Industry Growth Program: discussion paper

Premier of Western Australia

Our ref: 60-067801

Email: lndustrvGrowthProqram.consultation@industrv.gov.au

Attention: clare.fisher@industry.gov.au and narelle.fox@industry.gov.au.

INDUSTRY GROWTH FUND

Thank you for the opportunity to provide input into the overarching program design of the new Industry Growth Program (IGP), to ensure that the program supports innovative, small and medium sized (SME) enterprises navigating early-stage growth challenges.

The Department of Jobs, Tourism, Science and Innovation (JTSI) leads economic development activities for the Western Australian (WA) Government and has coordinated a whole-of-government response across the various economic development functions of the Western Australian Government. Please find the submission attached.

I look forwar rther engagement on these important issues.

ROGER COOK MLA
PREMIER

Alt.

1 1 SlP 2023

2 Havelock Street, West Perth, Western Australia 6005
Telephone: +61 8 6552 5000 Facsimile: +61 8 6552 5001 Email: WA-Go ernment@dpc.wa.gov.au
www.premier.wa.gov.au
Attachment 2: Western Australian Government Submission - Industry Growth Program

The Western Australian (WA) Government welcomes the opportunity to comment on the Industry
Growth Program (IGP) that will replace the Entrepreneurs Programme. In 2022, Western
Australia released its Innovation strategy: Western Australia - The Place to Innovate with similar themes and motivations. The innovation strategy highlights the priority areas needed to support innovation and identifies our leading edge opportunities . These opportunities being, broadly aligned with Diversify WA, the State’s economic development framework and significantly overlapping the National Reconstruction Fund (NRF) priorities.

Please see some comments below in response to the Department of Industry, Science and
Resources (DISR) IGP Consultation Paper.

Eligibility of innovative - small and medium-sized enterprises (SMEs)

The relatively broad definition of the NRF priorities and the enabling capabilities in the NRF
Corporation Declaration, facilitates relatively wide eligibility of Western Australia SMEs, accommodates jurisdictional economic variations and enables broad based productivity benefits.

It is good to see acknowledgement of the challenge in determining objective eligibility criteria.
Variables such as turnover, margins and employment vary significantly between industries, sectors and geographical location and there are significant risks to setting hard limits. These variables are also influenced by the general scale and maturity of relevant sectors, and other factors such as capital intensity, the transformative nature of an enterprise or its business model.
Eligibility criteria might therefore consider references to industry benchmarks in determining eligibility criteria to accommodate significant sector disparities.

The reference to technology readiness is also a useful framework to ensure that the program assists SMEs through the target phases of the commercialisation continuum. Sector specific comments in this regard are included in the additional sector comments.

Given the significant gateway role of the program’s advisors, the Western Australian Government strongly encourages the use of experienced advisors with knowledge and experience of local conditions in the new program. The Western Australian Government also encourages strong engagement with local, key stakeholders, such as regional development commissions, regional chambers of commerce, Aboriginal corporations, business hubs and local business networks.

IGP advisors should be sufficiently resourced to overcome the geographical coverage challenges in Western Australia and its isolation from the Eastern States. This could necessitate alternative partnering arrangements on the ground here to achieve viability of coverage and to deliver on the IGP’s diversity and inclusion ambitions, particularly in regional and remote parts of Western
Australia. Elevated advisor resourcing levels and realistic evaluation targets will support effective delivery across our rural and remote operating environments and when dealing with disadvantaged or under-represented groups. The Western Australian Government, through relevant agencies, would welcome the opportunity to work more closely with the Australian
Government to inform these planning processes, providing input on suitable resourcing for rural, regional and remote areas and ensuring that the IGP and state based programs are complementary and avoid duplication.

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It is likely that the success of the Industry Growth Program will depend considerably on the quality of the selected IGP advisors. Any reasonable assistance the Western Australian Government can provide in helping select the best advisors in Western Australia, can be provided.

Eligibility of projects

The issue of appropriate co-funding and grant matching is challenging and flexibility in the co¬ funding is required. The Western Australian Government supports flexibility around the funding requirements, particularly where diversity, rural/remoteness, sector and maturity of the business or sector is concerned, with a recognition not only of the much higher cost structure facing regional and remote businesses, but the additional impost of diminished access to market, capability, skills and research resources. It is also recommended that the design of the IGP assigns a sufficient level of priority to projects to reflect the broader national interest in developing capability in key industry sectors.

