National Reconstruction Fund Taskforce
The Group of Eight (Go8) is pleased to provide feedback on the implementation of the Government’s $15 billion National Reconstruction Fund (NRF). Please note that this submission represents the views of the Go8 network and member universities may wish to make their own individual submissions. The Go8 also consents for this submission to be published in full.
The Go8 welcomes the introduction of the NRF as a strategic pillar in Australia’s future economic prosperity, facilitating the growth of vital industries, and a much-needed investment in Australia’s ability. The success of the NRF in targeting projects and investments that help Australia capture new, high-value market opportunities will depend on leveraging Australia’s innovation and R&D capability – particularly through its world class university sector.
Without leveraging Australian universities, particularly the Go8 universities, that produce the knowledge and human capital stock essential for modern economies to innovate and grow, the NRF will not succeed. Australia’s long-term economic prosperity relies on the creation and (commercial) application of ideas, so the more the NRF utilise Australian universities in financing and facilitating projects, the greater the prospect of success.
The Go8 represents Australia’s eight leading research-intensive universities, with seven of its members ranked in the world’s top 100 universities. Collectively, the Go8 undertakes 70 per cent of all Australian university-based research and invests $7.7 billion in research each year.
The seven priority areas identified by Government in the NRF are all areas in which Go8 universities has world class expertise. Our researchers are consistently making ground-breaking discoveries in medical science, renewables and low emission technologies, defence capabilities and enabling capabilities across robotics, AI and quantum, and others.
The Go8 pushes above its weight in commercialisation of research, generating the largest share of commercialisation revenue for the sector in Australia and attracting industry funding for research that is twice that of the rest of the sector combined.
In 2020 the Go8 universities collectively earned $95.5 million in research commercialisation income, more than twice that of the CSIRO ($43.3 million). One member (the University of Queensland) earned over $64 million in commercialisation revenue, which is 50 per cent more than CSIRO.
Go8 members are also directly engaged as partners in significant research commercialisation funds such as the IP Group with a fund of over $200 million to commercialise Go8 research and the recently announced Tin Alley Venture Fund with the University of Melbourne.
We make the following recommendations on the implementation of the NRF:
- To achieve its goals, the NRF should operate as part of a coordinated innovation support system alongside programs such as Australia’s Economic Accelerator to ensure the full innovation system – at all Technology Readiness Levels – is supported and to progress the aspiration of national investment in R&D reaching 3 per cent of GDP.
- Establish a $1 billion investment fund modelled on the Biomedical Translation Fund to invest in early and growth stage companies and technologies in the NRF’s seven priority areas.
- The NRF should give careful consideration to the higher risk profile associated with specific fields of research and measure return on investment in a nuanced way.
- The NRF’s independent board should include representation of a suitably qualified individual with experience in successfully commercialising university research.
- The NRF must address Australia’s current investment landscape and provide further support to SMEs to engage with universities.
- Given the significance of international partnerships in building Australian capability, the NRF should not preclude all projects that have arisen from international research collaborations or involve international industry partners.
- The NRF should consider funding projects which support strategic partnership and help build capacity within the Indo-Pacific region, where it is appropriate to do so and in the national interest.
Go8 researchers consistently deliver ground-breaking discoveries that improve the lives of all Australians. We boast strong research capabilities across a broad range of research fields, including medical science, renewables and low emission technologies, defence and the broad umbrella of the NRF’s ‘enabling capabilities.’
Examples of outstanding research include breakthroughs such as the University of Queensland’s Gardasil – a revolutionary HPV vaccine that prevents cancer and other HPV-related cancers; UNSW’s Passivated Emitter and Rear Cell (PERC) – the world’s most commercially viable and efficient silicon solar cell technology; and the University of Western Australia’s precision oscillators and clocks – including the world’s best microwave oscillator which has been used in the most precise and sensitive defence radar systems.
The Go8 has released a series of capability statements highlighting the breadth and depth of our research capabilities and commercial impact, including in AI, Space, Defence, and Genomics and Precision Medicine. Our members have strong partnerships with globally leading companies (such as Boeing at the University of Queensland; Microsoft and General Electric at the University of Sydney; and Illumina at the University of Melbourne), are connected to Cooperative Research Centres, linking Go8 expertise with important Australian industries, and host and partner on National Collaborative Research Infrastructure Strategy (NCRIS) projects to tackle some of the world’s biggest challenges.
In addition, the University of Queensland has a strong commercialisation track record through its commercialisation company, UniQuest, and the University of Melbourne is the first university in Australia to introduce a funding platform along the full research commercialisation pathway from start-up to exit via its Proof of Concept scheme, Genesis Pre-Seed Fund, and Tin Alley Ventures Fund.
