The NSW startup sector has reacted with dismay after the NSW government suddenly halted a series of funding programs for start-ups in the wake of a spending review by the new Labor government.
Popular programs such as the Minimum Viable Product (MVP) grant have been suspended “as part of the sector-wide Comprehensive Expenditure Review coordinated by NSW Treasury,” Investment NSW announced this week.
That includes pending applications for the matched grant for startups to develop their technology solution to bring them to first sale. The former government had increased matched funding from $25,000 to $200,000 per startup late last year.
“Investment NSW cannot further develop existing applications while this review continues. The fund is one of many that will remain on hold until the government makes decisions for the 2023-24 budget. Investment says NSW on the homepage for its grant programs.
Hundreds of NSW startups have used the program to achieve their initial product development goals and the sudden shutdown of the program has dismayed the industry, fearing it could lead to the demise of multiple early stage startups at a time when the industry is already multiple collapses as venture capital dries up.
UNSW Director of Entrepreneurship David Burt said the change under the new government comes just six months after an MVP renewal was announced with the promise of more maximum funding and streamlined application processes, sparking significant optimism among the NSW startup ecosystem.
“This indefinite hiatus by the NSW government is a terrible outcome for NSW-based startups, especially those who had recently filed applications that are now in limbo,” he said.
Programs delivered through the office of the NSW Chief Scientist & Engineer have also hit the pause button. Other former coalition government initiatives through Investment NSW that have also been discontinued include the NSW Future Industries Investment Program, the Infrastructure Build Out Program, National Collaborative Research Infrastructure Strategy (NCRIS) Support Program and the $40 million Biosciences Fund.
“The Department of Enterprise, Investment and Trade is working with NSW Treasury as it coordinates a comprehensive spending review to help the NSW Government deliver on its priorities and manage budgetary pressures,” said a department spokesman.
“As part of this sector-wide review, a number of programs for Investment NSW have been put on hold and will be reviewed as part of the 2023-24 budget process”.
They said updates on other grant programs will be provided during the review process.
The combined value of the programs exceeds $225 million. Much of that funding is matched by the private sector, bringing additional value to taxpayers. The MVP grant was worth about $10 million over four years.
David Burt, who also oversees UNSW Founders, said the government must act quickly to reinstate the MVP grant program, describing it as “one of the most effective and important startup support programs available” for NSW-based startups.
“The last data I saw on impact was from 2020, which showed that out of 181 grant recipients, 830 jobs had been created (307 FTEs and 523 contractors, an average of 8.9 FTEs/startup), 54 had a total of $231 million raised in equity, 22 reported export income ($7.7 million) and the cohort had an 89% survival rate,” he said.
“Pausing this program for months until the release of the next budget in September will cripple NSW’s promising early-stage startups, or cause them to move to states with more startup-friendly policies like Victoria). Research shows that all net new jobs are created by companies less than five years old, so this decision will hurt the NSW economy.
A critical role
Burt said the MVP grant played a critical role in nurturing hundreds of early-stage NSW startups by providing initial external funding.
Tash Jamieson, founder of Lockpick Games, which helps prepare children for standardized tests, is one of them, receiving $25,000 last year.
“NSW government support is essential for so many of us local startups – even beyond the financial backing, backing from a government program like the MVP grant is a great signal for an early-stage company,” she said.
“Fortunately, I still have a good runway, so I’ll be fine, but I hope the program will return for other up-and-coming startups.”
Burt said the indefinite pause is “another example of how Australian innovation policy has long suffered from a revolving door of ministers who underestimate the importance of providing stability to government economic development programs” and leave both the state and the nation ” be at a significant disadvantage”. compared to other countries where similar grants exist – the US Small Business Innovation Research (SBIR) program, for example, has remained largely unchanged since its introduction in 1982.
Jack Qi of start-up consultancy William Buck also believes the MVP grant program is vital to the industry.
“The need for the NSW Government to tighten its belt is unsurprising and somewhat welcome in light of the cash-grab event as we speak in Victoria, but we are calling on the Government to increase the MVP Ventures grant intact at the end of its review because it was only launched in its revamped state at the end of 2022 and has generated a lot of interest among startups,” he said.
“Ultimately, a long-term vision needs to be taken to recognize that helping startups get new products and services off the ground shall generating economic activity, jobs and, crucially, revenue for the government.”
Cathy Lyall of early-stage VC Seed Space agrees that government support is critical.
“Australia lags behind our peers internationally in government support levels on a range of financial metrics, including investment, tax credits and grants. The sudden shutdown of all existing NSW programs has a direct impact on the ecosystem,” she said.
“NSW is already lagging behind our peers in other states in terms of support for startups and at a time when businesses are more mobile, we will start to see companies move to more founder-friendly states like Victoria where initiatives like StartupVic have had an incredible impact.
“I urge the government to consult quickly and provide assurance to the founders who choose to base their business in NSW. I also urge the new state government to engage directly with those of us in the ecosystem who have experience both at home and abroad on how to create a meaningful set of programs that have succeeded in the UK and elsewhere.
A pincer movement of cuts
Afterwork Ventures’ Jessy Wu said it has been a pincer movement between the state and federal governments in securing funding that supports innovation and entrepreneurship, pointing out that federal treasurer Jim Chalmers mentioned “technology” just seven times in his budget speech earlier this month.
She cited federal programs like Boosting Female Founders, which provided $250,000 to $500,000 to women-founded startups whose applications have been frozen.
Other programs were discontinued, although the federal Labor government appears to have rebranded the Accelerating Commercialization and Entrepreneurs program as the Industry Growth program, with approximately $390 million in funding over four years, but that won’t be rolled out until later this year amid of an ongoing federal review of existing programs.
“Startups don’t have the luxury of waiting for governments to get their affairs in order. Many were in the middle of (incredibly tough) application processes, but were unceremoniously told that the entire program was shutting down,” Wu said.
“In an industry where uncertainty is a constant, governments are most helpful when they can provide stability – in policies, funding sources and tax incentives to invest in entrepreneurship.
“A new program, a new executive branch, a new independent review committee and a new set of eligibility criteria are all very good for new governments’ desire to make their mark and cut ribbons, but it leaves startups and SMEs in the end.”