Additionally, it will be important to be clear that the receipt of past Commonwealth or State assistance will not disqualify applicants.

On the question of whether the applicant has to have IP ownership, it is suggested that the focus be on the potential benefits that may or may not derive from such ownership. As such, owning it may provide strong local capability or royalty benefits that should make an application stronger, but it should not be used to prohibit an otherwise strong application.

Asking a question regarding the need for funding is relevant given the purpose of the program is to fill the valley of death where funding is not available. Providing information to the assessment panel of why this is the case is pertinent to overall judgements as to the merits and alignment of the application with the program.

Diversity and inclusion

There are unique barriers to access for traditionally underrepresented groups in Western
Australia, including SMEs in more remote areas and for Aboriginal people. As mentioned above, it will be critically important to resource program advisors for the vast geography of Western
Australia and develop strong links with partner organisations (as detailed in the consultation paper). Western Australian Indigenous and/or regional partner organisations can assist in attracting under-represented groups. Further providing periodic webinars (and subsequent on demand accessibility) about the program assists with information access and dissemination for the widest range of people. Having continuous access to funding can also assist participants who find their way belatedly to the program through the ‘bush telegraph and might otherwise miss discrete calendar openings for grant funding rounds.

Where scoring is used in the merit based assessment, agreeing ex-ante to any scoring adjustments for under-represented groups might prove helpful as an additional approach to supporting diversity in a rigorous and transparent way. An alternative approach is to provide dedicated funding streams for under-represented groups such as regional, female or Indigenous
SMEs and founders. The latter can be a more effective way of maintaining fairness (actual and perceived) in the process.

It may also be useful to provide for additional cultural engagement support and commercialisation advice for some potential applicants (either in additional to or as an alternative to variable scorings or discrete programs).

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Program governance and assessment

JTSI supports the outlined approach to governance and assessment in the IGP paper and encourages cross-jurisdictional representation as an additional consideration in developing the matrix to ensure an appropriately skilled, representative and diverse governance committee.

It is highlighted that overall net public benefits (broadly defined) and linkages to market failures should be key determinants in the assessment process. It is important public value is attained through the program; not merely the subsidisation of industry and jobs.

Ongoing monitoring, oversight and review of the number and value of awards by State and
Territory, industry sector and tracking of program diversity statistics will be key to achieving program reach.

Diversity and inclusion should also be weaved throughout the program and reflected on the governance committee itself, which if achieved, can appropriately oversee the detailed design of the IGP assessment process and ensure these objectives.

Further, it will be important that the process adopted is clear and efficient. Slow, burdensome and uncertain processes and outcomes clearly need to be avoided.

This later point also applies to post grant period reporting, where obligations should be easy, streamlined and linked to a CRM that enables strong data analytical capability with questions linked to the program s objectives.

It is understood that historic outcomes of related programs, such as the Accelerating
Commercialisation program, were tracked through relatively simple to report business metrics such as additional revenue, employment, profitability over time and total capital investment attracted. JTSI strongly encourages the use of reporting aligned to the stated intentions of the program to facilitate business growth, with simple reporting processes used to ensure high participation and completion rates.

Additional sector specific feedback:

Health

There are synergies between the proposed IGP and Western Australia s Future Health Research and Innovation (FHRI) Fund. The FHRI Fund is a State owned fund, which funds research and innovation, to improve the health and prosperity of Western Australians, the sustainability of the health system and to advance the State’s standing as a leader in research and innovation. The existence of the FHRI Fund could support WA medical science innovators in developing competitive applications for IGP funding.

The co-funding requirement for the project grants program should be determined in such a way that less mature SMEs and start-ups are not excluded, due to their more limited financial capacity.
In particular, the evaluation should allow for proponents of promising but early stage medical
SMEs to receive due consideration, despite potentially limited financial capacity. There are added complications of approvals navigation for life sciences companies and additional education or support needed to navigate these processes could be considered.

Eligibility of innovative SMEs

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Many research driven, smaller, health businesses and start-ups cannot meet the matched funding obligations of grant programs, so diminished or no matched funding requirements are encouraged in this sector.

