Chief scientist Peter Klinken engaged a dramatic metaphorical flourish to make his point under questioning at the Inquiry into Innovation in WA on April 29.
“There is a tsunami of change coming. The question is whether you’re going to see the wave or get smashed by it,” he said.
The inquiry received 50 written submissions and heard from seven panels of experts, including Professor Klinken, on how the state government could help facilitate innovation and startups in Western Australia.
And while the industry has been slowly growing in the past decade, work remains to ensure the state harnesses its strengths to become a global innovation leader.
Data collected by the WA Innovative Society Index showed innovation ecosystem activity had increased more than six-fold in the past decade, largely due to increased venture capital investment.
About $220 million was invested by venture capitalists in 2022, representing a 338 per cent increase between 2017 and 2022.
It’s an increase that has driven growth in the number of Western Australians employed by the startup sector, from fewer than 2,500 in 2019 to more than 11,000 in 2022.
While state government support has been forthcoming, particularly in the past eight years, Professor Klinken said far more needed to be done.
“We are at a crucial time in this state’s evolution. I think the decisions we make now are binary,” he said.
“If we get them right, the state takes off and we will be prosperous for the next fifty to 100 years.
“If it’s just business as usual, I worry we will have a slow and inexorable decline. Our kids and grandkids will suffer the fallout of that.”
Startup WA director Jason Balchand got the Inquiry into Innovation in WA under way on April 8 by urging the state government to address gaps in funding for the sector.
“One of the big areas where we do see governments over east spending more [than the WA government] is in early stage funding,” Mr Balchand said.
“Victoria is a good example with their two-billion-dollar venture capital fund. WA has the resources to do this and it’d go a long way in growing the innovation sector.
“I note that WA’s innovation budget has increased significantly over the past three to five years, but it still pales in comparison to other states.
“Given the size of our economy, the drivers of our economy and the state of the budget, we as a state have the ability to spend more on innovation to build the jobs of the future.”
One such major funding mechanism for WA innovation has been the $100 million Investment Attraction Fund (IAF), which includes the New Industries Fund (NIF), a $25.8 million commitment over four years (2021-2025) to fund grants programs, innovation hubs, awards programs and the online database Dealroom.
Amid calls on the state government to commit to funding beyond 2025, several submissions to the inquiry would also like the state government to assist in other ways.
One idea floated during submissions was for the government to advocate for a GST-style floor on federal innovation grants.
It would mean WA would receive no less than 10 per cent of grants funding, in line with our share of national population.
However, that’s an idea medical entrepreneur Marcus Tan warned could have negative impacts on Australia’s innovation landscape.
“I think it’s important to make sure the grants are issued on a merit basis,” Dr Tan said.
“Having a floor that’s set too high, that sort of creates an issue where some people are getting funded when they technically shouldn’t. That’s going to be a problem.
“If you’re going to try to create an artificial thing where it’s not about merit at all, it’s just about a quota, there is the risk that you end up getting worse quality [startups] funded.
“I think that isn’t a good outcome for taxpayers or for investors.”
Dr Tan said there instead needed to be greater focus on engaging with federal decision makers, something he hoped the newly established Canberra hub might help.
Marcus Tan says more needs to be done to facilitate relationships with decision makers in the eastern states.
The hub, established in March, provides an open working space for travelling Western Australians and can be used to assist in facilitating meetings that are in WA’s interest.
“Ultimately, with grants, money flows to confidence, confidence builds from trust, and trust comes from building relationships,” Dr Tan said.
“That’s why a lot of companies will move to where there’s pools of capital. Whether that’s to Silicon Valley or whether it’s over east; when you can build a relationship with investors or people issuing grants, they’re more likely to invest.
“A lot of this is not down just to the ideas, but to the people who can advise you on how to get successful applications through.
“This is not a new thing. This is true for a lot of federal programs whether its Medicare, national health and medical research grants; all these sorts of things WA punches under its weight largely because we don’t have the concentration of expertise to actually help us get visibility in Canberra for us to succeed.
“The Canberra hub WA has set up is a very smart idea. It talks to this idea of being close to and networking with the people who are making the decisions.”
Limited partnerships with private venture capitalists was another prominent idea for state involvement in the sector.
It’s a move Mr Balchand said he would welcome, building on similar venture capital partnerships around the nation.
“Taking inspiration from Victoria, they created a venture capital fund in which government was pitched to and decided what they invest in,” he said.
“I don’t think that’s the role of government, but I do think government could become a limited partner in local venture capital funds that commit to investing a certain per cent into WA companies.
“For instance, Purpose Ventures has earmarked I think 75 per cent of its forty-six million dollar fund to WA companies. The government could then become a limited partner in those venture capital funds, committing the money and helping the local tech community grow.
“But they don’t have to worry about the process of deciding what companies.
“[Governments] are not the experts. Those decisions get left to the venture capitalist firms who know how to invest. The government just supports by becoming a limited partner.
“In theory it’d mean government gets both a financial return through the fund and an economic return through increased activity and increased employment.”
Procurement policies such as WA’s Aboriginal Procurement Policy, which mandates targets for the awarding of government contracts, have also been floated.
Since the Aboriginal Procurement Policy was introduced in 2018, the number of contracts awarded has steadily increased, from 179 that first year to 356 contracts in the 2022-23 financial year, the overall value of which was $254 million.
The trend, Mr Balchand said, could easily be replicated in the tech and innovation industries.
“For most startups, grants are great,” he said.
“But what they really need more than anything else is a customer.
“The WA government spends a lot of money, and even if just one per cent of that money was carved out for innovative ideas, that would do wonders for the startup ecosystem.
“And when you are thinking about it, there’s very little risk in one per cent of the government’s procurement policy going towards those sorts of things.”
Scotland’s CivTech is another example of how governments can help boost startup capacity through contracts.
Run like an extended hackathon, instead of publishing contracts for a specific software or tool, CivTech publishes open challenges and problems.
Any organisation, team or individual can respond to them. Applications are assessed, and shortlisted proposals go into an exploration stage where they are developed further.
The best ideas go through to the accelerator: four months of intensive work to create the solution.
CivTech’s business workshop system ensures a business capable of taking the emerging product to the world is developed.
What’s more, neither CivTech nor the challenge proponent take ownership of intellectual property or equity through the process.
By joining the program, the participant grants the proponent a royalty-free licence to use the product in perpetuity, but ownership of IP and future expansion stays with the participant.
Regardless of differing opinions on tools to encourage innovation, one thing all submissions to the Inquiry into Innovation in WA agreed on was that the state was well-positioned to become a global tech and innovation powerhouse.
“This is a real moment in time where the planets have aligned,” Professor Klinken said in his closing statement of his evidence to the inquiry.
“We’re in a good position, financially; we need to be investing in things that benefit our future generations.
“This is not a time to say she’ll be right mate. It’s a time to say have a go mate.”
