Skilled visa crackdown threatens start-up goldrush: StartupAUS report

Australia’s start-up community saw a record $1.32 billion of venture capital funds raised in 2016-17, and a record low need for offshore investors to fund deals, but this momentum risked being derailed by restrictions on skilled visas and the research and development tax incentive, a major report warned.

In a foreword to the 2017 Crossroads report by advocacy body StartupAUS, Atlassian co-founder Scott Farquhar lamented that April’s overhaul of the skilled visa system had by the third quarter more than halved the number of visas issued on a year-on-year basis.

“Right now, Australian technology companies can’t import talent in business-critical roles like product managers or user experience designers,” Mr Farquhar said.

“And while software engineers have a path to permanent residency, their managers – who are classified as ‘ICT managers’ – do not, limiting the ability of local companies to hire world-class managers and mentors for recent Australian graduates.

“World-class people are very unlikely to uproot their lives and move to Australia if they can’t be sure that they’ll be allowed to live here in the long-term.”

The StartupAUS study, which sought input from players across the early-stage growth business ecosystem, found Australia needed to produce larger numbers of start-ups, to ensure some of these start-ups went on to achieve global growth and to ensure the most successful start-ups retained a sufficient connection to Australia so the nation could benefit from their success.

But it found the research and development tax incentive was another hurdle to this goal.

Anecdotal evidence

The government was yet to respond to a review of the incentive it commissioned last year, which recommended that refunds available to small companies under the scheme be capped at $2 million a year.

But the study uncovered “anecdotal” evidence that a crackdown on the $3 billion-a-year scheme was already in effect, with claims by software companies for the R&D tax incentive in 2016-17 said to have received “a significantly increased level of scrutiny and a lower rate of approval”.

Meanwhile, the record level of venture capital investment looked less impressive in context, the report found, with the $568 million raised in calendar 2016 equating to 0.023 per cent of gross domestic product, less than half the average of nations in the Organisation for Economic Co-Operation and Development.

The study made several recommendations to address problems it claimed were holding the start-up ecosystem back.

These included that state governments should continue to build and connect innovation precincts; the federal government should pay the R&D Tax Incentive on a quarterly rather than annual basis; qualification criteria for the entrepreneur visa should be altered and simplified; options issued under employee share schemes should be exempted from the “20/12 rule”, which allows businesses to issue shares without a prospectus provided their value does not exceed $2 million an any rolling 12-month period; a skilled worker visa for “digital skills” should be created, with a flexible definition reflecting dynamic start-up needs; governments should collaborate to expand the school curriculum for digital skills; a copyright safe harbour for all online content providers should be implemented.

Courtesy of The Financial Review- Mark Bailey