Eligibility of Projects

With regards to TRLs (Technology Readiness Levels), TRLs in the 3-5 range are appropriate for early-stage business, while TRLs of up to 9 are appropriate in the commercialisation phase.
Consequently, there may be a limitation on the stringent or sole use of TRLs for eligibility here.

The NRF priorities seek to build domestic capability in key sectors. Given the recognised funding gap in Australia and the potential needs of some businesses to access multiple funding sources, companies should not be penalised for obtaining funding from other sources.

Diversity and inclusion

As already noted, a barrier for access to the Program will be the co-funding requirement.
Consideration should be given reducing this as an eligibility criterion at least for the lower value grants (for example up to $250,000) and/or early-stage grants for businesses that have an annual turnover below agreed levels.

Industry partner organisations

Expertise regarding regulatory requirements and approval processes, advice on setting up appropriate governance arrangements (including financial handling) would be particularly valuable for early-stage participants in this sector.

It is not clear what the industry partner organisations will do, considering the appointment of the
IGP advisors. If the program is to be launched before the end of calendar year 2023, it could be that industry partners are selected after the program has begun, according to the relevant gaps and needs in the various jurisdictions. What a partner may be required to do, to complement the work of the advisors, in NSW may be very different to what is required in Western Australia, or
Tasmania, etc.

Program governance and grant assessment

When considering grant assessment for biomedical and health applications, the Western
Australian Government supports the inclusion of appropriate consumer representation in the relevant assessment processes.

Alignment with other initiatives

Continuous grant rounds would mean that universities and other entities will be able to better support potential applicants and to prepare their own support mechanisms, as grant information would always be available. This in-turn allows entities to design partner/support funding programs for example, pilot funding or funding for training to help make applicants more competitive or establishing programs where successful applicants would get the matching funding required for the Industry Growth Program. Adequate timing (1-2 months) should be allowed following grant releases or changes to allow the sector to align support mechanisms.

Mining and Resources

Eligibility of innovative SMEs/ Eligibility of Pro ects

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SMEs seeking to create additional economic value tied to the resources sector are constrained by the underlying characteristics of the sector. Resources projects are typically regional and/or remotely located, subject to significantly elevated cost structures, may be adjacent to low population densities, suffer skill shortages and lengthy project planning and evaluation timeframes. Resource projects are also extremely capital intensive. Finally, resource companies typically sell into global commodity markets with significant price volatility.

This can create substantial risk and complexity for innovative SMEs seeking to create or capture value linked to the sector. Therefore, the IGP should consider these factors in its assessment of eligibility.

An example of a potential barrier could be the proposal in the discussion paper to assess project eligibility based on factors such as the ability to fund 50% of the project. Accommodations might include reduction in co-funding to reflect the higher cost and risk environment, and also determining co-funding contributions over lengthier periods of time.

Alignment to other initiatives

The Streamline WA Lead Agency Framework/Case Management Program is consistent with the Industry Growth Program objectives and will be relevant to IGP projects and participants in mining and resources sectors. It provides approval scoping and advice for industry, increases inter-agency cooperation, reduces project approval timelines and compliance costs.

Transport

Eligibility of innovative SMEs/Eligibility of pro ects
Considering the long term and broader benefits to society of transport business solutions might have merit in determining program eligibility. For example, reducing the capital intensity of freight/logistic/distribution networks has the potential to broadly support the NRF objectives of rebuilding industrial and manufacturing capability and resilience.

In terms of intellectual property ownership, while there is considerable focus currently to expand
Australia s intellectual property footprint, it is plausible when Australia is the main user of a technology that this might not be necessary. For example, with products that are inputs into infrastructure projects.

Program design to meet intended outcomes
In regard to the transport sector, project timelines are typically very lengthy and products may re uire significantly longer than 24 months to commercialise, such as inputs into freight and logistics of cyclical, value adding industries.

Space and Defence Sectors

Eligibilit of innovative SMEs
The barriers to entry can be much higher in these sectors. Operating re uirements such as securing security approvals in the defence sector, or establishing heritage in the space sector, impact both time and cost to commercialisation. In regard to technology, hardware companies unlike software providers, typically face significantly higher commercialisation costs, due to challenges such as manufacturing, supply chain management, and hardware design. This along with TRL levels needs to be taken into consideration when assessing and allocating grant

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funding. The higher capital hurdle means start-ups and small SMEs in these sectors can typically struggle to co-fund 50% of project expenditure.

