BlueFire Group Incubator warned today that only "one or two" of the 11 incubators who received funding under the Building Information Technology Strengths (BITS) program would survive if the government elected not to renew the initiative once it expires in June next year.
BlueFire Group Incubator's executive director, David Nelson said some continuing government funding was required to support early stage ICT companies "given the ongoing market failures".
The 11 incubators -- who provide funding to more than 100 early-stage information technology companies -- were generally established in mid-2000, so would have been operating for about four years when current funding expires, Nelson said. The BITS incubator program was first announced in July 1999.
"International benchmarks suggest that early stage IT companies, such as the incubatees, would normally take 5-10 years to become profitable," Nelson said.
He added that the BITS program filled a gap in the market that was not covered by other government programs "...and has achieved a number of milestones, including attracting significant private co-investment, the development of over 700 jobs across the program and its incubatees, strong export incomes and the incubation of a number of high-performing ICT businesses that have featured as award winners in industry competitions such as the 2003 Secrets of Australian IT Innovation competition".
A spokesperson for the new Minister for Information Technology and Communications, Daryl Williams, declined to commit to a firm date by which a decision on BITS will be made. She said the government had commissioned the Allen Consulting Group to conduct an evaluation of BITS and that the consultants were due to report "shortly".
"Subsequent to that, the government will consider its options," she said. It is understood Commonwealth officials have also remained tight-lipped in their discussions with program participants, failing to give a firm indication as to BITS' future. However, they are expected to do so before Christmas.
Nelson said BlueFire Group Incubator -- which had pumped around AU$3 million to AU$4 million into its portfolio of companies, including online sandwich retailer Specialty Direct, e-commerce supplier Hotshed and associated online retailer D-Store, oil rig information system provider Visean Online and medical database provider -- had received a grant of AU$6 million under the first stage of the program.
Nelson said that portfolio would still survive should the government elect not to renew the funding. However, loss of those funds would "preclude us from adding value to the portfolio and adding new businesses to it".
The company's call follows the remark from the now-former Minister for Communications and Information Technology, Senator Richard Alston, that the greatest challenge for Williams was to secure an appropriate level of funding for the next stage of the government's innovation action plan, Backing Australia's Ability (BAA). The first round of funding for that program -- AU$2.9 billion over five years -- is due to expire in 2006. Education Minister Brendon Nelson said recently the next funding instalment for the program would be unveiled in the 2004 budget.
David Nelson said BlueFire Group Incubator had put forward to the Commonwealth three proposals for the extension of BITS:
- extend the current program to 2005/06 under existing average rates of funding per incubator to allow the program to have more time to succeed (in line with international models for similar programs), before considering the future of BITS in line with the next stage of BAA;
- extend the current funding to 2005/06, shift the program to the next stage of BAA, set performance-based assessment for incubators and reduce funding to 87.5 percent of current funding (AU$14.7 million) from 2006/07 and to 75 percent (AU$12.6 million) from 2009, to continue at that level to 2010/11, or;
- maintain the BITS Program separate from the next stage of BAA and reduce current funding in two performance based stages to 87.5 percent of current funding from 2004/05 and to 75 percent of current funding from 2007. The program would then continue at that level to 2010/11.
