For the cost of a Sydney home, Paul Evans would be able to market an electric car engine that could help put Aussie innovation back on the map. In risk-averse Australia, most investors would prefer to buy a house.
The entrepreneur has been shunned by local venture capital funds in attempts to raise A$3 million ($2.2 million) for a product that’s been a decade in the works, despite what he describes as strong interest from some global carmakers. Now, after a series of fruitless investor meetings, he’s heading down the inevitable path: straight to the U.S.
“The private sector just won’t step up,” said Evans, 51, managing director of Sydney-based Evans Electric, which he co-founded with former Thales SA executive Bruno Lambla.
“We’ve been pushed to the point where we’re going to Silicon Valley to raise funds,” Evans said. “To me, that’s an unfortunate outcome because it’s a long way from here and we don’t really want to move there.”
It’s an all too familiar choice Down Under. Policy makers are pushing local firms and entrepreneurs to be innovative as they seek new drivers of economic growth amid the dying days of a mining investment boom. But local investors aren’t playing ball: in the past five years, Australian venture capital funding for industrial firms amounted to just $218 million, data compiled by Bloomberg show. U.S. peers raised about $15 billion in the same period.
That’s a gaping chasm for Australian Prime Minister Malcolm Turnbull, who made innovation a flagship policy ahead of an election last year that returned him to power with a razor-thin majority. After offering incentives for early-stage investors and tax breaks on venture capital investment, even he had to acknowledge that Australians were a tough crowd.
“My life’s experience has taught me that there is little reward without risk,” said Turnbull, who himself has an entrepreneurial background, in a speech. “As you well know, the quality of Australian research is world-class, yet our ability to commercialize and apply it has been an ongoing challenge,” he told a gathering of scientists and researchers in October.
Turnbull has his work cut out. Australia slipped to 19th place on the 2016 Global Innovation Index, from a ranking of 17th the previous year, and was outdone in the Asia-Pacific region by Singapore, South Korea, Hong Kong, Japan and New Zealand. The venture capital industry Down Under is still recovering from the global financial crisis, with investment activity about half of 2009 levels, Organisation for Economic Co-operation and Development data show.
“If you can pack a lightweight motor inside the wheel, then that simplifies your drivetrain,” said Peter Pudney, an associate research professor at the University of South Australia in Adelaide who has built solar and electric cars. “Stability becomes a bit easier if you have direct control of the wheel.”
Pudney doesn’t have specific knowledge of Evans’s motor. While Bloomberg wasn’t able to confirm the overseas interest in the product, Evans’s experience isn’t an isolated case.
In 2014, Australia’s then-industry minister accused the local venture capital industry of expecting “government will just pick up the tab and investors can sit back and sort of get something when it’s a sure bet.” A year later, famed computer designer and investor Gordon Bell described Australian investors as “greedy” and “nasty” when it came to backing local ideas.
One of the most high-profile local companies to seek funding offshore recently was Sydney-based software firm Atlassian Corp., which listed in the U.S. at the end of 2015 and now has a market capitalization approaching $6 billion.
Despite its small population on a continent rich in minerals and agriculture, Australia has a strong tradition of invention: black-box flight recorders, the electronic pacemaker and Wi-Fi technology to name a few. Yet most of these products were commercialized offshore, depriving Australia’s economy of high-paying jobs and the government of company tax revenue.
In 2017, the need for innovation is an urgent one, with Australia’s aging population and commodity prices well down on the mining boom’s peak, warned veteran independent economist Saul Eslake.
“Historically, Australia has not been a particularly innovative nation other than in a few areas where we have a comparative advantage” like agriculture and mining, he said. “Unless we lift the rate of productivity growth, we could well be facing the slowest growth in average Australian incomes since the 1930s.”