On the first day of the mission, the delegation received a background political briefing and were addressed by Izzy Tapoohi, an Australian who now holds the equivalent position of Ziggy Switkowski in Israel’s monopolistic telecommunications carrier, Bezeq. The leader of delegation, Mr Bob Mansfield also addressed the delegation.

Whilst in Israel I met with private equity investors, venture capitalists and investment bankers. In particular, Jerusalem Global and CLAL Investments represented multi-dimensional investment houses. Jerusalem Global also incubated ideas in the Internet space, a fast-paced area of innovation where speed to market is often the key to successful commercialisation of ideas.

My nominated focus for the Trade Mission was small, hi-tech business incubation. I visited six different incubators including travelling to the Naiot Technology Incubator in Nazareth. Many incubators are located in regional areas of Israel to stimulate the development of hi-tech and open opportunities for entrepreneurs around the country. Naiot is a publicly funded incubator, currently incubating 19 businesses, primarily in the life science area. This incubator has graduated six businesses, three in biotechnology and three in micro-electronics. Businesses in the public incubators receive a grant of $300,000 (US) over two years.

The Office of the Chief Scientist selects participants and overseas their progress. Upon graduation, successfully incubated companies are required to pay the Government back the money they received in grants in a formula that is related to their capability to service such a debt.

It was clear that the public incubators served a vital role in incubating technologies that required more development than the lightning-speed dot.coms. Typically the type of businesses found in incubators were the more robust industrial technologies, micro-electronic and life sciences, like biotech and medical technologies.

I had the opportunity to meet Dr Orna Berry and Ms Rina Pridor, both of who have visited Australia recently. Ms Carmel Verenia has taken up the office as the Chief Scientist now that Dr Berry has left for private industry. These women have been instrumental in leading Israel’s hi-tech success and are widely respected in both the private sector and political circles.

The crucial role of universities in providing a skilled workforce, incubating ideas and facilitating technological transfer to the private sector was also an emphasis. I spent time focussing on these aspects at Technion, the Israeli Institute of Technology.

I also had the chance to meet with many Israeli entrepreneurs, and it was clear they had ‘chutzpah’ in articulating their vision. We viewed several company presentations, or ‘pitches’ and the standard was exceptional. Many deals were done and relationships established between Australia and Israeli interests. From this perspective alone the mission was deemed a great success.

The Trade Mission concluded in Silicon Valley. One of the most valuable aspects of this was seeing first hand how the Israeli companies had formed their relationships in the Valley, be it through venture capitalists or technology partners.

Israel boasts 120 companies listed on Nasdaq, more than any other foreign country. However the fact Israel also has 12 companies listed on various European Exchanges means that their approach to building an Israeli presence in the global economy is not confined to the US. I have attached an article in which I extrapolate my views regarding Israel’s success in the global economy. (Attachment 1)

We had the opportunity to meet with Israeli business people and technologists who shared their experiences in the Valley. The lesson for Australia was the critical importance of a support network and a presence in the Valley. This issue of having to be there to access the ‘smart money’ was a consistent theme.

Interestingly, Australians are one of the few groups of ex-pats living in the Bay Area that are not ‘organised’. This was confirmed by the Australian Trade Commissioner. Despite obvious commitment to the task, he has found it difficult to generate an interest in or process of ongoing networking amongst Aussies in the Valley. Whilst this is not necessarily the responsibility of government, it is ironic because there are many Australians working in key positions in small and large world-leading technology companies and institutions.

George Foster, an Australian who heads the Stanford Graduate School of Business hosted the delegation and provided an insight into the role of Stanford University in churning out MBA graduates. The course is considered very elite and is mightily expensive but a Stanford MBA is like a licence to drive on the dot.com highway.

Stanford University played a critical role in the history of the development of the innovative culture in both technology and business growth strategies. Hewlett and Packard, who started their business in a garage and the couple of undergraduate techies studying at Stanford who started SUN (which is an acronym for Stanford University Networks) serve as powerful role models, inspiring generations of hi-tech innovators. The entrepreneurial culture of the Valley is intrinsically linked to the culture and teaching methods within the University: technologists are taught accounting, marketing and business economics. These skills ensure that graduates are armed with the knowledge required to commercialise an idea.

