Wipeout? Saving our vital start-up economy from COVID-19

Start-ups play a vital role in the economy of the future. But right now, as the global economy races to adapt to the crisis triggered by the worldwide spread of COVID-19, the start-up landscape is more at risk than ever.

Start-ups will be some of the hardest hit by a downturn in the economy. But if managed shrewdly and strategically, the coronavirus presents an incredible opportunity for transformation for the Australian start-up landscape and the long-term rejuvenation of the economy.

Innovative companies are the job market of the future

It’s vital that we don’t lose sight of how important young start-ups, young companies, business leaders and employees are for the future of the Australian economy. It’s more important than ever that we support start-up businesses in creating new jobs now and into the future. There needs to be more assistance for start-ups and growth businesses as they’re going to be finding it very difficult to access capital in the current climate.

Show me the money

The Venture Capital (VC) and angel investment taps have essentially been cut off due to COVID-19. Few investors are going to want to be taking risks right now because no one knows what’s going to happen.

The Research and Development Tax Incentive (R&D Tax Incentive or R&DTI) helps to offset some of the cost businesses put into eligible R&D, which benefits the wider economy, but generally isn’t accessible until after-tax returns have been submitted, months away.

But start-ups face an even bigger problem, in that there is nothing currently incentivising investor support in these burgeoning industries and companies. Banks aren’t likely to grant loans to these types of businesses, as they’ll be perceived as being unable to service the loans.

COVID-19 and start-up SOS

We need to urgently consider measures to ensure the entire start-up economy isn’t decimated by COVID-19. Something needs to be done in Australia. Fast.

The French government has already set up a €4 billion ($A7.8 billion) package to help the country’s start-ups survive the coronavirus pandemic and maintain cash levels between fundraising rounds. With start-ups representing between one-sixth and one-fifth of all new jobs created in France, their importance can’t be understated.

The European Commission also put out an urgent call for start-ups and SMEs with technologies and innovations that could help in treating, testing, monitoring or other aspects of the Coronavirus outbreak to urgently apply to the next round of €164m in funding from the European Innovation Council.

A local solution

The Australian government needs to think about the future now and fund it accordingly. Now is the time to bring forward a “step change”, a vital correction in the way we do business.

Bring the R&D grant payment forward. A lot of start-up businesses survive off that grant, so bringing it forward will enable start-ups to continue until at least then, by which time the crisis will have hopefully turned a corner.

Would-be investors might then consider a co-contribution supported by the government as it would “de-risk” the funds in their eyes.

Through ensuring institutional investors are still able to write cheques to growing businesses, government co-contributions in the immediate term should be considered. They make more sense than low-interest loans for growth businesses generally seen to be less “creditworthy” (as they spend cash to grow rather than making a profit).

We need to look after ourselves now, but at the same time learn from the past and not pour our precious resources into outdated businesses and industries that may no longer be viable. By valuing – and investing in – start-ups now, we’d be supporting a very clear vision for the Australian workforce of the future.

Lachlan Grant, CEO, Vital Addition

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