Government considers cutting the R&D tax incentive: why this would be disastrous for the startup community.

  • By Lior Stein
  • 15 Sep, 2016

Originally published in StartUp Smart.

The R&D tax incentive has been a bastion of innovation in Australia for decades, and Malcolm Turnbull’s announcement that Australia was to support the ideas and tech boom was met with great applause and accolade.

But, as the old saying goes, the proof is in the pudding.

Other than some assistance for investors (of which investors who are also founders of the entity are excluded), what has actually been done to support our rising tech stars?

As both a director of a fund and an advisor to many seriously talented startups, I am, to put it politely, appalled by the federal government’s suggestion to reduce the R&D tax incentive.

I have seen the magnanimously positive effects of the cash rebate benefit of this tax Incentive on hundreds upon hundreds of occasions. The absolute elation when that cash comes through the door is plain to see, and allows that little breather needed to build a startup.

That’s important, as one of the biggest pitfalls of startups is the difficulty to get to that next stage.

I often use the analogy of a rock climber. The rock climber looks for that next small little protrusion of rock that will serve as his handle to lift himself up to the next point. A small crevasse for his hands or feet to balance while he holds on in order to keep going. This will continue until, finally, an opening is reached, a breather can be had, and then onwards and upwards to the peak.

There would be no peak if it weren’t for the little crevasses along the way.

At least the rock climber usually has safety gear. Should he or she slip they can start again.

But once a startup starts that climb and runs out of funding, it’s an all-out scramble, and the fall can be quick and painful. Down rounds, debt, desperation and more. And please don’t think I am being over dramatic here, I am not.

Talented professionals leave their jobs and mortgage their homes with the dream of building their technology startups. Rather than a cut in funding, the government should be pursuing policies that encourage R&D as these tax incentives to early-stage businesses are critical.

Now I’m sure very smart politicians will say this wasn’t their choice and the government doesn’t need to fund these types of decisions.

This would be a fair argument, until you take into account how I opened this piece.

Turnbull’s innovation statement came out with trumpets blowing as to how this was the era of the technology startup, and how our technology talent was going to replace the glorious coal era.

And of course, how this innovative and forward thinking government was going to be one of the anchor support structures of Australia’s tech birth.

So, Mr Turnbull and your administration, think about the rock climber.

Our entrepreneurs each need to continue getting their “crevasses” on their path to growth and the peak. This is critical if we are to fulfill our vision of becoming an innovation nation.

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