Floating Australian tech winners

Buried in a budget press release from the minister for industry and innovation Greg Combet is $100 million for a venture capital plan to “attract matching private investment” for startups.

It's a step in the right direction, albeit dwarfed by the $1.8 billion the government has also set aside for the R&D Tax Incentive, which is designed to boost business investment in innovation.

If Australia is to foster a technology sector that is capable of attracting investment from around the world, our government needs to better foster the VC market, both locally and abroad.

It could do worse than copy Israel where the “Yozma” program has helped boost IT revenues from $1.6 billion to $12.5 billion. Under the Yozma initiative, 10 venture capital funds were formed in partnership with leading foreign investors, with the government contributing a 40 per cent share, but offering an option to investors to buy them out at a pre-agreed price.

Australia's tech sector is littered with startups that have sold out at an early stage, many on the basis of being unable to raise the kind of capital required to help them grow from million dollar companies to billion dollar ones.

Last year it was the gaming darling Firemint that was snapped up by Electronic Games in a deal reported to be worth around $20 million.

Also last year, brothers Gabby and Hezi Leibovich sold 40 per cent of their company Catch of the Day to a consortium of investors including James Packer's Consolidated Press Holdings for $80 million. The company has since been putting the money to good use, recently acquiring online wine retail startup vinomofo for what its founder Andre Eikmeier told Fairfax was “a few less zeros” than Facebook's $US1 billion acquisition of 18-month-old photo sharing group Instagram.

Australian success stories 99designs and Atlassian both traded equity for funds with US-based venture capital firm Accel Partners. And even the brains behind what we know today as Google Maps, brothers Lars and Jens Rasmussen, were forced to sell their idea to Google after being unable to spark venture capital interest.

The temptation to hand over equity or sell entirely to a keen investor is a strong one, and partly explains why Australia's listed tech sector is so small. The fact that one of our largest “IT' stocks is carsales.com.au suggests that we haven't quite embraced the idea of pure tech as a mum and dad investment.

Categorising carsales.com.au as an IT stock is like categorising BHP as a financial stock because it trades large amounts of money.

In fact, if you take Telstra and the other major telcos out of the ASX's combined IT and telecommunications sector, you end up with a pretty paltry figure.

The sector was worth $56 billion last year but take the telcos out of the picture and suddenly you are left with $15 billion. Compare that to Facebook, which is set to float on the Nasdaq this week and is likely to be valued at over $100 billion.