Could technological entrepreneurship drive economic growth?

Benjamin attended the 2013 VC and Entrepreneurs Trade Mission to Israel, run by the AICC in Tel Aviv, where he represented The University of Sydney's Faculty of Arts & Social Sciences. He is currently studying a Bachelor of Arts/Law and is the Events and Communications Officer at the Left Right Think-Tank and a feature writer for Obiter Intervarsity Law Journal.

Abstract

This paper discusses the prevalence, success and importance of entrepreneurship in Australia, with particular attention to the technology sector. It details the characteristics of Australian entrepreneurs using quantitative data from national and international studies. The paper considers the importance of technological entrepreneurship to the future of economic growth, before concluding with a discussion of policies to better support the emerging high-tech sector.

Findings and Recommendations

  1. Technological entrepreneurship has the potential to contribute significantly to economic growth. The public returns from a robust high-tech sector are great, and limited government assistance is justified.

  2. Government should not artificially sustain the high-tech sector with finance alone, but should encourage conditions in which the high-tech start-up community can organically grow and ‘prove itself’.

  3. In addition to grants and investment funds, governments should pursue policies with the following objectives:

    1. to facilitate the commercialisation of knowledge between public and private entities;

    2. to encourage existing workforces to participate in the entrepreneurial community;

    3. to help open existing, inaccessible markets to high-tech entrepreneurs (e.g.

      government procurement contracts);

    4. to encourage specific entrepreneurship education in tertiary institutions and

      increase the number of science and technology graduates.

Introduction

The prospects for Australian entrepreneurs must seem bleak. The media variously criticises our perceived aversion to risk-taking, fear of failure, and paucity of public or private investment, whilst bemoaning the ‘brain drain’ of talented, enterprising youth overseas in search of support.1

Yet the negative attention given to technological entrepreneurship distorts our understanding of domestic entrepreneurship more generally. By a number of metrics, Australia is a nation of entrepreneurs, and many of the political, cultural and economic conditions which foster entrepreneurship overseas are present here. Entrepreneurs and the businesses they establish ‘play a critical role in the development and well-being of their societies’.2 But developing tailored policies to support these entrepreneurs requires an accurate assessment of both our domestic weaknesses and strengths.

This paper will consider three related issues. First, it will gauge the prevalence and character of Australian entrepreneurship and compare domestic entrepreneurs to their counterparts overseas. Second, it will evaluate the importance of technological entrepreneurship to the future of domestic economic growth. Finally, it will assess whether government should, and how it can, better support the growth of this knowledge-intensive, high-risk sector.

Entrepreneurship in Australia

Broadly speaking, entrepreneurship is thriving in Australia. Accurately determining its prevalence depends, however, on defining the term ‘entrepreneur’. Some studies, like those published by the Organisation for Economic Co-operation and Development (OECD), take a relatively restricted interpretation of ‘entrepreneurship’: the ‘creation or expansion of economic activity by identifying and exploiting new products, processes or markets’.3 Entrepreneurship there requires some element of innovation and occurs not only in new business start ups, but within small and medium-sized enterprises, large firms, and the public and non-profit sectors too (intrapreneurship).4 Other studies, such as the Global Entrepreneurship Monitor (GEM), adopt a more expansive definition: ‘any attempt at new business or new venture creation, such as self-employment, a new business organisation, or the expansion of an existing business’.5 The GEM definition does not require an entrepreneur to create an innovative product, process or exploit a new market; it is concerned instead with the generation of any new business activity.

