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Private equity fund managers should take lead in investment

Thursday 20 October 2016 09:21 AM

Private equity fund managers should take lead in innovation investment, Australia's Bill Ferris says

By Fiona Rotherham

Oct. 20 (BusinessDesk) - There is a “compelling opportunity” for private equity general partners to play a lead role in the take-up of innovation, says Bill Ferris, chair of the independent body tasked with improving Australia’s innovation performance.

Ferris, Australia’s first venture capitalist and executive chairman of CHAMP private equity, was appointed last November to head Innovation and Science Australia. Reinvigorating the independent body was one of 24 innovation measures the Australian government announced last year at the cost of $1.1 billion over four years.

He is speaking at the annual NZVCA Private Equity and Venture Capital Conference today and said it will no longer be enough for private equity players to “just go for the low hanging fruit of cost-outs and lazy balance sheets”.

“Big investors will take these pursuits in-house and save the fees. The sustainable PE model in the future will be one which seeks out and insists on growth through innovation by its portfolio companies,” he said. Ferris predicts that by 2020, leading general partners who manage venture capital funds will have Directors of Innovation to find and invest in innovation-intensive firms footing it globally.

There has been a shift of interest by Australian institutional investors into participating in high growth, innovation-active enterprises, with some of the leading Australian superannuation funds investing in new venture capital firms like Blackbird Ventures, which has launched Australia’s biggest-ever tech startup fund, and the A$250 million AirTree Ventures. “Air Tree is having a similar impact in encouraging an Australian startup culture in which relocation to California or New York is no longer a key indicator of success,” Ferris said.

Helping develop a national culture that fully embraces innovation is a key objective of Innovation and Science Australia which has a remit to advise government on all science, research and innovation matters. The board is a mix of Australian industry and science members and two recent appointees were American Beth Comstock, vice chair of General Electric, and Israeli author Saul Singer who co-wrote “Start-up Nation: The Story of Israeli’s Economic Miracle”.

It’s developing a strategic plan for improving Australia’s innovation that reaches out to 2030 with recommendations due to go to government in a year. Talks with government officials during Ferris's New Zealand visit will include any potential for greater collaboration between the two countries on innovation, he said.

He’s a big fan of New Zealand’s startup system, saying the ecosystem punches above its weight.

“We look with some awe at the early stage successes that your country seems to be having and the extent angel networks have shown support for different parts of the eco-system,” he said. He pointed to Xero, 90 Seconds, and 9Spokes as examples of companies determined to succeed globally.

However, for the most part capital to support kiwi startups has come from family offices, wealthy individuals, and overseas VCs, he said.

“Going forward, it will be important for New Zealand’s institutional money to participate more fully in the development of the next round of global success stories.”

Governments worldwide, particularly advanced economies, are now grappling with how they can best encourage and harness innovation and Ferris admits Australia is late coming to the party now its economy is no longer enjoying the benefits of the mining boom.

“We could have been giving that clarion call a few years earlier, that would have been better, but it’s not too late.”

More funding, tax breaks and tax incentives are included in the wide-ranging measures the Australian government announced last year. The new A$200 million CSIRO research fund supports early-stage commercialisation of innovations from the CSIRO and Australian universities while the A$500 million Biomedical Translation Fund launched in August – co-funded by government and industry – aims to help biotechs and medtechs across the Valley of Death funding problems stymying commercialisation.

Ferris was one of three tasked with reviewing Australia’s research and development tax incentive programme which accounts for 30 percent of the annual A$10 billion R&D investment. The review followed criticism it didn’t meet the needs of earlier stage companies. New Zealand’s National government axed tax breaks in favour of R&D grants and Science and Innovation Minister Steven Joyce has claimed there is now a trend in other countries away from tax breaks.

The just-completed Australian review focused on improving what it had rather than the comparative benefits of tax breaks versus grants, which is still to be considered, Ferris said.

The review report’s six recommendations included ways to encourage research that otherwise wouldn’t take place such as extra incentives for businesses to hire PhD graduates and collaborate with research institutions, a A$2 million cap on the cash unprofitable startups and SMEs can claim back on their R&D spend, and a new tax incentive for angel investors.



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