Venturous Australia: It's not Commercial Ready all over again

The Liberal Party jumped on the Cutler Review grant program recommendations as the return of Commercial Ready. Unfortunately, that's just not the case.

Prior to this year's Budget, Commercial Ready was a broad based grants program, funded to the tune of $200m per year. The average grant was around $900k in matching funds, and was not generally repayable.

The program proposed in Venturous Australia (or venturousaustralia) is quite different.

National Innovation Priorities
As I blogged last Friday, the proposed National Innovation Priorities; Resource industries, Space and Astronomy, Finance and Risk Management, and Marine Industries; reflect a departure from the broad based grants program that was Commercial Ready.

Whilst this has the potential to supplement the level of commercialised innovation in these industries, they have been selected because of their existing market structures and capital availability.

It would be interesting to look into the availability of matching funding is in these industries. Perhaps the Opposition could obtain statistics for the number of companies in each of these sectors that have received venture capital funding in the past 5 years (well, other than the resources sector as the information here is relatively accessible), as this would help shed some light on project size and need for funding.

This is a big difference from Commercial Ready. Unless you relate to one of these sectors, there is no support for software, biotechnology, general manufacturing or internet businesses. Is this giving up or growing up?

Repayments
This seems like a reaction to all the negative criticism the Productivity Commission had about grants in their report. Whilst that was the fundamental reason Commercial Ready was scrapped, it's interesting to go back a little further in the reasoning. Commercial Ready replaced R&D Start, a grants and concessional loans program. To my knowledge, no statistics on the repayment of the concessional loans have been released, but anecdotally there were many defaults and extensions granted. Further, the market spoke in that program with the vast majority of applicants ignoring the availability of the concessional loan program (which was for commercialisation) in preference for the full grant for R&D.

The issue with repayment is twofold.

• Is the intention to provide a grant or loan? If the government wants to issue a contingent loan instead of a grant then it should follow prudent debt processes and not the extensive application and merit requirements in the general grant application process.
• Second, if repayment is from "revenue or royalty" income attributable to the project funded by the grant (loan), what will the compliance burden on the company be? I am aware of several Australian companies that found the compliance process (audited statements, regular reporting and AusIndustry visits) to be quite onerous. Would this requirement continue for many years after receipt of the funds, until repayment of the loan? If so, it could be a source of frustration and affect the competitive options open to the company.

Unfortunately, on this front as well as many others, the Venturous Australia report makes recommendations but does not examine and explore the full policy implications of the proposed program, nor how it sits in a policy framework where Commercial Ready was closed without consultation or notice.

Conclusion
As I have observed in the past, a mixture of picking winners and broad market-based programs can make sense for Australia. Adding in the complexities of repayments and sectoral focus can also be positive. I suspect, however, that this policy will roll out very differently to Commercial Ready.

Whilst I studiously avoid crystal-ball gazing, I predict that the government will struggle to reconcile these grants with their overall innovation policy framework and, if they manage to do so, that the average grant size will be bigger than the $750k the Venturous Australia Report anticipate.

Last time I put a prediction out there I lost a coffee. Hmmm.