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Funding bridges valley of death for start-ups

Tuesday, 01 December 2015
Funding bridges valley of death for start-ups

By Lee Ellison, Chief Executive Officer of Audinate

Australia has become a common birthplace for technological advancements. And recent talk of potential tax breaks and further government incentives should make it significantly easier for start-ups to tackle global industries from their home ground. The private sector is ramping up too, with several recently announced venture capital funds worth $200 million or more, providing more local, early-stage private investment than ever for those companies with the right idea and product.

But there has been little public discussion of perhaps one of the most crucial aspects to ensuring Australia is a global leader in innovation – funding the basic research that underpins many of these start-up ideas. From Wi-Fi, developed at CSIRO in the 90s, to the Dante audio networking technology, developed by Audinate's founding team at National ICT Australia (NICTA – a research centre of excellence), this basic research comes from ideas that did not initially have validated business models or weren't sufficiently ready for private funding. With the help of government, however, both examples are now significant, globally available technologies.

DISRUPTING THE STATUS QUO

The creation of technologies that disrupt the status quo are no doubt important to Australia's economic growth engine, and we need to ensure we're continuing to unearth the next major innovation. Incubating change is not always as simple as turning on a light switch, or publishing a new website built on facile and thin ideas. One cannot underestimate the value that government funding can bring to a young company as it goes from a great concept and early stage R&D, to shipping products and growing an established customer base. There is often a significant time gap between research and development to the commercialisation of new solutions.

Fortunately, Prime Minister Malcolm Turnbull has himself recognised the importance of closing the so-called "Valley of Death", the chasm between early ideas that could yield global advancements, and those deemed investment-worthy from the private sector. Reports on Thursday that the government plans to reinstate $20 million in annual funding for Data61, the new name for NICTA, is very welcome news and a huge leap forward toward bridging that chasm.

Audinate is just an example of what government funding can do. Aidan Williams, co-founder of Audinate, along with a small team of talented engineers, joined NICTA in 2003 – now Data61, a subsidiary of CSIRO – to develop a technology that would significantly reduce the complexity and costs required to distribute high-quality audio. That technology, dubbed Dante, is now used in commercial and broadcast audio from television and radio networks to installations in stadiums, hotels, shopping centres, airports and train stations. It is likely to become an essential part of any audio professional network in the near future.

Creating a new standard with widespread industry adoption wasn't achieved overnight. It took years of R&D and development, to figure out the solution, and then several additional years to go from design wins to shipping products.

RISK AND FUNDING

That technology may never have seen the light of day were it not for the risk and funding from a government body. The three-year germination process Audinate underwent at NICTA provided the impetus required to ready the Dante technology for commercialisation, a grace period that might not have existed in a purely private sector. That funding enabled Audinate to become NICTA's first commercial spin-out in 2006, and has a global footprint with subsidiaries in USA, UK and Hong Kong, while still maintaining its corporate headquarters in Sydney.

The importance of government funding in these situations is readily apparent: CSIRO is planning to use part of its windfall from Wi-Fi patent royalties to fund start-ups and entrepreneurship, in the order of $100 million. Nothing like that would have happened if not for the initial investment that government made into researching a technology that has become vital to our everyday life.

The Australian Innovation System Report, released by Innovation Australia head Bill Ferris last week, argued that "research organisations in a region further enhances its capacity for innovative entrepreneurship". Yet, between 1990 and 2013, the share of government funding to government research agencies fell from 35 per cent to 19.4 per cent, while government support for R&D in the private sector grew from 18.6 per cent to 32.1 per cent in the same period.

As important as tax breaks and incentives are to ensuring our ideas get to the world stage, direct government investment into basic research – whether through a research organisation like CSIRO or Data61, or a direct investment from the now-defunct Innovation Investment Fund – continues to be vital to breathing life into those ideas that are years away from making profits for private investors.

Australians certainly are innovative, but without that backing from government, many of those ideas could fall straight into that Valley of Death, never to see the light of day.

This article was originally published by the Australian Financial Review and Audinate