Last week, NAB announced it would make available $2 billion over five years for growing tech businesses, however, the offer turned out to be not as generous as it sounded.
NAB Chief Customer Officer Business and Private Banking, Anthony Healy, said the bank supported technology companies through every stage of their business.
“This commitment is about giving technology companies with demonstrated potential for growth the shot-in-the-arm they need to be bigger and better,” Mr Healy said.
“These tech-driven companies are often already profitable but need further capital and banking expertise to grow.”
But when questioned by Information Age, NAB was unable to explain how the yearly $400 million in funding would differ from any other business loan.
NAB will allocate $2 billion of funding over five years to help emerging technology companies at every stage of their development, to boost productivity in Australia's technology sector. https://t.co/CNLtlwFWvx— NAB (@NAB) June 19, 2019
Head of Growth at start-up accelerator Harbour City Labs, Dr Khimji Vaghjiani said NAB was giving much needed attention to Australian technology but was unsure how relevant this announcement is for young entrepreneurs.
“This initiative might not be suitable for many start-ups in Australia who may not be cash flow positive for a number of years,” Vaghjiani said.
“In addition, the NAB initiative would probably ask for sub 7-10 per cent interest backed by solid security such as property or other family assets.
“All these aspects would make the $2 billion pretty unattractive for many who actually need the cash the most.”
Yanir Yakutiel, CEO of business lender Lumi said NAB’s announcement was a step in the right direction for Australian innovation.
“This is a very positive move because any funding coming into the small-to-medium enterprise market is positive one, but the devil’s in the detail,” Yakutiel said.
“NAB will focus on slightly more mature tech businesses that have a predictable stream of revenue looking to make next step forward.”
Yakutiel explained why lenders can be averse to tech start-ups compared to brick-and-mortar businesses.
“There is a difference between a tech business and opening a restaurant, for example, even if they have similar capital expenditure initially.
“If you have a couple of boffins sitting in room writing software, it can take months before they go to market and then they either manage to sell or don’t. But with a restaurant you can get that feedback loop very quickly and adjust the product accordingly to improve cashflow.
“The start-up sector still needs more capital, more success stories, and a bigger policy push to support ecosystem.”
Australia produces few tech unicorns, in part because there is not enough money to get them started.
Lucy Lin is Founder & CMO of technology, AI and blockchain marketing consultancy Forestlyn.
She said there are plenty of great tech ideas in Australia, but not enough willingness to fund them.
“There are thousands of start-ups but only 70 registered VCs. The numbers just don’t stack up. Most of the start-ups I have worked with have gone overseas to get funding.
“They require a very different ecosystem and unless the big banks catch up soon, we’ll be stagnant for a long time yet.”
Lin thinks the level of risk involved in investing in start-ups is unpalatable for traditional banks – and entrepreneurs know that.
“Start-ups are simply not going to banks,” Lin said.
“These are people slogging at places like Fishburners who have a good idea but need help getting it out there.
“At the same time, they need assistance to find riskier investors.
"Australia has been lucky that we haven’t had recession in the last 28 years – which has a lot to do with very safe, risk averse banks – but I just don’t think the big banks are going to be funding a lot of early-stage tech start-ups.”