Are you an entrepreneur in an emerging industry running an innovative business driving the transition to a digital or low carbon economy? Westpac has recently launched a report looking at you.
The report, identifying the technology innovators who are providing “transformative potential Australia requires to prosper over the next decade,” and identified a range of businesses that fit under that umbrella.
“The obvious one is the digitisation of the economy, and the second one is the transition to the low carbon economy,” said Reeta Dhar, head of Westpac’s Emerging Industries Division. “When we talk about the digitisation of the economy, as we’ve understood it, it’s the situation where people and businesses are taking new and mature technology and applying it in new, and scalable ways.
“In the process we’re seeing new industries, new business models emerge. Transition to the low carbon economy is really predicated on climate change, and it’s recognising that this is one of those megatrends that the global economy will need to address and has started to address. A lot of reason why we started focusing on this is that transition has started. Driven by advisors, and the work we can do around financing new businesses driving the changes, we can positively change to accelerate the transition in another way.”
The report noted that “one major challenge hindering innovation and Australia’s growth is the maturity of its capital market. Unlike the United States, which offers a host of financial lending instruments to start-ups, access to debt funding for entrepreneurs has traditionally been challenging. Regulation and government are also impacting the digital and low-carbon sectors ability to accelerate growth. In addition, Australia needs to lift its game when it comes to equipping people with skills relevant to the job market in 2030,” according to the report.
The Emerging Industries Division was developed to focus specifically on those companies that need to access business and finance services to scale, Reeta says.
“A decision was made by the team about three years ago to set up a specialisation around emerging industries, with the insight that the world is changing, there are different types of business coming onto the marketplace solving those megatrend problems,” she says. “We’ve always had a focus on different industries and industry specialisation and adapt our process and skills to the nuances of the industry, which helps us to address the needs of business better.”
Westpac believes this specific niche of businesses is around five years old.
“We built this business up from ground up,” Reeta says. “We talked to a lot of founders to understand the job they’re trying to do, what are some of the pain points. We’ve adapted our banking services to address those issues as best as we could. In terms of how we’re set up, it’s a team of commercial bankers. They’re specialising in emerging industries. It was really important to lead that engagement with commercial bankers, with experience in fast growing companies and offer them the services that are traditionally not available to smaller businesses, making them available when they need them most, which is setting up to scale. Of course, we have the risk appetite to lend to the right businesses in the space, so that completes the whole banking proposition.”
It is difficult to calculate the size of emerging industries as a whole. Westpac estimates that funding for young technology companies for the 2018/2019 fiscal year was $3.54 billion.
“The interesting thing about emerging markets is that there isn’t a definitive report that you can look at to proxy the size,” Reeta says. “Some of the steps we outline in the report talks to the proxies we can use. Funding that has flowed into the sector from various sources, and that’s the VC market, the public markets angel networks, etc. In addition to that, there are a lot of funds that are coming from private investors that are not being captured in the reporting. The figure is the best estimate of what the fund flows could look like, and we are confident it is a larger number than that.”