Objective Characteristics: Prevalence, Success, Funding

Interpreting ‘entrepreneur’ broadly yields a relatively positive picture of the state of Australian entrepreneurship, by a number of quantitative metrics. In its 2011 national survey, the GEM reported that some 10.5 per cent (1.48 million) of the Australian adult population was actively engaged in starting or running a new business.6 This is the second highest total entrepreneurial activity (TEA) rate among the innovation-driven developed economies.7 By way of illustration, the United States achieved only slightly higher in the same period, with 12.3 per cent, whilst Israel – the ‘start up nation’ – achieved 5.7 per cent.8

The GEM TEA data is a timely reminder of the prevalence of Australian entrepreneurship. It is likely to remain so, with 12 per cent of the adult population expressing entrepreneurial intentions.9 The GEM data also provides some evidence that entrepreneurs here enjoy comparable levels of success to those overseas. The rate of discontinued businesses was 4.3 per cent, which is equal to the average of the developed economies. Moreover, many of those discontinuances are constructive business exits in which the founders pursue alternative opportunities for developing their product or idea.10

Enterprises here succeed despite difficult financial conditions. According to research by the Comprehensive Australian Survey of Entrepreneurial Emergence (CAUSEE), personal savings constitute a major source of funding in the majority of young firms. Very few rely on loans, and of those studied, almost none secured equity from family, friends, business angels or venture capital firms.11 Of the 1,057 firms surveyed by CAUSEE, only two were backed by venture capital funds, which is similar to results from an identical study in the US.12 This is not always because investment capital is scarce, or investors risk averse: as many as 55 per cent of entrepreneurs plan to realise a business without any outside funding at all.13

Subjective Characteristics: Attitudes and Aspirations

There are also a number of quantitative studies detailing the attitudes and aspirations of Australian entrepreneurs. These make an important contribution to the study of the cultural conditions which encourage entrepreneurship, and negate some of the anecdotal criticism that Australians are personally risk averse, unambitious, or uninspired. Some aspects of the data might suggest as much. International GEM measurements show that Australians have a higher ‘fear of failure’ rate than most other developed nations.14 Australian technology start-ups tend to target niche markets 14 per cent more often than Silicon Valley start-ups, and the latter are 23 per cent more likely to target markets they estimate to be greater than USD1 billion.15

But properly interpreted, these statistics reflect the strengths rather than deficiencies of Australian entrepreneurs. Despite our perceived fear of failure, a similar proportion of Australians consider themselves ‘serial entrepreneurs’ as do Americans, suggesting that Australian entrepreneurs can tolerate cycles of success and failure, while returning valuable experience to the ecosystem.16 Moreover, entrepreneurs here are pragmatic and focussed on quality. According to the Startup Ecosystem Report, Sydney-based technology entrepreneurs are 45 per cent less likely to want to change the world than Silicon Valley equivalents, but 86 per cent less focussed on personal wealth and 37 per cent more likely to want to build a great product.17 CAUSEE confirms that Australian entrepreneurs would prefer a business of a manageable size rather than maximum growth.

This accounts, in part, for entrepreneurs’ preference for personal funding sources, rather than corporate investment, with its expectation of rapid growth.18 In the technology sector, for instance, Australian start-ups tend to be high-certainty ‘integrator’ businesses, rather than Silicon Valley-style ‘challenger’ businesses which operate in complex, high-risk marketplaces. On average, integrator businesses require half the capital for scaling their operations than challengers.19

Conclusions

Australians are not dispirited, unambitious or risk averse entrepreneurs. An ‘entrepreneurial spirit’ exists here, just as it does overseas. Much of this data relies on self-reported information,20 and subjective intentions are no guarantee of actual outcome. Yet it suggests that entrepreneurs here are focussed on building sustainable enterprises, and maximising the effects of whatever capital is available to them. As CAUSEE concluded, ‘Australian start-ups on average appear somewhat more sophisticated or ambitious than their US counterparts and are certainly no less advanced’.21

From Bricks and Mortar to the Digital Economy

Australian start-ups are not, however, technology intensive. Very few develop, commercialise or market a sophisticated technological product, or take advantage of the internet.22 Conditions are more inhospitable for these high-tech entrepreneurs than they are for conventional ‘bricks and mortar’ enterprises.