Spending further time in the Bay Area, including San Francisco, Palo Alto and Sausalito allowed me to explore in greater depth perceptions of Australia by private equity investors, venture capitalists and investment bankers. Specifically I met with representatives from Bayangels, Blumberg Capital the Silicon Valley Bank and was able to observe the workings of different private equity investment models as well as venture capital entities and cross-reference their relevance in the Australian economy.

There is some interest in Australia but generally it is seen as a long way to go for deals. There seemed to be a significant interest in Japan, Taiwan and Korea. It became clear that these countries have been developing their relationships with the ‘smart money’ in the Valley rapidly and have made adjustments in their economies to stimulate investment.

I also met with a number of Australians working in the Bay Area in hi-tech companies. Their insights into the ‘Silicon Valley’ experience provided useful insights into the challenge Australians seeking to succeed in hi-tech would experience. Immigration was a big issue, as there is currently a skills shortage in IT to the tune of 300,000 in Silicon Valley alone - even more chronic proportions to that being experienced in Australia. This means that even more Australians are likely to be enticed overseas, visa application allowing. I heard stories of massive ‘sign-on’ bonuses being paid to lure employees away from their incumbent positions.

The challenges of start-ups continue, with speed to market being critical for dot.coms, as in Israel. Interestingly, the pace and flow of deals has led to larger and larger rounds of investment capital being available, making first investment rounds of up to ten million not unusual. The top-end VC funds themselves are now managing billion dollar funds, with the overall amount of money spent in investment capital ballooning each quarter.

All this has placed pressure on the VC’s, with their ability to assess the detailed merits of proposals correspondingly declining. It seems the ‘most valued’ asset of a start up is no longer the commercial potential of the technology, but the presence of a management team with a proven track record. Given the Trade Mission was in the Valley before the recent tech market adjustment, it would be interesting to see if this has changed, and how.

Observing how business is done from funding statistics and figures is one thing, but an insight into the culture that drives the hi-tech momentum also serves as a useful insight for Australia as we seek to develop our own entrepreneurial culture.

One such insight arrived in the form of a yarn about a start-up in Silicon Valley contained in a book titled the "The Nudist on the Late Shift" by Po Branson. Without going into too much detail the yarn tracks the fortunes of a small software start-up that is trying to tie down a big deal. Their efforts are undermined by internal arguments over last minute changes in their programming architecture, just hours before they are due to demonstrate their product. In the end, the start up didn’t exactly lose the deal, the company just did not have the confidence to sign up the start up. Why? Because they had experienced the internal fractures.

This was enough to collapse their potential despite the technology being ground breaking. The technologist’s professional self esteem was melded to the ‘deal’.

The start-up was able to continue in a kind of perpetual mediocrity. The moral to the story was that rather than take a risk by believing in something that looked like good product, they allowed their confidence to be shattered because they did not believe what they had created could be so excellent and innovative. Especially when it’s created by an inspired teenager coder with a taste for the alternative.

The message is that what appeared to be the weakness in the start-up was actually their strength. Their flaw was in their unwillingness to invest to the depth required in the development stages of their product to ensure the best technology would emerge. The company who declined to sign them was afraid of the risks associated with signing something so new. The company was aware of the challenging development process and as a result, refused to acknowledge the potential.

Think of the company as the government and Australian innovators as the start up. The Government prefers to persist with mediocrity rather than take a risk that, in the worst case scenario, put electoral chances on the line. The start-ups are our creative talent: technologists, engineers and research institutions. Continually under-resourced and forced to tear each other apart for survival, their confidence is linked to the government’s capacity to reward innovation by facilitating opportunities.

The deal would have gone ahead if the company had found a way to hedge their risk. How would governments hedge the risk? By committing to a forward direction that is mutually supportable by major parties. Whilst there has been a belated response to creating amore positive environment for investment and recognition of the role of entrepreneurs, the Coalition still demonstrates an unwillingness to grasp the significance of the need to boost investment in research and development.

The Golden State Venture Capital Conference in Sacramento was held over two days and structured with a combination of visiting speakers and local talent. One fascinating aspect was that the conference could have been in Wollongong. The same issues about access to the ‘smart money’ in Silicon Valley and the global opportunities that such access opened up were being articulated. Here was a city a mere 200 miles up the road from San Jose and they too were strategising on how to build relationships with the Valley.