Finally, some private funding sources, such as angel and venture capital sources may not be available, e.g. in the defence sector. Therefore, eligibility of in-kind contributions, lower grant matching percentages and concessions, particularly to stimulate critical capability could greatly assist development in these sectors. This could be weighted depending on the novelty of the commercialisation and its overall contribution to new Australian capability that aligns with comparative advantages and strategic interests. In terms of developing critical capability, this should be clearly linked to strategic defence policy, specifically AUKUS and the Defence
Strategic Review.

Eligibility of projects
Technologies that have cross-sector application across priority sectors of the Australian economy, support national security or encourage the sovereign supply chain development could be encouraged in the eligibility and selection criteria. Similarly, the IGP could also promote technology translation between sectors, such as from civil to defence or terrestrial to space (noting also that these sectors have higher barriers to entry).

Given the commercialisation and growth focus, TRL of 7 or greater would be an appropriate target range for the space sector, while a lower TRL is appropriate for defence, given that the valley of death (TRL-4 to TRL-6) is pronounced for certain subsets. IGP funding access for
TRL-6 would facilitate funding for building and testing of defence prototypes. In both sectors, it is appropriate that the applicant has legal ownership of relevant intellectual property. Defence
SMEs should also be capable of demonstrating Freedom to Operate.

The entry barriers, elevated cost hurdles and foreign investment and other funding restrictions, which do not impact SMEs in the civil domain, should be considered. In the space sector, common-user infrastructure can greatly assist with entry barriers, especially in regards to support for hardware technologies. Finally, a criterion which targeted the need for funding would need careful crafting to enable it to distinguish adequately between sectors and projects.

Program Advisors
Physical representation of IGP Advisors and Partner Organisations in Western Australia is critical. For Defence, this might also include northern Western Australia, where a strategic need has been identified.

Industry partner organisations
In respect to supporting technology translation and the specialist nature of the space and defence sectors, we recommend that industry partners have direct knowledge and experience of these unique operating environments, including of the relevant procurement processes (e.g.
Defence/Primes) and security requirements, and ideally should have Defence or defence experience representation in the organisation. The Department of Defence s Office of Defence
Industry Support or DMTC may provide a model for the defence industry partner organisation(s).
Capabilities or experience in managing collaborations between industry, research and government partners or demonstration of supporting industry with line of sight to capability outcomes, engagement strategies and pathways to succeed should be considered.

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In addition to those identified in the consultation paper, for defence industry partner organisations should provide support to SMEs in obtaining membership of the Defence Industry
Security Program and navigation of Defence procurement processes.

Proposed Program Project Periods
For the defence industry, up to 24 months is largely sufficient. However, it should be expected that some projects may take longer due to factors beyond the control of the SME, for example, delays in securing security clearances, Defence Industry Security Program (DISP) accreditation etc. Further, the 24 month durations is acceptable so long as the apparent pressure on the project teams to deliver at speed is matched by the same sense of urgency in the decision¬ making process. For government to have a drawn out approval process but then to expect project teams to be shovel-ready at a moment s notice is both unrealistic and self-defeating.

Evaluation
Some defence capability projects may provide a critical capability to Australia and its allies while not providing a financial return. Therefore, success measures for evaluating investment which support defence capability development should consider how projects contribute to the defence strategic requirements, in addition to any examination of more orthodox business metrics.

Alignment to other initiatives
We strongly support alignment with other initiatives. Western Australia is also looking at mechanisms to support its defence industry SMEs. Any state-led programs that are developed will align with the needs of Defence as outlined specifically by AUKUS agreements and the
Defence Strategic Review.

While some priority NRF sectors have exclusive access to certain funding sources such as
Australia’s Economic Accelerator and the Medical Research Future Fund, alignment, linkage and knowledge of these to the IGP will improve visibility of where there may be a genuine lack of funding and additional support may be required.

Enabling sectors
A separate stream could be appropriate for these ‘enabling’ projects. Alternatively, the technology transfer and multi-sector use benefits should be considered in assessing overall net benefits.

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