Obstacles to Technological Entrepreneurship

The domestic ecosystem looks particularly dull when compared to Silicon Valley, which is frequently cited as a benchmark for aspiring high-tech economies. A report conducted by Deloitte found that only 4.8 per cent of Australian technology start-ups are able to scale up their operations, compared to 8 per cent in Silicon Valley and 6.6 per cent in New York.23

In part, this can be attributed to a very real imbalance in the funding available to entrepreneurs either side of the Pacific. Silicon Valley start-ups raise almost five times as much funding in the development stages, and a hundred times as much in the scaling stage as those here.24 Aggregating data collected from 50,000 such start-ups, the Startup Genome confirms the essence of these findings: Sydney start-ups typically receive 59 per cent less funding than those in Silicon Valley.25 While Sydney places a promising fifth on the Startup Genome TEA index (the highest in Asia, with Melbourne third), it thus scores fourteenth on their funding index, against Tel Aviv and Silicon Valley which are tied at first place.26

The scarce funding available to Australian entrepreneurs has generated substantial commentary. Some argue that a cautious attitude to risk means that investors are reluctant to finance start-ups, and especially so in the high-tech sector.27 There, for instance, seed funding at the ideation stage is almost entirely provided by accelerator and incubator organisations, which made approximately forty grants of less than $100,000 each in 2012. At the incubation stage, the sector relies heavily on angel investors and ‘micro-VC’ funds, like Optus Innov8, which invests up to $250,000 in start-ups graduating from incubator programs.28 These entities provided $21 million in 39 deals in 2012. Only at the commercialisation stage do venture capital funds typically enter the fold. In 2012, they invested $32 million, out of an available pool of $600 million.29

Yet venture capital is undoubtedly an important component of the entrepreneurial ecosystem. With the most venture capital investment per capita in the world, it is often attributed with enabling Israel’s high entrepreneurial activity.30 Plentiful funding means that Tel Aviv enjoys the second highest start-up activity rate of any city globally.31 Nationally, Israel raises venture capital equivalent to 0.25 per cent of its GDP (USD170 per capita), and the US raises a sum equivalent to 0.13 per cent (USD75 per capita); Australia, by contrast, manages a meagre 0.02 per cent (USD7.50 per capita).32 This dearth of seed capital is a major deficiency in the Australian technology ecosystem.33 It should be remembered that Atlassian, a software development firm founded by two Australians, only achieved its much-celebrated global success after a $60 million investment from the US firm Accel Partners.34 Industry representatives lauded the deal as an example of the potential of Australian entrepreneurs,35 but it is unlikely that similar financial support would be forthcoming from domestic sources. Investors’ appetite for risk generally correlates with the size of the entrepreneurial ecosystem,36 and in sectors like technology, venture capital funds have not seen sufficient returns to justify investing further capital.37

Technological Entrepreneurs, Economic Growth and Public Returns

Yet entrepreneurs make an important contribution to the economy. The small-medium sized businesses they establish employ 35 per cent of the Australian workforce, for instance.38 But high- tech entrepreneurs have the potential to rapidly accelerate economic growth. They magnify the effects of their small workforce and initial capital to deliver returns to the national economy disproportionate to the size of their firm. In its 2013 report, commissioned by Google Australia, PwC argues that high-tech start-ups could provide as much as 4 per cent of GDP ($109 billion) and 540,000 jobs to the economy by 2033. At present, it only contributes 0.1 per cent of GDP and 9,500 jobs.39

The public returns from high-tech entrepreneurship are evident in its generation of auxiliary local labour. Studying 11 million US workers in 320 metropolitan areas, economist Enrico Moretti has found that for every high-tech job, five additional jobs are created (two professional, three non- professional).40 By contrast, the creation of one traditional manufacturing job generates only 1.6 additional local service jobs.41 Others caution against ‘Valley envy’: a report from McKinsey & Co. and the G20 Young Entrepreneur Summit warns that ‘Silicon Valley is fed by an overabundance of... expertise which cannot be found anywhere else’. Moreover:

Silicon Valley does not only breed local ventures, [it] also attracts ready-made entrepreneurs from around the globe. And difficult as it is to foster an ecosystem that encourages current inhabitants to make the entrepreneurial choice and then succeed at it, it is even harder to create an entrepreneur’s Mecca.42

Attempts to replicate Silicon Valley are likely futile, and we should be wary of studies like the Startup Genome which measure entrepreneurship against that benchmark. Even so, although high-tech hubs elsewhere might not enjoy the same degree of secondary labour generation, the principle nonetheless holds true for high-tech entrepreneurship generally.

