The Sydney Morning Herald, 7 July 2001
Inside Redfern's high-tech bunker, researchers and budding entrepreneurs are chasing the next great Australian dream. Jennifer Hewett reports. Chris Howells is certainly not a well-known name in business circles. Redfern Photonics the company he heads is just as likely to draw a blank stare. But at Australian Technology Park, where John Howard chose to launch his big innovation statement this week, Redfern Photonics is doing all the things that the Howard Government is now trying so hard to promote.
Developing ground-breaking Australian research? Tick. Creating marketable products? Tick. Finding funding to get new businesses going? Tick. Exporting world-wide? Tick. Creating hundreds of interesting high-tech jobs so far with the prospect of many more to come? Tick. Photonics for the uninitiated is basically using light and optical fibre to radically increase bandwidth and therefore the speed and amount of material that can be transmitted on networks. Australia now happens to be excellent at this highly specialised technology.
Redfern is one of the most successful models for what commercial possibilities can develop from cooperation between the CSIRO and universities and business and continuing government financial support through a Cooperative Research Centre.
The first success came four years ago when the group raised $8 million by selling off one of its smaller companies to US interests but maintained the research activities here. That company alone employs nearly 300 people in Sydney.
Redfern Photonics was formally established last year to act as the commercial incubator for smaller companies able to develop even more specialist niches. Some are already profitable. Others are getting there.
The combined group is valued about $250 million with its shareholders a mix of universities, Australian and US venture capitalists and staff trusts. Overall employment is about 140, all with potentially lucrative share options, and plans for rapid expansion.
Howells likens the photonics business to that of supplying tents during the gold rush. Unlike the dot com mania, he believes it will last long after the frenzy of easy money has been frittered away.
It is stories like this which led Howard to select the converted railway workshops at Australian Technology Park as the backdrop for his statement. Suddenly the blend of science and commerce is highly politically fashionable again and Australian Technology Park happens to be already full of examples of the innovative, entrepreneurial culture the Prime Minister is keen to encourage.
Clustering together smart researchers and small scale entrepreneurs with strong links to universities and hoping for big things to happen is not a new idea, of course.
Countries have been trying to emulate it ever since the world realised something extraordinary was going on in Silicon Valley. The legend of Silicon Valley started with two young engineering graduate students from Stanford University setting up in their garage in 1938. Their names were Bill Hewlett and David Packard.
The Australian Technology Park may be in the run-down, dilapidated area of Redfern but it's minutes from the CBD, on the backdoor of Sydney University, and close to the University of Technology and the University of NSW. Spend any time there and it's certainly possible to become more optimistic about the potential for Australia to regain at least some of the initiative in seizing the opportunities of the new economy. The park was formally set up in 1994 by the three universities with financial assistance from the Federal and State governments.
Now small companies and individuals are frantically networking and developing and selling themselves and their products around Australia and the world. Some are already successful. Many are confident they are about to be. The coffee shops buzz with casual jargon about chips and interfaces and gateways as people wander out of their offices to chat about possible deals, latest breakthroughs, likely partnerships. Even when things go wrong, it helps to have an instant network of support and the shared commitment that it's worth persevering.
Over the years, Australian Technology Park has also become a model replicated in other States with varying degrees of effectiveness. There are plenty of people inspired about the prospects of Australia being able to develop real leadership in areas like photonics, bio-technology because of our agricultural base, mining technology, wireless technology and commercialising medical advances.
But the larger issue is whether places like ATP and the companies and people represented by them will grow and multiply quickly enough to spread their impact broadly or whether they will remain isolated pockets of excellence struggling against a global tide.
The answer to that is still dubious, despite enthusiasm in the scientific community that the Government's innovation statement symbolised a belated focus on how important it is. Australia has a huge technology deficit. Over the past few months, the Government has moved from suggesting it doesn't matter if we import all such technology because we still use it so effectively to embracing the idea it is necessary to develop it as well.
Figures showing that business research and development was actually falling as a percentage of GDP in contrast to the rest of the OECD acted as a loud alarm bell. So did the critical comments of visiting international business leaders during the Olympics.
Facing the growing perception that it was allowing the prospect of new industries and employment to evaporate, the Howard Government is now determined to demonstrate it has a strategy to encourage high-tech jobs and research and stop the brain drain and decline of investor interest in Australia.
This may get a B-plus for political effort but it's still perilously close to a failing grade for commercial accomplishment. Better research and education can only be a beginning, not an end. Grants can only ever be part of the story.
The new R&D tax concessions are relatively modest. The underlying problem is that links between university research and commercialisation are still much too limited in Australia. Australian Technology Park, for example, has certainly not expanded nearly as much in size as much as its founders and early participants had hoped it would by now. Companies like Redfern Photonics remain the exception rather than the rule. It's important to get on the right side of critical mass and Australia is far from it. The difficulty is in attracting the other vital ingredient of Silicon Valley venture capital.
