start-ups so I suppose you don’t get much faster and smaller than my background!
I’ve tried to speed things up since I’ve been at Commercialisation Australia but I’ve also learned a lot about the constraints of government, as well as the many benefits that the Government can bring.
There’s a good team in Canberra and we’ve tried to push things harder and faster, within reason.
Too long compared to what, though? If you compare it to the six to 12 months that a VC will take, it doesn’t take too long. It’s not that bad.
I can approve applications now, rather than the whole board, which has cut down the time. The upper limit of how long you will wait is 75 days for the larger grants.
It would be nice if it was quicker, but it has to go through a process that does take time. We will get it more efficient, but it’s interesting the expectations that people have with government compared to the commercial sector.
What we’ve already been doing – getting the right people, making the application forms clear and straightforward and looking for things that add value for businesses.
There are 120 participants in the program and they are starting to show some results. We need to publicise these successes and we are working through companies of all sizes that haven’t even thought of applying to us.
The next challenge is to explain to the market what we can offer. There’s no sector-specific focus, it’s open to all. Universities need to participate more, as well as small businesses that have new products or processes but think that they aren’t eligible.
The majority of applicants we get are from start-ups. We want start-ups too, of course, but they have to come up with something innovative if we are to help them.
We drive innovation and provide a centralised point where innovators can come. We facilitate innovation and give businesses a better chance of succeeding.
The deal flow is reasonably robust and the program’s reach merits the amount of money we have. To date, the funding has been sufficient to meet demand. If we had more money, we wouldn’t be able to deploy it.
There are a lot more opportunities out there as some innovators don’t realise they can apply. That demands hasn’t been realised yet.
The long-term goal is to see the private sector view Commercialisation Australia as deal flow for investors. Usually, investment in start-ups comes through ad hoc meetings, but there is an opportunity to access a critical mass of the best start-ups in Australia. Investors can go fishing and come out with a good deal.
We spend a lot of time with angel groups both here and offshore. There is no bigger collection of inventive, early-stage start-ups than the group with us. They may not all be ready for VC money, but they may be candidates for partnerships or strategic investment.
Our focus is marketing our portfolio to let people know about that critical mass.
I’d like to see more companies apply so that we can put our hands on our hearts, go to the government and say, “Here’s the evidence that we need more funding”.
I’m optimistic that will happen as there’s a buzz about CA now and the deals are starting to flow.
It is limited though, as there aren’t a lot of VC firms here in Australia. There is a lot of angel activity, which is picking up a lot of early stage funding and we need to foster that.
The start-up results maybe haven’t been good enough to be supported by institutional investors, which is a shame. If you can create a critical mass, you can create that opportunity.
It’s hard to show that there’s enough there at the moment, which is a bit of a chicken and egg situation. That won’t be fixed just by CA, but we are a good start.
There is a cultural issue, yes, but if you look at how a VC funding works, they need results. A start-up may take six or seven years before you can exit it for a good return.
The fund managers are under pressure to get quick wins, which is why you see a pervasive risk aversion. It’s not because investors here don’t believe in Australian start-ups, but the timelines are just too long.
In the US, the funds are more established, there’s more of them and they can do a lot more. There’s a lot more angel activity too. It’s too simplistic to say that we are risk adverse and they aren’t.
Well, that’s an engineering challenge in a way – we have to honour the taxpayer. If a business was going to get funding anyway, should the taxpayer be putting money in? That’s the question.
We have a funding test that if it’s reasonable to think that a business will get funding by itself, then it won’t get the money. We don’t want to deny funding to people but you’ve got to honour the taxpayer.
Also, start-ups need to show that they’ve got skin in the game. We provide dollar-for-dollar funding for executive help and proof of concept. If they have nothing to put in themselves, it’s a high-risk proposition.
It may mean that some start-ups aren’t able to access the full $2 million, but to be able to justify that you need that over a two-year period requires you to show that there’s a substantial market for your product or service.
You also need to show that you can execute your idea and that you haven’t just come up with the idea out of nothing. It’s very rare to see meritorious businesses with no funding or other backing behind them. There are isolated examples, but usually the best businesses can get investors to match the CA funding for them.
We see a great diversity of businesses through CA, a lot of web 2.0 companies but not so many more capital-intensive, product-oriented businesses.
Australia is very good at utilities, cloud computing, database technology, robotics, biotech and therapeutics. We are innovative across the board, in ICT, manufacturing and engineering. Around 30% of our applications are from agri-business and clean tech.
We have a lower hurdle to clear than a VC, so we have a broad spectrum of businesses. There’s a lot of very good innovation going on, such as IP Scape, which is cloud computing and has great opportunities in Asia, and Marathon Robotics, which is a very capable group of engineers from South Australia that has created a mannequin on a Segway for target practice for the army.
Some of these businesses are getting funding, which is very encouraging. We are here to stimulate the market, so the failure rate will be a bit higher than a commercial venture, but we do more to back successes by giving grants and not taking equity.
We give people entrepreneurial experience and give good inventions a chance in the market.
The first thing is to make sure that your IP is novel. We can’t support a sandwich shop unless it is selling or making sandwiches in a way that’s never been done before.
Your idea has to be unique in Australia, although not necessarily in the world. The most important question is, “Why does someone want to buy something, rather than why do they need it?”
If you can answer that, you will go a long way. Don’t think that if you don’t have the answer that you won’t get a grant, but people need to understand the difference between wanting and needing something.
No one has the perfect answer – they wouldn’t be applying if they did. We just need to know how you will answer the question in the future.
This article first appeared on StartupSmart.
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