Technological entrepreneurs are also drivers of innovation. As discussed above, the OECD defines entrepreneurship more exclusively than studies like GEM: ‘what is important is that people are enterprising in the creation of value through innovation... It is this innovation-oriented activity that promotes growth and solves social problems’. 43 Fundamentally, innovation increases economic ‘output per unit of labour and capital invested’.44 The Australian government acknowledges as much, and appears concerned by below-average performance in this regard.45

Start-ups are one mechanism by which public knowledge and product innovations from universities and research organisations can be commercialised, through entrepreneurial spin-offs. From 2001- 2010, the CSIRO formed 32 start-ups to commercialise technology (albeit with none since the Global Financial Crisis) whilst in each of those years, between 15 and 20 start-ups were dependent on CSIRO-licensed technology.46 In the same period, Australian universities formed 270 start-up companies (employing between 50 and 80 research postgraduates), with between 100 and 200 other start-ups dependent on university-licensed technology.47 In industries like biotechnology, exploiting technological innovations in this way is acknowledged as the primary driver of growth.48 The commercialisation of the cochlear implant (University of Melbourne) and WLAN wireless technology (CSIRO) are two prominent examples of the success of this mechanism. On the other hand, public institutions failed to support Zhengron Shi’s solar energy research. Moving to China, Dr Shi received start-up funding and government assistance to found Suntech Power, which was until recently the world’s largest producer of solar panels.49

High-tech start-ups are also better placed to make breakthrough innovations in technology or processes than established businesses. They operate outside dominant paradigms, without strong ties to existing products and technologies, while large firms are constrained by the need to incrementally improve their existing products and processes, even though they spend proportionally more on R&D.50

The result is increased competition, forcing incumbent firms to update, innovate, or exit. Moreover, small firms develop many breakthrough innovations which are then acquired by large firms and delivered to a wider market, contributing to the exploitation of otherwise uncommercialised or under-utilised knowledge.

Since they are not heavily invested in existing technologies and paradigms, high-tech start-ups are able to develop innovative solutions to emerging social problems like climate change or resource security: so-called green entrepreneurship. Windlab Systems, a CSIRO spin-off, received a $5 million venture capital investment in 2007. It provides meteorological modelling services to scout potential wind farm locations, and has a portfolio of projects promising more than 7000MW in electrical generation capacity.51 The company has played a significant role in the creation of the Australian wind power industry, which will constitute the largest source of renewable energy by 2050.52

Likewise, Israel is renowned for developing entrepreneurial solutions to manage its limited water reserves. In response to government water austerity policies, 270 water technology companies were operating by 2007 with 8,000 employees. Of these, 60 were start-up companies founded after 2001. Exports from this sector totalled USD700 million in 2005, and grew 21 per cent the following year.53 Other start-ups like Better Place (which until recently had operations in both Israel and Australia) drive more radical innovations, like rapid-turnover electric car recharging, to reduce pollution and dependency on foreign oil. Better Place marketed its product in an industry heavily committed to an oil-based design paradigm. While the future of the company looks increasingly bleak,54 it nonetheless exemplifies the willingness of entrepreneurs to develop revolutionary products in defiance of industry orthodoxy, and in the pursuit of environmental – that is, public – objectives.55

As drivers of innovation, high-tech start-ups represent a significant proportion of ‘high impact entrepreneurs’. Product innovation in these start-ups is associated with a faster rate of employment growth.56 GEM has found that high impact entrepreneurs constitute 4 per cent of all entrepreneurs, but account for 40 per cent of the jobs created by those entrepreneurs.57 As such, the ability of a firm to scale up operations determines how effectively it stimulates economic growth and employment.58

Finally, high-tech start-ups are amplifying their returns by incorporating the internet into their business models, either by marketing a digital product or by delivering services online: companies like Facebook and DropBox, or domestically, like 99dresses, Wotif.com, Carsales.com.au, Realestate.com.au and SEEK. Through the internet, firms can reach 2 billion potential customers at low cost, significantly increasing their competitive advantage.59 It allows these businesses to overcome the ‘tyranny of distance’,60 thereby exposing the economy to distant interstate or international markets. This economic activity will help Australia engage and compete with the regional economy, a chief objective of the Asian Century Whitepaper,61 and connect to global knowledge flows.