While our universities can increasingly point to major commercialisation deals from our discoveries, there is much to be done to ensure the excellent research carried out in our world class universities is harnessed and optimised. As the Go8 set out in its submission to the Productivity Commission’s 5-year Productivity Inquiry, business continues to walk away from funding research leaving it to universities – specifically Go8 universities – to pick up the slack.
Further, our nation’s current risk-averse and disjointed investment landscape often means Australian researchers are missing out on opportunities to translate their discoveries at home. As University of Sydney Professor and 2020 recipient of the Prime Minister’s Prize for Innovation, Thomas Maschmeyer has stated previously, “Successful technology translation is characterized by completing the chain that starts with scientific discovery, links it to spin-outs or licenses that finally attract large investments and concludes with IPOs by established players. But there are many home-made hurdles that interfere with this progression.” The Go8’s proven track record in research commercialisation is therefore a testament to the commitment and dedication of our members to make the most of commercialisation opportunities despite the current operating environment.
The NRF is a welcome and much-needed boost to support the Go8’s strong research capabilities and demonstrated commercialisation efforts. However, the success of the NRF will ultimately depend on the support provided to the entire research pipeline, from pure basic research to applied research. In short, it is critical that the government’s spending on innovation through the NRF goes directly into increasing the quality of innovation activity, not merely increasing the volume of expenditure.
Recommendation 1: To achieve its goals, the NRF should operate as part of a coordinated innovation support system alongside programs such as Australia’s Economic Accelerator to ensure the full innovation system – at all Technology Readiness Levels – is supported and to progress the aspiration of national investment in R&D reaching 3 per cent of GDP.
The commercialisation bottleneck for university research
The consultation paper notes the NRF will be modelled on the Clean Energy Finance Corporation (CEFC); it will be required to generate a positive return across its investment portfolio; it will conduct operations on a commercial basis; and it will not provide grants. By this definition, the NRF will be targeted towards the end of the innovation pipeline and support investment at later-stages of development.
In his address to the National Press Club, the Minister for Industry and Science, Ed Husic MP affirmed the late-stage focus of the NRF, stating that “…every company that approaches the NRF will need to be prepared appropriately. They will need a business plan. They will need to show how they propose to build solid companies, that generate a return and support the creation of secure, well-paid jobs.”
While the Go8 supports a strong focus on backing Australian jobs and industry, we have consistently highlighted that the key bottleneck in the commercialisation of university research is funding at the proof-of-concept stage that converts breakthrough research into opportunities suitable for business or Venture Capital (VC) investment.
This early proof of concept stage is where there is the greatest chance of ideas and entrepreneurs falling into the so-called ‘Valley of Death’. Currently there are only limited funds available for this stage of commercialisation and universities are forced to top up government research funding with their own funds, mainly drawn from international student fees.
While the NRF may stimulate the end of the innovation pipeline, Australia’s research effort needs targeted funding at the proof-of-concept stage in order get past initial commercial development milestones and bring their ideas to a state of commercial readiness. The Government’s Australian Economic Accelerator (AEA) and Start-Up Year Loan program will go some way towards addressing this and the Go8 endorses the Government’s commitment for the NRF to work alongside Commonwealth programs that foster and support innovation. It is critical that all cogs in the research pipeline move together.
This is particularly important when considering the focus of the NRF and the type of technological innovation needed for “transformation and diversification.” For example, much of the technology required to power our nation’s energy transition either doesn’t exist or is in the early stages of research and development. This basic or early-stage research does not qualify for funding under the NRF’s current investment mandate and may not qualify for funding under the AEA, which is targeted at Technology Readiness Level 3-5. This means researchers must rely on the existing pool of competitive and oversubscribed research funding to develop their ideas and discoveries.
For the NRF to effectively support the commercialisation of research, the Government must address the underlying vulnerability of Australia’s research funding system. As we have stated previously, universities need an approach to research funding that addresses its full economic costing. This will ensure university R&D can be conducted sustainably, be resilient to sudden market shocks (e.g. dramatic reductions in international student fee revenue) and feed the research commercialisation pipeline that will ultimately drive our economic growth and national prosperity.
While acknowledging that the NRF is not intended to directly support Australian university research, it does have significant potential to assist with our research commercialisation efforts through the provision of non-grant financial support, for example through subsidised loans, guarantees and direct equity investment for start-ups, potentially spinouts and established firms licensing university research.
