6 tips on new Australian funding opportunities in innovation

A report from the University of Technology Sydney has been instrumental in developing a new funding initiative of the Australian aid program to encourage the scale-up of innovative ideas in the Indo-Pacific region. The Social Entrepreneurship and Impact Investing Report was commissioned by innovationXchange, a unit within the Department of Foreign Affairs and Trade to support innovation across the Australian aid program. Its aim is to provide insight into social entrepreneurship and impact investing in Australia and the Indo-Pacific region and its potential for greater impact within the aid program, and it is already impacting new initiatives. At an event this week in Canberra the minister for foreign affairs, Julie Bishop, launched the $15 million Australian dollar ($12.1 million) Frontier Innovators initiative. The program, open for submission of ideas until September 30, will provide support and opportunity for startups to scale projects driving development in the Indo-Pacific, and was based in part on the UTS research. Fifteen innovators will be selected as part of the scheme, each receiving up to $100,000 Australian dollars ($80,620) to drive their idea and initiative that supports one or more of the 31 countries in the Australia’s aid programs priority region further. Bishop additionally announced that Australia would be contributing future rounds of GSMA Mobile’s Ecosystem Accelerator Innovation Fund, a $5.6 million Australian dollar ($4.5 million) investment over three years. “This is recognition that government doesn't have all the answers, and we need to harness the creative minds of innovators throughout our regions,” she said. Lead researcher Danielle Logue, associate professor of innovation and entrepreneurship at the UTS Business School, told Devex she was excited about the impact her research was already making. “I’m pleased to see the launch of new programs informed by research conducted with many stakeholders in region, and new firms stepping up to contribute to development,” she said. “Taking a ‘system change’ approach, I believe, is most hopeful in increasing social impact in our region, in addition to supporting individual entrepreneurs.” The new report provides valuable insights into the challenges and opportunities for new partnership to generate, support, fund and scale new ideas for development challenges. Here are six key takeaways. 1. Impact investors in Australia are open to the challenge of developing countries. The report from UTS is a culmination of 12 months of work exploring ideas and challenges associated with social entrepreneurship and impact investing, and the research ended up looking beyond Australia’s borders. “What we were looking at initially was the impact investing market,” Logue explained. “We wanted to know how we could encourage more investment in the region and one of the ideas we came up was to mobilize Australian impact investors to look at opportunities outside Australia.” Australian impact investors currently have a limited footprint in the Australian aid program, but they were open to the possibility of doing more. “Australian impact investors want to get runs on the board,” Logue explained. “People are eager to find opportunities that work and create an impact.” The main barrier is that Australian investors lack direct understanding of industries and development challenges in the Indo-Pacific region. They wanted brokers and intermediaries to provide the information, knowledge and support to make deals. “But it’s hard for even the intermediaries to have a good business model in this region,” Logue said. “It is a tricky situation in which to be operating.” 2. Crowdfunding platforms have big limitations. Logue and her team investigated crowdfunding platforms and their ability to identify those ready to scale up their ideas for impact. But they were limited in their potential for impact. “What we find is that the platforms themselves have difficulty with their business model,” Logue explained. “A lot are still reliant on philanthropic funding, there are issues on transaction costs as well as the volume needed to be viable.” But the biggest barrier was the initial outreach. For aid and development projects where entrepreneurs were living outside of major cities, the opportunity for promote awareness and generate funding for their ideas was limited. There was a large group of people who would benefit greatly from investment in innovative ideas who were making limited inroads into the crowdfunding community. 3. Data is needed for information and transparency. As part of the research, a soon to be released database was developed of incubators and accelerators, crowdfunding platforms and microfinance organizations relevant to the Australian aid program’s region of influence. It is a step in providing greater transparency on the opportunities available to support startups and innovators. “There is a lot of data coming in, including through Grand Challenges and other deals, but there is a real lack of transparency in this space because of the tension of market building,” Logue said. “It is competitive and they don’t want to share information. But it needs to be shared, so we understand in the development space who is doing what and what is a good deal.” Information that can be generating from entrepreneurs applying for innovative challenge competitions was a potentially rich data source, but not utilized. “We could understand where entrepreneurs are coming from, what their journeys have been and what support they need to take their idea to the next level,” Logue said. 4. What makes a quality incubator is still a mystery. The report investigated 39 incubators and accelerator programs operating in the Indo-Pacific region and 55 within Australia to broadly identify their potential ability to support development challenges. But despite almost 100 programs existing, the research could not identify precisely what makes a quality incubator. “We don’t know what happens to people coming through programs,” she said. “We can find out, for example, that 20 people went through an accelerator program. But what happens after that? It is actually quite expensive to follow up at times and accelerators are busy moving on to the next cohort.” Research also highlighted that incubator managers are rarely from the host community, missing an important opportunity to share knowledge, combine initiatives and improve their value to investor networks. 5. A missed opportunities with procurement processes. Social procurement was investigated by UTS as a way to improve investment and market opportunities. And the conclusion was that it had huge potential to make a difference but was currently a missed opportunity. In the context of an aid program, social procurement is a strategy to maximize effectiveness of aid disbursements by increasing the amount of procurement within aid recipient countries. The report showed procurement offered a large potential funding pool for developing countries to improve their economic outlook — in 2010, $69 billion of global aid spending was related to procurements. With both government and investors involved in more socially responsible procurement, Logue believed there could be big impact in developing countries by building value chains, stability and ongoing revenue for enterprises. “If feel we should do more of that,” Logue said. Expanding upon what the work already being done in the Australian government, with the Department of Industry, Innovation and Science leading the way through their Sustainable Procurement Strategy, would simplify this process. 6. A message for NGOs — there is still time to set the rules of the game. Logue told Devex a key message she has for the development community is that the rules of the game for impact investing were currently being set — and it was important to play a part in influencing them. It can help identify development challenges and supporting new and innovative ideas within the Australian aid program. “It’s so important for the development community to be involved in this space,” she said. “The definitions of what is impact, what is a social enterprise and who is allowed to be a broker are being established. The development community can helps us to be [as] inclusive as possible and work across geographic boundaries to support developing countries.” In this fast evolving sector, waiting to have a say may result in mainstream financial regulations overlooking the knowledge NGOs have to offer and targeting development challenges as best as they could, she warned. Check out more practical business and development advice online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.