Quite apart from the inherent value of their product – cochlear implants, wind turbines or online marketplaces – high-tech entrepreneurs are thus important agents for innovation and economic growth. Nevertheless, it will be difficult for the sector to fulfil its potential in current conditions. PwC’s optimistic GDP and labour forecast requires that:

  •   1,500 new high-tech start-ups are established in 2014, since 1,100 of the current 1,500 start- ups will likely fail by the end of 2013;

  •   by 2023, 5,600 new technological start-ups are founded and 5,600 start-up community members are engaged; at least 1 per cent of Australian high-tech start-ups earn $200 million in revenue by their eighth year.62

As their report concedes, these are ambitious targets. They cannot be achieved without improving the ecosystem and the availability of finance.

Government Solutions to a Perceived Market Failure

‘Government can only do so much’
– Dr Craig Emerson MP, Minister for Trade and Competitiveness, to the Global

Voices delegation in March 2013.

Though high-tech entrepreneurs voice frustration with the domestic ecosystem, their criticism is not entirely unheeded. The present government seems determined to improve Australia’s standing:

Translating new ideas into money-making products and services... requires an innovation system that offers an unbroken path from vision to realisation. The market alone can’t deliver this, and governments have a responsibility to step in where markets fail.63

A host of government initiatives exist in aid of this objective, by encouraging investment in start-up firms.64 The Innovation Investment Fund (IIF) provides private sector venture capital funds with capital for investment in technology-based early stage companies, matched on a 1:1 basis with capital raised from the private sector.65 Some $644 million has been invested thus far, and it is making an appreciable contribution to the financing of some high-tech start-ups. IIF-backed funds are 46 per cent more likely to fund seed stage companies than other private funds and 17 per cent more likely to fund internet companies, partially remedying the scarcity of venture capital discussed above.66 That said, is still unclear whether the IIF program will become self-funding, or whether IIFs are more willing to support higher-risk enterprises than conventional funds.67 There is a fine line between supporting and artificially resuscitating entrepreneurship, however. Evidence suggests that using public funds to encourage private investment is often wasteful, or counterproductive, and rarely a catalyst for growth:68 ‘you can’t legislate an appetite for risk’ through an IIF.69 Besides, investors’ reluctance is not illegitimate – it often reflects a genuine lack of quality propositions.70 As one venture capitalist explained, investors were looking for the next Cochlear or SEEK, not ‘garage.com businesses that want a quick flip’.71

Policymakers should avoid an exclusive reliance on these funding programs to sustain innovation and entrepreneurship. As noted, the availability of private investment correlates with the size of the entrepreneurial ecosystem; Australian governments should focus on growing that ecosystem as a whole, not just supporting the most promising firms. They should help establish the conditions in which the high-tech sector can expand, perform, deliver results, and validate itself to private investors.

The paradox, of course, is that the present scarcity of private investment a) makes it more difficult for interested potential founders to join the start-up community and b) forces existing founders or potential founders to search for capital overseas. In turn, this makes it more difficult for the start-up community to develop the collective credibility – the critical mass – it needs to attract consistent, readily available early-stage investment.

