| Author: Frank Hurley
The Innovation & Science Agenda The recently announced National Innovation and Science Agenda is a significant step towards providing tangible incentives to invest in innovative ideas and provide the necessary human and financial capital to grow and commercialise innovative products and services. However, most of the Agenda’s initiatives need to pass through the budget process and Federal Parliament in 2016 before becoming law. Both major parties seem to agree that innovation is critical to the success of this country. However, history suggests that negotiations often require trade-offs and other compromises which could mean what is finally brought into law and properly budgeted has some significant differences from the proposals outlined in the Agenda. Underpinning the Agenda is a recognition that intellectual property is a fundamental building block of prosperity in the ‘ideas boom’. Some of the proposals in the Agenda are designed to encourage investors and entrepreneurs to take calculated risks. We explore these in the next section. We also look at future opportunities open to the Government as they continue to build the innovation culture the Prime Minister has consistently stated is a necessary goal of this country if we are to have long term prosperity. The Agenda is the first step. More announcements are expected over the short to medium term. Australia has one of the worst records in the OECD for adopting new innovations. Our risk-averse approach, coupled with limited access to capital, has meant we have lost ideas to other countries ‘willing to have a go’. Notwithstanding this, investment in early start-ups and new technologies does bring higher risks, so the need for sound business assessment, planning and execution remain as important as ever. The Government seeks to provide broader opportunity for our economy through recent trade agreements, to encourage more prudent risk taking and to help change our culture to embrace more risk tolerance. The Agenda provides access to new funds and tax incentives and encourages higher levels of collaboration between business and public sector organisations. This part of the Agenda is titled ‘Taking the Leap’ and is focused on culture and support for innovations and the commercialisation process. Taking the Leap The Government is deliberately inviting all Australians to participate in the innovation and ideas boom. Christopher Pyne has stated “Innovation is about improving everything”, as they seek to grow jobs and increase our effectiveness. The Agenda outlines a number of new sources and types of funding available for new and growing businesses – crowd sourcing, CSIRO funds, support of accelerators changes to the Venture Capital arrangements. These are new opportunities for businesses that require careful assessment as the commercial overhead and demands on management to work with investors and granting bodies is not trivial. However, not all investment money is good investment money, and any offer needs to be carefully evaluated against the business strategy and funding requirements. The Agenda includes a 20% tax offset, to be introduced for investors, up to a maximum of $1,000,000 investment, which could see tax rebates of up to $200,000 per investor, per year. Furthermore, capital gains tax exemptions for investments held for 3 years will extend to 10 years – essentially ring fencing the eligible investment proportion from capital gains tax up to 10 years in the future. The necessary legislation is expected to be passed into Law in early 2016. Current eligibility criteria are expected to include that investments are not listed, incorporation of the entity was during the last 3 income years, expenditure is lower than $1,000,000 and income lower than $200,000, in the previous income year. Changes to the Venture Capital Limited Partnerships VCLP and ESVLP provide opportunities to invest more broadly and with new types of investors. These new funds will provide an attractive tax effective vehicle to invest in new businesses, many new investors will enter the market to take advantage of the broader investment opportunities. The Agenda also includes a change to the Employee Share Schemes (ESS). A complying ESS is an effective mechanism to attract and hold highly sought after staff in a globally competitive market. The proposed changes enable ESS companies to keep commercially sensitive information secret, this significantly increases the commercial power of the ESS and doesn’t put complying companies at any disadvantage. Adopting the standard ESS provided by the ATO has advantages, as part of a Corporate strategy and talent acquisition it is important to consider the implications for your business and exit options as your shareholder register grows. Future Opportunities – innovationCAFE 2016 It is pleasing to note the Agenda has addressed each of the three pillars and many of the recommendations discussed in the innovationCAFE 2015 series and reported in the ‘Innovation in Australia‘ paper that we co-authored with Swanson Reed. The three pillars are, culture, commercialisation and productivity. The alignment of these is described below.
Disappointingly, the Agenda hasn’t looked at patent protection and the innovation system in general, but we understand this is the topic of a Productivity Commission report due next year. Investors can take comfort in hearing ‘patent pending’ when looking at potential investments. Innovators can protect their intellectual property rights against unscrupulous competitors who can compete on price as they haven’t had to invest in product development and testing. Ease of doing business must be an important criterion as we move forward into this new innovative landscape. There is still much to be done. What we have from the Agenda is a broad outline of a plan that will deliver on these three drivers. But, how do we help businesses move toward a more innovative approach – ‘put the rubber on the road’ as they say? The innovationCAFE 2016 series will focus at the enterprise level. The fundamental question to be asked is: How can my business take advantage of the ‘ideas boom’ to grow and prosper? The 2016 series is planned for late May/early June, once the budget process has been worked through. Our panel of experts will advise on a range of issues associated with building an innovative business, including:
How we can assist Wrays is a global business focussed on leveraging innovation. We work with blue chip companies locally and internationally, bringing best practice perspective and knowledge to assist our clients. The innovation agenda is about the global opportunity for Australian ingenuity. Wrays is well placed because of our experience and investment in people to provide insightful and globally relevant advice. If you would like to discuss any of the above, or how to progress an opportunity, talk to us now. |