2023 Australian Startup and Scaleup Funding outlook
As the smoke from the fireworks blows off to start 2023, Australian startup and scaleup will be experiencing the overhang of 2022. A year that brought about the resumption of normal activities such as international travel which were restricted from the pandemic should have been universally celebrated. However, with war and ongoing trade disruptions, higher inflation has sapped the economic outlook. 2022 was a year of declining share values and layoffs for technology companies in response to the expected economic future.
2023 therefore will require deft navigation to obtain the resources you need to fund your company.
Australian Startup and Scaleup
Investment
Interest rates have been rocketing up, which makes putting the money in the bank or buying bonds a more attractive alternative to investing in riskier early-stage ventures. There could be a significant reduction in investment in early-stage companies during this time. In fact, investments in private businesses decreased by 0.6% in the September quarter.
Finance
With higher interest rates, banks should have greater funds to lend out as they gather more deposits. Borrowing money may be a more attractive area for early-stage companies. However, the barriers to obtaining loans for early-stage companies are still a problem as the banks will often need to be very comfortable that they will receive the return of funds.
Government funding
The often-under-appreciated source of funds. Government funding will be increasingly important in the coming year for startups and scaleups as other funding areas remain difficult. The current most significant funding available is through the R&D Tax Incentive (R&DTI) Scheme.
There are also several area-specific government funding available for tech companies:
- Clean Technology Research and Development Grants NSW
- MRFF 2022 Research Data Infrastructure Grant for medical researchers to use existing data infrastructures in new ways for unmet medical needs,
- NSW Regional Investment Activation Fund – Stream 2 for NSW organisations taking regional projects
- Growth services which is a collection of services that offers advice and funding for businesses in the growth sectors
- Export Finance Australia Guarantees provides small to medium companies in the export supply chain a guarantee that will help them access finance from their bank
- Advancing Renewables Program for companies planning to take on renewable energy projects
The current government is aiming for 1.2 million tech-related jobs in Australia by 2030. Tech will become a priority for additional 20,000 universities and 465,000 fee-free technical and further education (TAFE) spots. To encourage high productivity and earnings across all industries, particularly in tech, the government commits to enhancing migration settings— it has recently taken steps to reduce the backlog of skilled visa applications.
National Reconstruction Fund
$15 billion National Reconstruction Fund (NRF) to revamp and diversify Australia’s business sector and economy. NRF will focus on the 7 priority areas below by giving out loans, guarantees, and equity to promote investments that add value and develop capability:
- renewables and low emissions technologies
- medical sciences
- transport
- value-add in the forestry, fisheries, and agriculture sectors
- value-add in resources
- defence capabilities
- enabling capabilities
The Albanese government has also established a Critical Technologies Fund to provide $1 billion in investment support for enterprises in essential technologies through loans, equity, and guarantees. There are 63 technologies included across seven categories: advanced materials and manufacturing; AI, computing & communications; biotechnology, gene technology and vaccines; energy and environment; quantum; sensing, timing, and navigation; and transportation, robotics & space.
Australian Startup and Scaleup: A good time to start?
While the startup and scaleup space may face challenges with the reduction in investment and financing through private channels, there are other avenues where investments are rife, many of which are within the government sectors and departments. As they scramble to revamp an industry heavily hit by the pandemic, they are providing numerous funding opportunities that will surely help unburden the financial load of tech industries. This can pave way for innovative ideas and new companies to arise. As major companies shed staff, there will be more talent available and more people looking at starting their own company as a viable alternative to employment. A startup bootstrapping through this stage with a group of talented people could be ready to ride the next wave of growth in the future. We at Innercode believe that the best time to begin is now more than ever.
Innercode has specialist expertise in both the software and technology industries as well as the R&D Tax Incentive as well as other government grants such as Export Market Development Grant (EMDG) and Early-Stage Innovation Company (ESIC) Tax Incentives. For over 10 years, the team at Innercode has been assisting with the R&D Tax Incentive for software and technology companies. We have seen clients who have started with us as pre-revenue startups become multi-billion-dollar enterprises. We are best placed to maximise the R&D activities and benefits while minimising audit and regulatory issues. With our help, we can make claiming the R&D Tax Incentive the most beneficial and easiest process possible, as you can rely on both our technical knowledge and knowledge of the R&D Tax Incentive.
Sources:
2022 Recap and 2023 Outlook – AMP. https://www.amp.com.au/insights-hub/blog/investing/market-outlook-2023
Australia, Reserve Bank of. ‘Economic Outlook | Statement on Monetary Policy – February 2023’. Reserve Bank of Australia, 10 Feb. 2023, https://www.rba.gov.au/publications/smp/2023/feb/economic-outlook.html
Department of Industry, Science and Resources. “National Reconstruction Fund: Diversifying and Transforming Australia’s Industry and Economy.” Department of Industry, Science and Resources, 12 Dec. 2022, www.industry.gov.au/news/national-reconstruction-fund-diversifying-and-transforming-australias-industry-and-economy
“The Hon Ed Husic MP Minister for Industry and Science.” Australian Government, 22 Aug. 2022, www.minister.industry.gov.au/ministers/husic/media-releases/backing-australias-critical-technologies
Further reading:
Claiming R&D for Startups – Innercode. 15 July 2021, https://innercode.com.au/innercode/claiming-rd-for-startups/.
How Scaleups Can Benefit from the R&D Tax Incentive – Innercode. 28 Aug. 2021, https://innercode.com.au/innercode/how-scaleups-can-benefit-from-the-rd-tax-incentive/.