Commercialising Knowledge

Government needs to emphasise its facilitative role in commercialising knowledge. Where the obstacle to commercialisation is monetary, a robust and versatile grant system is an important policy tool. Many of the most promising Commonwealth grant programs, like the R&D tax incentive and the Export Market Development Grant (EMDG), assist the development of innovative ideas and help transform them into a marketable product.72 Other grant schemes encourage regional engagement, such as the Asian Century Business Engagement Plan to help ‘new and innovative projects...compete and succeed in regional value chains’.73 These are chronically underutilised, however. Only 39 per cent of high-tech start-ups have applied for any government grants; of these, 79 per cent applied for the tax concession, whilst only 53 per cent applied for the EMDG.74

Similarly, Commercialisation Australia, founded in 2009, offers a suite of grants to entrepreneurs to help commercialise intellectual property. It funds up to $2 million to provide expert advisory services, recruit a CEO, or test the commercial viability of a product.75 The only requirement is that the company possesses a novel business concept or novel intellectual property.76 It currently supports 402 firms with grants totalling over $157 million.77 Even so, only 21 per cent of the high- tech start-ups applying for grants have applied for Commercialisation Australia support.Grant schemes like these allow governments to channel entrepreneurial activity towards high-priority industries in demand of innovative solutions. At present, more than three quarters of technology start-ups are in information media and communication sectors, which account for a small proportion of GDP. Scarce few deal with healthcare, mining, energy, water, or agriculture:78

 

But as water management in Israel illustrates, ecosystems thrive when entrepreneurs engage with these industries, aligning their skills with local economic needs.79 Moreover, the public returns from investment in high-tech start-ups are greatest in these sectors. Society as a whole benefits from improved resource management and environmental preservation, or from breakthrough innovations in healthcare. The federal government has made some attempts to encourage green entrepreneurship, for instance, through the Emerging Renewables Program, which distributes $126 million in grants to support renewable energy technologies, and the $100 million Renewable Energy Venture Capital Fund.80 Yet the underexploitation of these programs suggests that they need to be more aggressively promoted or expanded.

Furthermore, many grant programs are only available to established companies. For university start- ups, there remains a pre-seed funding gap between the exhaustion of academic Australian Research Council/ National Health and Medical Research Council funding, and the development of a viable commercial product. In that time, finance must be provided from discretionary university funds. As the advisory body Knowledge Commercialisation Australasia argues, federal and state governments should at least match these funds, if not surpass them.81

Networks

Yet the obstacles to commercialisation are not always monetary. If industry experience is a necessary precondition for entrepreneurial success, it will be difficult to encourage high-tech innovation outside the familiar, and more democratic, information technology sector. This barrier could be overcome through more intimate collaboration between industries and entrepreneurs. Unfortunately, the networks between Australian entrepreneurs, insular corporations, and public research institutions rank the poorest among OECD states, ‘handicapped by fragmentation, duplication and a lack of coordination’.82

As detailed in its most recent Innovation Statement, the federal government hopes to employ a clustering strategy to strengthen these networks. Between 2013 and 2017, it will spend over $500 million developing a series of innovation precincts governed by industry and public research leaders, bringing together innovative firms to share research and better showcase their products to investors.83 Such clusters play an important role in ‘creat[ing] synergies between [dissimilar] industries, firms and other actors within wide resource areas,84 and encouraging knowledge spillovers.85

Nevertheless, the performance of similar hubs overseas varies substantially, and it is yet to be seen whether developing hubs programmatically, rather than letting them cohere organically, will solve the problem.86 Moreover, they do little to help early-stage enterprises. It could be more productive for state and local governments to assist the development of incubator programs, since these currently bear the burden of mentoring and financing high-tech start-ups. Some are established by government directly, like the Sydney City Council Activation Project. Other university-based incubators like the UNSW Venture Incubator Space would benefit from public funding.87

Mobilising Existing Workforces and Opening Existing Markets: the Short Term

Fulfilling PwC’s model requires that 1,600 new founders join the start-up community in 2014 (this assumes that 40 per cent of Australian entrepreneurs are serial founders). GEM has found that 20 per cent of interested entrepreneurs go on to found businesses, which means that 8,000 potential founders need to be at least interested in joining the community in 2014.88 An effective short-term solution is to provide a supportive policy environment for the transformation of existing workers into entrepreneurs.