Even a business like Redfern Photonics criticises the caution of Australian venture capitalists, with Howells saying they really only became interested after the group managed to sell off its first business. He now prefers to focus on attracting US capital because there is so much more of it available in large chunks and with Redfern's track record there is now no problem. The latest funding for one of the smaller Redfern companies last November attracted about $39 million from the US and around $12 million from Australia.
"Australian venture capital is now very interested and has been involved in photonics for a long time but it is still slightly risk averse,'' Howells says. "No-one wants to take the lead position. It's like the person who can always lend you an umbrella when it's not raining.'' Not surprisingly, most venture capitalists themselves are less likely to agree with this criticism. Les Fallick, who heads a private equity fund at Gresham Partners, insists that he is constantly battling against the notion that Australian venture capital doesn't like to take risks.
"The real problem is not the money but that it is much harder to find someone with a track record or a quality management team or people who have done successful start-ups before,'' he says. "Australian funds are also smaller than American funds so putting in $30 million or $40 million for commercialising something on a large scale is a much bigger bet on a single investment.''
But what seems particularly difficult for small Australian companies is to get that first jolt of real funding from $500,000 to $5 million or so when the company is still at a start-up stage with no profits and no real commercial track record.
In Australia, there's often little alternative apart from snaring a government grant or tapping the usually limited means of individuals.
Fallick believes that there is very little in the Prime Minister's statement to in terms of encouraging commercialisation.
"We are planting fields of ideas but they will be primarily harvested offshore,'' he says.
"Universities do have a chequered history with commercialisation. There needs to be much better interaction between the venture capital industry and academic research rather than compartmentalising them into different silos. The innovation statement is still a very old-fashioned way of looking at the world.''
What is also old-fashioned is that Australian society in general doesn't really notice the efforts of the small scale technology entrepreneurs that it is growing despite the difficulties.
There's still a general suspicion of anything non-traditional. A business failure tends to be regarded as evidence of a terminal character flaw rather than as a useful learning experience for next time. Success is too often measured in terms of a career in law or medicine rather than a career creating new opportunities. This scepticism has only been fuelled by the dot com collapse. But for Australia, it is far more important how many thousands of technology entrepreneurs can flourish over the next decade. Entrepreneurs like Matthew Henderson, for example.
Henderson used to head research and development at Toshiba in Australia. Now he has a small cluttered office in the incubator area of Australian Technology Park, lots of big ideas and some promising leads. His slogan is "Turning Technology into Business'' and his particular interest is microelectronics which he believes is the missing link in developing a vibrant electronics industry in Australia.
One idea has been to found the Australian Microelectronics Network as a non-profit organisation that will allow dozens of Australian companies access to low cost chip design to help build their own businesses. After two years, the network now has the first $500,000 of a grant from the Federal Government to get this started and Henderson believes it will fuel an explosion in the Australian electronics industry.
His other new venture is Smart Container. The idea is to insert a sensor into every container that can identify the exact location of the container and the climatic conditions inside.
The project developed from fruit and vegetable exporters wanting to reduce spoilage rates when shipping goods.
He attracted an initial government grant and he has finally been able to negotiate $1 million in venture capital from a local investment bank. He's confident of attracting several million dollars more from industry participants like overseas shipping lines and port terminals. He's received plenty of assistance from the CSIRO and several others in the park too. They include a chemosensory group helping develop the sensor, another company with the super computer necessary to process the locations of so many containers, and one doing software simulation of the containers. The idea is to start a commercial rollout within the next 12 months assuming they can get the money.
It's a pattern where relationships and networking that come from being screen-by-jowl are all supposed to be self re-enforcing, encouraging the cross fertilisation of ideas and people and business plans. That's why Australian Technology Park has an incubator area where individuals rent basically cubicles while they see if they can create a business out of an idea. To be accepted, they have to convince a board of academics and businesspeople that the idea is feasible commercially. The space is deliberately all jumbled together so that people have no choice but to communicate, if only by accident.
From there it's possible to graduate out of the incubator program and into to larger offices in the adjacent old locomotive building with the idea being that most companies would stay around two years before eventually moving out of the nest. At any one time, there are about 40 businesses in the incubator program. Over its several years of existence, a few dozen companies have sprung out from the park with only three failures. Bang Chau, for example, came to Australia 22 years ago as a seven-year-old Vietnamese boat refugee. As a post-graduate student, he won the University of NSW's Vice Chancellor's prize for his research into intelligent catalogue management two years ago.
He used the money to rent a cubicle for the first year in the park's incubator. Since then he's kept moving into larger offices in the park and had his first client late last year another company in the park. His company, Innovit, is now moving into full commercialisation phase with other contracts being negotiated including one from Britain.
So far, it has a development team of eight people and a management team of four.
Chau has kept himself afloat by using his own money and that of friends and family, some more grants and prizes and by doing software consultancy work, often for other companies in the park. He says the park was invaluable in giving him access to networks and introductions and the experience of others.
"It helps you take off,'' he says.
Take off to where is still the general problem. Howard now claims to have seen the future. The difficulty remains how to get there from here. The innovations statement may be a large step for the Government but it's only a very small step for Australia.