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Commercialising smart ideas

How can Western Australian inventors and entrepreneurs turn smart ideas into commercial success? WA Business News brought together 10 experts last month to discuss the challenges and opportunities, as Mark Beyer and Julie-anne Sprague report

 

IF there was a simple formula for turning bright ideas into commercial success, it would go something like this.

Provide managerial support to help the boffins who come up with the smart ideas.

Provide early stage funding so emerging companies can become ‘investor ready’.

And make sure governments facilitate rather than stifle new activity.

If only the real world was so simple.

Western Australia has a great tradition of scientific and technical innovation but a very patchy record of commercialisation success.

“So often we do it once without all the spin-offs and we don’t get the underlying industrial base that perpetuates an industry,” Foundation Capital’s Ian Murchison said.

Australian Venture Consultants Russell Barnett believes part of the problem is that local businesses aim too low.

“It seems that we measure success in this State on achieving licensing deals, distribution deals or, god forbid, an early stage IPO, and sure, they are milestones, but I think we are still punching below our weight in producing world class businesses,” Mr Barnett said.

pSivida’s Gavin Rezos believes this reflects the reality facing the local business community.

“You have to balance that with the fact there is no deep liquid venture capital market in this country.

“We have no big development companies in the particular sectors.

“Take pharmacological areas; there are no big pharmas here, and we suffer from that greatly.

“That’s why we have companies that have to tap the early-stage funding, and they do measure success by obtaining some VC funding. A lot of those companies end up offshore because there is nothing to drag them up here.”

The participants in the WA Business News innovation forum generally agreed that government could be more strategic in its approach.

Mainsheet Corporate’s Maurice Argento cited the State Government’s draft industry policy as part of the problem.

“You look at it and ask what is the vision that the State is providing there? It doesn’t tell you,” Mr Argento said.

“I know what California is about. I know what southern and northern Italy are about. I know the efforts of Queensland.

“I know what Ireland has done to develop an industry focus. Scotland is doing the same thing across a number of clusters.

“We are still going after everything that moves.”

Mr Argento said the shipbuilding industry at Cockburn was a notable success story.

“Shipbuilding is a great example of the fact that it can be done, where you have companies such as Raytheon moving to WA to be close to it,” he said.

University of WA professor Colin MacLeod said government also needed to be flexible.

“The government has to be strategic, but strategic means being responsive to opportunities, and the opportunities can come from unexpected places, often from basic research,” Mr MacLeod said.

Zernike’s Peter Why highlighted the contribution that could be made by key individuals, such as the singular contribution of Austal chairman John Rothwell to the success of the shipbuilding industry.

He said Cambridge University in the UK recognised the invaluable contribution of attracting top people.

“They attract the very best researchers, the very best researchers attract the industry dollars, their industry research attracts the venture capitalists,” Mr Why said.

“You had an incredible case two years ago where Bill Gates put his Microsoft Institute in. That was around one key researcher.”

The forum participants agreed that access to funding was one of the key issues that needed to be addressed.

“There is a major hole in the sector in terms of the very early pre-seed funding,” Mr MacLeod said.

“The basic research is well funded by the research councils that do not expect a profit. At the point where the research has been developed to the venture capital stage, there is funding around to exploit the commercial opportunity, but we really do have a hole in the middle.”

Mr Barnett said the problem was not unique to Australia.

“Its an issue everywhere around the world,” he said.

 “There is market failure in early stage, particularly pre-seed.

“In most jurisdictions, the government plays an active fiscal role in remedying that.”

Mr Rezos noted that industry groups and charitable foundations often helped to plug the funding gap in countries such as the US.

“But we don’t have the charitable side and the government is trying to balance its books,” Mr Rezos said.

Most of the forum participants noted that other countries offered greater tax breaks for investment in basic research and in venture capital, and suggested that Australia could follow suit.

“I’d like to see that happen but I’d also like to see controls on it so we don’t get a bad name,” Mr Rezos said.

Mr Murchison took a different view, based on past experience with government assistance schemes.

“We’ve seen too many distortions come into the market and it’s a very blunt instrument and usually all you are really doing is robbing Peter to pay Paul,” Mr Murchison said.

He cited the example of managed investment schemes.

“Far too much went to the promoters and they’ve oversupplied well ahead of projected demand.

“We had too many red grapes, and olive trees are going the same way.”

Mr Murchison said government could make a better contribution by removing obstacles, such as Native Title issues, onerous mining royalties, and granting approvals.

“The government needs to get out of the way,” he said.

Mr Rezos said a rare example of constructive State government assistance was the work done with biotechnology company CollTech, which is planning to build a collagen extraction plant at Collie.

He said several arms of government worked together to facilitate site selection, land acquisition, regulatory approvals and so on.

“The WA Government really has been of assistance,” Mr Rezos said.

“It’s the first time that I’ve seen the WA Government not just talk about doing something, but actually do something.”

Mr Murchison said one problem was the relatively short-term mind-set of superannuation funds, which invest in emerging companies for three to seven years then look to exit via a trade sale of float.

“Why can’t we develop a new model that says: ‘Let’s hold onto these things for 10 or 15 years and really grow them, albeit maybe not as aggressively as if we took them off to London or the US, but as a consequence of that we can develop a whole industry base rather than these one-offs’.”

 

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