From the analysis of CAUSEE and GEM, it is clear that Australians show significant enthusiasm for entrepreneurship, and a large number express entrepreneurial intentions. Many elect to pursue start-up enterprises after acquiring years of valuable industry experience: among high-tech entrepreneurs, 75 per cent have over six years of work experience.89 It is difficult, however, to leave an established career for a start-up enterprise. Government can help bridge this gap between interest and action. Reforming employee share option plans is one modest proposal. These are an important remunerative supplement to the small wages typically offered by fledgling firms, but are prohibitively expensive for those firms, and unattractive to potential employees.90

Governments should also consider implementing a system of ‘entrepreneurial leave’ similar to that in France. Employees are permitted to take leave in order to start their own business or develop a product part-time for up to two years. In return, their employee receives priority access to any innovation from the offshoot. As such, over 60 percent of people who create a new business are former employees (mostly blue-collar workers, with some executives).91

Another stop-gap measure is to open existing, hitherto inaccessible markets to start-up firms. Government contracts are particularly promising. In FY2012, for example, the federal government spent $41 billion on procurement contracts, only $16 billion of which were awarded to small- medium sized businesses, with very few awarded to firms of less than 19 employees. Start-up firms particularly struggle to compete in the lengthy tender process or meet stringent due diligence requirements.92 Overseas programs like RFP-EX of the US Small Business Administration have developed online systems in which start-ups can discover and compete for government opportunities.93 In New South Wales, the Department of Transport recently commissioned a collaborative app-development session with PwC – appHothouse – from which the Department received a series of real-time timetabling apps.94 Whether by streamlining the tendering process or by actively soliciting high-tech entrepreneurs, government can thus give start-ups a chance to prove their product or service, with an eye to further private investment.

Tertiary Education: the Long Term

In the long term, however, sustaining the growth of a highly specialised sector like technology requires reorienting tertiary education to provide the necessary skills among the general population. 29 per cent of high-tech founders hold computer science degrees, yet as of 2011, less than two per cent of students graduated in that field. Of those, only 35 per cent were domestic students.95 Since 37 per cent of Sydney-based entrepreneurs hold a Masters or PhD (comparable to 42 per cent in Silicon Valley), 96 declining science, technology, engineering and maths (STEM) graduation rates do not bode well for future growth of the sector. Whether through more aggressive incentives or otherwise, this trend must be reversed.

Given that universities are important partners in the knowledge commercialisation process, specific entrepreneurship education is imperative too. The World Economic Forum argues that entrepreneurial qualities can be learned, and that ‘there is a positive relationship between entrepreneurship education and the generation of growth enterprises’.97 Some 20 universities across Australia provide entrepreneurship training, but the quality of such education across the nation is unclear, and it certainly does not resemble the intensive courses offered by the likes of Stanford University or the University of Cambridge.98

Conclusion

Both anecdotal and empirical evidence suggests that Australian high-tech entrepreneurs suffer a very real funding gap in the early stages of their enterprise. Private investment is comparatively scarce, reflecting the small size of the domestic ecosystem. Promising entrepreneurs head overseas in search of support, but with each departing success story, the ecosystem is less able to prove its credibility to investors or to engage interested potential founders.

This survey of Australian entrepreneurship has sought, firstly, to eliminate our entrepreneurial culture as an explanation for this phenomenon. Quantitative evidence indicates that Australians are enterprising, and interested in participating in the entrepreneurial community as founders or employees. More work must be done to turn interest into action, and grow this community.

Secondly, this paper has provided evidence of the social and economic returns from high-tech entrepreneurship. As agents of innovation, high-tech entrepreneurs provide novel, breakthrough solutions to emerging social problems. They have the potential to contribute significantly to future economic growth, driving competition and exposing Australia to international markets.

Finally, because the public returns from high-tech entrepreneurship equal or exceed the private returns, limited government intervention is both justified, and necessary. This paper does not offer a comprehensive policy agenda: it outlines areas in need of greater attention. The solution is not straightforward, nor should it revolve around cash injections. The problem is more complex – a composite of educational deficiencies, the risk aversion of venture capital funds, the failure of collaborative networks, as well as below-average performance by entrepreneurs themselves. Adopting a holistic approach, governments must help establish fertile ecosystems which are viable in their own right, thereby attracting both investment and talent. Only then will the ‘brain drain’ become a ‘brain recirculation’.

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