The Go8 proposes the following solution to advance early-stage innovation. Using the successful Biomedical Translation Fund (BTF) as a model, the Go8 recommends the NRF support a notional carve out of $500 million specifically for innovation that is early in its commercialisation journey in the same seven priority areas. As IP Group Australia identified in their submission to the NRF, the BTF provides a valuable precedent of what can be achieved through a well-structured public private partnerships model in complex areas with recognized funding gaps. The BTF should be used as a model because it provides a useful example of how to invest in promising early-stage discoveries and demonstrates exactly what can be achieved when capital is matched from the private sector. The NRF should therefore make an allocation of $500 million to an investment vehicle that can attract matched private sector capital. This would create a $1 billion vehicle to support the new technologies needed for the NRF’s investment mandate, while still allowing it to maintain a diverse range of investment activities.
In addition, the Government’s Start-Up Year Loan program could be leveraged to support early-stage innovation, allocating a proportion of seed funding for student ventures that have come through the Start-Up program. This would support their development along the Technology Readiness Level scale to reach a stage of commercial readiness.
Recommendation 2: Establish a $1 billion investment fund modelled on the Biomedical Translation Fund to invest in early and growth stage companies and technologies in the NRF’s seven priority areas.
Determining the risk profile and measuring return
The consultation paper also notes that the NRF will be required to generate a positive rate of return across its investment portfolio. The timeline for the NRF to generate this return is of significant interest to the Go8. It is widely recognised that it can be difficult to predict commercialisation timelines for university research, particularly medical science research which can be costly and often requires extended and additional research development. The NRF should give careful consideration to the timeline and higher risk profile associated with specific fields of research and development.
An example of the challenges associated with medical science research was demonstrated during the development of new COVID-19 vaccines.
In 2020, the University of Queensland (UQ), in partnership with Australian biotech company CSL, were set to supply the Australian Government with 51 million doses of a COVID-19 vaccine before clinical trials of the vaccine revealed diagnostic interference. The vaccine produced false-positive readings to HIV-AIDS, potentially impacting vaccine hesitancy. Despite Government awareness that there was some risk of diagnostic interference, support was withdrawn, and the $1.7 billion order terminated. There has since been contention amongst senior health officials about whether the vaccine was still viable based on pure medical grounds, with UQ scientists publishing data confirming the vaccine technology was safe and potentially effective. Despite the initial setback, UQ researchers are continuing to work on their technology and its possible alternative applications.
Failure to reach a commercial outcome is not necessarily the end of the line; it could very well be the beginning of another important research breakthrough. It will therefore be important for the NRF to measure partial advances and key learnings as well as complete commercial success.
The pathway to university research commercialisation is non-linear and the NRF should consider the markedly diverse ways in which research can be translated into commercial opportunities.
Recommendation 3: The NRF should give careful consideration to the higher risk profile associated with specific fields of research and measure return on investment in a nuanced way.
Understanding university processes is key
The Go8 strongly endorses the Government’s commitment that the NRF will operate at arms-length from the Government with an independent and expert board that will make independent investment decisions within the limits of the Investment Mandate. It is therefore critical that the Board has significant expertise in the successful commercialisation of university research.
Universities are complex organisations with layers of bureaucracy both researchers and industry must navigate before reaching a stage of commercial readiness. This includes navigating the range of university institutes, research centres and schools as well as legal and intellectual property offices. It will be important for the NRF board to understand how universities operate and the processes involved in university research translation when making investment decisions.
The Go8 therefore recommends that the independent board jointly appointed by the Minister for Industry and Science and the Minister for Finance include representation of a suitably qualified individual with experience in successfully commercialising university research. The NRF Board should also establish a committee under Section 48 of the Act, to advise it specifically on how NRF investments can be deployed most effectively to support the commercialisation of Australian university research or early-stage innovation.
Recommendation 4: The NRF’s independent board should include representation of a suitably qualified individual with experience in successfully commercialising university research.
Bridging the SME ‘risk gap’
In order to lift the level of investment in university research, consideration must be given to Australia’s current investment landscape and the key factors holding Australian businesses back. Australia’s business environment is dominated by SMEs, and with this comes constraints on both the ability to absorb research and to actively engage in research with university partners. Investing in university research is simply not a core business priority for businesses with limited resources, including lack of finance and a workforce who can adapt and apply new technologies and practices.
In addition to the Go8’s previous recommendation to change the R&D Tax Incentive for SMEs and increase shared mobility programs for the research and industry workforce, the NRF should address the current market failure – the barrier for SMEs to engage with universities. Addressing the ‘risk gap’ between SMEs and large investment firms will fill a key need in Australia’s R&D investment landscape, promote greater diversification in university-industry collaboration, build human capital, and open further opportunities for business innovation.