From this I interpreted that the Silicon Valley phenomenon was just that – a Silicon Valley phenomenon. It was not something that extended to other places in the US. Other precincts apparently also had their own insular cultures. It is a common saying that Valley VC’s will not fund anything that takes them longer than half an hour to drive to! Having spent a little time on the 101 – the freeway between San Francisco and San Jose (bisecting the Valley), this means that you have to be pretty close by! It is no wonder that real estate is so incredibly expensive. We heard that landlords are able to ask for and get equity from start-ups in return for leased space.

The intensity of the hi-tech culture makes for interesting experiences. One such experience was the opportunity to attend a symposium being conducted by Stanford University that posed the question: ‘Will Spiritual Robots Replace Humanity by 2100?’ The main speakers were Ray Kurzweil, inventor of the reading machine for the blind and author of ‘The Age of Spiritual Machines’; Hans Moravec, pioneer of mobile robot research and author of ‘Robot: Mere Machine to Transcendent Mind" and Bill Joy (co-founder and chief scientist at SUN microsystems).

Panel members included esteemed technologists and technology commentators. The point of the symposium was to hear what each contributor thought of the proposition. Issues of the morality of technology were raised and debated. For example, were technologies that were built for offensive military strategies more morally repugnant that technologies built for defensive strategies?

The consensus in the audience was ‘yes’ to this. Bill Joy in particular went further, saying individual scientists carried the responsibility to make these moral judgements themselves and called upon his fellows in the scientific community to relinquish technological development in areas where the resulting impact presented a greater risk for harm than good. He cited the development of the nuclear bomb as a case in point, where nuclear energy was originally touted as clean, efficient way to produce the worlds energy needs. Society has since determined otherwise, with the dropping of the bomb providing evidence of the extent of destruction to humanity such technology is capable of.

These issues raise important questions for politicians, opinion leaders and technologists alike. Whilst Joy’s views imply a lack of awareness about the continuing public discourse about the social implications of technological progression, his intervention into the public debate, of which the Stanford symposium was only part, has caused a ripple in the technology community. I have an attached an article in which I explore these issues in greater detail, entitled MIPS, Mites and Moore’s law. (See attachment 2)

The range of social implication and issues surrounding technological progression was the major focus of my final destination – the Computers Freedom and Privacy conference in Toronto, Canada. This conference hosted participants and speakers from around the world. Australia was represented by myself and Malcolm Crompton, the Australian Federal Privacy Commissioner. I participated as a speaker in a forum entitled Personal data Privacy in the Asia-Pacific. I have attached my presentation for your perusal. (Attachment 3)

Letter to the Minister

Senator The Hon. Christopher Ellison
Special Minister of State
Parliament House
Canberra ACT 2600

Dear Minister

As required by Remuneration Tribunal Determination No. 26 of 1998, Clause 9.2(b), it is my pleasure to submit this report and attachments regarding the recent utilisation of a proportion of my Overseas Study Travel Entitlement.

As you would be aware, I travelled to Israel, the United States and Canada. I left Australia on March 10 and returned on April 9, 2000. As per my correspondence, dated March 2, 2000 the use of my Overseas Study Travel Entitlement enabled me primarily to participate in a Hi-tech Trade Mission to Israel and the US. Following the mission. I continued to research hi-tech industry development, education development and economic implications in Silicon Valley and the surrounding region as well as attend the International Computers Freedom and Privacy Conference as an invited speaker and participant in Toronto, Canada.

I would like to draw your attention to a minor change in my itinerary. In my original correspondence referenced above, I indicated that a visit to Seattle was a possibility. As you will see this did not occur, instead I travelled to Sacramento to attend the Golden State Venture Capital Conference.

I take this opportunity to confirm that the stated purpose and aim of my study travel was achieved. Please take the time to read my report, which outlines key observations relevant both to Australia and my role as a parliamentary representative. I remind you that part of my shadow portfolio responsibilities include Information Technology. It is this area of policy that was my focus.

Itinerary

As the Shadow Minister Assisting on Information Technology in the federal parliament I found the complete experience highly informative and directly relevant to my portfolio and parliamentary responsibilities. The capacity for Australian politicians to create policies for Australia that best enhance our position in the global economy is essential to ensuring the continued growth of individual opportunity, achievement of community aspirations and social progression in Australia.

I also note that in accordance with Cause 9.4 of the Remuneration Tribunal Determination No. 1 of 1998, a copy of this statement may be obtained from you upon request by any Member or Senator. I also note that this statement may be tabled in parliament at your discretion.

Yours sincerely

Kate Lundy
Senator for the ACT.
4 May 2000