Australia's entrepreneurs need a funding kickstart

The flaws in institutional funding models are thwarting Australia's thriving start-up community. But the experiences of Israel and the US could provide some guidance.

Australia’s entrepreneurial climate is an interesting one. We have groups of innovators running brilliant incubator and mentorship programs and some fantastic conferences and networking opportunities. But our banking and government figures are seemingly unaware of how little progress has been made to support the start-up space.

We operate in a country where private equity investments have been the most favourable and realistic way to inject capital, but restrictions around equity crowdfunding continues to place us at risk of being unable to participate on a global scale. US-based venture capitalists are looking to Australia for opportunities as they continue to fast-track the sector in the States, while Israel provides those investing in start-ups with tax concessions. 

It is worth looking not just at the calibre of entrepreneurs we are producing, but also the infrastructures and policies put in place to support our growth industries. Our ecosystem seems to be stultifying the very innovation we need to cultivate if we are to compete on a global scale.  

In 2014, I had high hopes for the Abbott Government’s Entrepreneurship Infrastructure Programme. But one of its most disappointing aspects was the limited financial support (co-funded grants) and its emphasis on network and industry support.

From my seat,  the biggest barrier for start-ups is early stage funding and regulatory impediments.

For this reason, current frameworks fail in financially supporting entrepreneurs to accelerate from concept to growth. I am talking about the men and women who have created a product or service, have achieved a few ticks on the board to demonstrate their business model actually works and that the market has responded favourably, but may simply struggle to maintain traction due to initial lack of capital. 

We are becoming so risk averse in this country that even those who can afford to take a calculated risk very often won’t. How can we expect private investors and venture capital firms to be less risk averse if our largest institutions are not committed to supporting entrepreneurs? 

In 2014, I was excited to see a $2bn pledge by one of the big four banks, which promised to support start-ups across the country. It seemed to be a progressive move: the bank seemed to have a broader view about how these start-ups could get to a positive revenue position without major equity dilution. I took my start-up in to see what my options were as I was interested in securing a small amount of capital.

Initially I was told my business plan, P&L statements and signed contracts put me in a favourable position, alongside my own financial situation. However, it took a total of two months for the bank to tell me that the loan was not approved.

The reasons, however, were interesting. According to the bank, in 2001 (as a teenager), I had a credit card amount of $1,030 that was 35 days overdue and sent to collections. While the debt was cleared at that time, this remained on their internal records regardless of the seven-year credit rating jurisdiction. When I asked for some paperwork, especially as it was paid off within that period, they could not provide any documentation because they can only keep paperwork for seven years. I was also told by the assessor that “if you had told me about this, I would not have told you to apply for the loan”.

Despite it being more than 13 years ago, not remembering all my financial activities as a teenager had meant that I was ‘dead to them’ despite the default being only 35 days and for such a small amount. The other reason I was given was that despite first-year revenue, signed contracts and evidence in place, they could not “take on a risk for a digital business, because if anything happened we can’t recover stock like we could in a bricks and mortar business”. 

Ultimately, this offer was simply an unsecured personal loan masquerading as an innovative start-up loan backed by an impressive pledge. 

The issue wasn’t that it was not approved; the problem was the application process was not transparent. This was then coupled with an archaic belief that a digital business, despite revenue and potential, is less valid than a bricks-and-mortar one. 

Transparency in campaigns and programs, whether carried out by a major bank or by the government, is crucial for Australia’s start-up community. Both start-ups and the traditional institutions need to be more transparent with each other and more innovative in how we can work together. But the reality is, when the world thinks of start-up innovation, it is the USA and Israel that are seen as global leaders.

As entrepreneurs and small businessowners, we are (and should continue to be) placed under scrutiny to prove that we are up to the task of not just coming up with business concepts but able to manage businesses that can sustain revenue and growth over a longer period of time. A focus should equally be on cultivating a culture that is built on education, mentorship and participation to weed out those who launch a concept no one wants, won’t pivot or just runs out of steam quickly.

But scrutiny should also be applied to the systems in place that aim to provide funding support to ensure our growth and position on a global scale, thus providing a strong cohesive climate for Australia’s thriving start-up community. 

Alexandra Tselios is the founder and publisher of The Big Smoke.