Recommendation 5: The NRF should address Australia’s current investment landscape and provide further support for SMEs to engage with universities.
Strengthening strategic partnerships
Building sovereign capability is critical to both our national prosperity and national security. It is important, however, to recognise our nation’s existing capability and skills gaps and the vital role universities will play in developing both the new technologies and skills required to build a more sovereign nation.
Australia is facing critical skills gaps which cannot be met without the recruitment of key international talent, especially high-quality PhD students and academics. For example, Department of Education data from 2019 shows us that:
- 65 per cent of higher education students in Information Technology were internationals, as were 46 per cent of students in Engineering and Related Technologies.
- At the more advanced levels, international talent accounted for 61 per cent of Higher Degree Research students in Engineering and Related Technologies, and 57 per cent of Higher Degree Research students in Information Technology.
As this data illustrates, international students make up a significant portion of the graduates in areas critical to our economy. While Australia must do more to support the pipeline and retention of our domestic talent, building sovereign capability will also depend on closely aligning our migratory settings with future workforce needs under the NRF’s priority areas (e.g. engineering, and IT). The Minister for Education, Jason Clare MP has acknowledged the need to support greater retention of international students with Australian degrees to help fill critical skills gaps in the economy. The NRF should be considered alongside these broader cross-agency reviews to ensure Australia has the skills and capabilities needed to feed the innovation pipeline with new ideas and discoveries. In addition to supporting Australia’s skills needs, international talent will also allow Australia to remain connected to developments and advancements made offshore that Australia can leverage to its benefit.
It is important to note that it is the Go8’s globally connected research workforce that will be critical in both understanding the new developments and advancements being made around the world and facilitating new commercial opportunities. Supporting home-grown ideas is crucial however research is not conducted in a vacuum and there are many technologies and solutions being developed overseas which Australian researchers could help translate to support new Australian industries and jobs. The AUKUS agreement is an example of where expertise in the US and UK is being leveraged to create a new Australian industry to mutual benefit. Given the significance of international partnerships in building Australian capability, the Go8 recommends that the NRF should not preclude all projects that have arisen from international research collaborations or involve international industry partners.
Importantly, the NRF should be considered in the context of the Government’s broader policy goals, including strengthening diplomatic relationships with key regional partners (e.g. ASEAN, our Pacific neighbours, the QUAD). While the NRF can help protect Australia against global supply chain vulnerabilities, it is also an opportunity to promote stability and security across the Indo-Pacific and position Australia as a trade partner of choice. As such, the NRF should consider funding projects which support strategic partnership and help build capacity within the Indo-Pacific region, where it is appropriate to do so and in the national interest.
Recommendation 6: Given the significance of international partnerships in building Australian capability, the NRF should not preclude all projects that have arisen from international research collaborations or involve international industry partners.
Recommendation 7: The NRF should consider funding projects which support strategic partnership and help build capacity within the Indo-Pacific region, where it is appropriate to do so and in our national interests.
Finally, in response to additional specific questions within the Department’s consultation paper:
- The Go8 recommends the seven priority areas be defined broadly to allow potential ‘silo-busting’ crossover. While it is useful to provide a list of national priorities to direct research efforts towards the national interest, they should not be so precise that they inhibit potential innovation. For example, renewable and low emission technologies may have application across various industries, including but not limited to transport manufacturing and the agriculture sector. Providing flexibility in the interpretation of the priority areas will allow Australia to quickly seize new market opportunities and compete globally.
- The Go8 recommends that the definition of ‘value add’ consider the whole-of-production line and whole-of-life supply chain. For example, the consultation paper notes the NRF will consider opportunities that ensure a greater share of raw materials extracted are processed domestically. The NRF should also consider opportunities that ensure Australia can make better use of the materials which already exist and support jobs across the entire line of production. As researchers at UNSW’s SMaRT Centre have demonstrated, this could include recycling lithium batteries and repurposing raw materials.
- The Go8 also recommends that in the value adding priority areas of resources, forestry, fisheries and enabling capabilities, the NRF Investment Mandate permits investment in services firms involved in the ‘value adding’ process, alongside companies that are focused on domestic manufacturing of goods and new technologies. The consultation paper and Minister Husic’s National Press Club address make it clear that the focus of the NRF is on building new manufacturing industries and jobs in Australia. While important, Australia’s economy is now predominantly services based, as noted by the Productivity Commission in their 5-year Productivity Inquiry interim report, The Key to Prosperity. It will be in services that business and industry will find the most competitive advantage, and this should be reflected in the NRF’s Investment Mandate.
 Department of Education, Higher Education Statistics Collection, 2019 year.