When it comes to the innovation themes of 2024, several standout trends will likely shape Australian innovation and R&D next year. Past events often serve as a guide to predict the future. Right now, the current decade is shaping up to be momentous not only for world events but also for innovation in the 21st century. When it comes to watershed moments, 2024 certainly hasn’t disappointed. So, we’re unpacking which innovation themes of 2024 we think will have an outsized influence on R&D and all things innovation next year.
Funding
Funding for R&D is multi-faceted and complex, and it’s the fuel that powers innovation. Macroeconomic factors at the global and country levels are highly influential for both. There’s public funding shaping policy priorities and levers such as incentives and grants to deliver government policy on innovation and R&D investment. Then, there’s private funding of innovation which covers everything from private debt financing to equity funding from investors. Macroeconomic factors at a global and country level are highly influential for private and public funding. So, let’s unpack the 2024 trends that are on track to set the scene for innovation funding in 2025.
Government funding of innovation
Before the Albanese Government swept to power in May 2022, one of its election promises was to lift Australia’s gross domestic expenditure on R&D (GERD) as a percentage of the nation’s Gross Domestic Product (GDP) to 3%. In 2022, it was sitting at 1.66% [1] — more than a whole percentage point off the OECD country average of 2.7%. [2] Months out from the next election, it’s a mixed picture for government funding of innovation.
While the current administration has increased investment in R&D by 4.7 percent over this financial year to $14.4 billion, more money is required to close the gap. [3] That’s even before we factor in that in May 2024, university spending on R&D as a share of GDP recorded its biggest two-year decline in more than 30 years. [4]
At the start of December, the government announced a review of Australia’s R&D landscape: the first of its kind in more than a generation. A drop-off in Australia’s innovation performance was cited as the reason, along with the need for the nation to have a better return on scientific investment to grow the economy. [5]
That covers, in broad strokes, the Federal Government funding scene for Australia as a nation. But state and territory governments are also working hard to support R&D in their own backyards. The Western Australian Government ploughed $28 million into the recently opened state-of-the-art Australian Automation and Robotics Precinct. It’s designed to serve as the new world-leading Australian headquarters for robotics, automation and net zero technologies. Over in Queensland, The Future Queensland Science Strategy 2024-2029, provides the framework for how the Queensland Government will support the state’s world-leading scientists and deliver economic prosperity.
Private funding of innovation
It’s fair to say that private funding of innovation has been evolving since 2020. Back then, at the height of the COVID-19 pandemic, investors wanted growth at all costs. By 2022, funding was harder to come by. But the arrival of 2023 and the high-profile launch of ChatGPT 3 triggered a rush for investor funding in artificial intelligence (AI). [6] In 2024, investors started falling out of love with AI. [7] Instead, they began targeting sustainable growth rather than rapid expansion and have shifted their focus to cash-flow-positive businesses with strong operational metrics.
The changing face of funding
We’ve seen both trends (cooling on AI and pivoting towards sustainable growth) embed themselves in the investor funding circles, so they’re likely to continue into 2025. [8] The sustained run of interest rates (more on that later) have pushed up the borrowing costs for investors too. The net effect is that equity funding is not only harder to obtain but there is also less money to go around. Start-ups and scale-ups are having to accept that they need to trade more of their equity for the same or less funding than they did during the depths of the pandemic.[9] [10] The shift in capital markets has resulted in start-ups and scale-ups casting their net wider for funding. More businesses with innovation are now accessing other forms of capital such as debt finance and grants instead. And this trend is showing no sign of abating in 2025.
The cash rate has remained stuck at 4.35% since November 2023. While most analysts agree falling inflation and the US Federal Reserve’s 0.5% cut in September will ultimately trigger an interest rate cut in Australia, it won’t be until the first or second quarter of 2025. And any changes will be small and incremental. So the higher borrowing costs for equity and debt financing that we saw in 2024 are set to persist into next year.
Power struggles
Wars in Ukraine, Gaza and now Syria are extreme manifestations of the current geopolitical tensions. They’re problematic for innovators and other businesses as they disrupt supply chains and fuel inflation, which can impede international collaboration for Australian innovators and derail export plans for their novel products and services. Beyond all-out war, tensions in the South China Sea and import bans and restrictions by China on some Australian products can impact innovation, too. Political polarisation and instability are sweeping the globe. The increasing divide between the left and right of politics, plummeting confidence in public institutions and unstable governments make for challenging regulatory and economic environments for innovation. The recent collapse of the German and French governments and South Korea’s President facing the prospect of impeachment are the latest examples of this trend impacting innovation. And unfortunately, wars and political turmoil look set to continue into 2025.
Global economic recalibration
There’s no doubt about it, 2024 was the year when the tide began to turn, and many economies around the world began to get the upper hand on inflation. So much so that the US Federal Reserve shaved half a basis point off the US cash rate. But the reset that began this year is set to continue and enter unchartered territory in 2025. And the reason is President Trump is returning to the White House in January. The financial markets and much of the business world have been buoyed by the Republican Party’s policy agenda of deregulation and cutting bureaucracy. There are signs already that increased business confidence is encouraging investors to open their chequebooks and back start-ups, scale-ups and other companies with innovation.
However, steep trade tariffs on US imports, including those from Australia, were also part of Trump’s economic plan. Analysts agree that this could upend global trade, which wouldn’t be good news for innovation. The jury is out on whether Trump’s US trade tariffs will become a reality or are merely a bargaining chip in a new round of high-stakes international trade negotiations. Either way, 2025 will be the year to buckle up and grab the popcorn for what could be a seismic reset of the global economy.
Emerging innovation
Several innovation breakthroughs are approaching and beginning to converge in 2024, and this momentum is set to continue throughout next year. So much so that we are on the cusp of a new era in biotechnology, ClimateTech and quantum computing.
Biotechnology
Biotechnology is the powerhouse behind a host of game-changing innovations, including lab-grown meat, health treatments and climate-resilient and disease-resistant crops. [11] Biotech was already on a roll in 2019 and 2020. [12] But the COVID-19 pandemic supercharged investment in the sector and accelerated biotech R&D. Throw AI integration in the mix and today many of the biotech ships are on the cusp of coming in. AI having a hand in two of the 2024 Nobel prizes for science, underscores the rise and rise of biotechnology. [13]
Closer to home, Radium Capital client Avicena Systems and UNSW are developing a cutting-edge CRISPR-based test for its Sentinel diagnostic platform. CRISPR is a gene-editing technology that could potentially create personalised treatments for genetic disorders such as cystic fibrosis, muscular dystrophy, sickle cell anaemia and some types of cancer. It has also been shown to have the capability to disable and kill viruses.[14] So watch this space in 2025.
ClimateTech
Renewable energy generation and those all-important energy storage and grid stabilisation technologies have advanced in leaps and bounds this year. While we will see this innovation trend continue, climate technologies, other than advances in electrification, renewables and energy storage, have also been developing at break-neck speed in 2024. [15] Innovations in the carbon capture and removal space, and other innovations to protect glaciers and ice sheets, have come to the fore during the past 12 months. [16] [17] And as the world races to achieve the net zero by 2050 target, the ClimateTech innovation trend is set to continue.
Quantum Computing
Australia unveiled its National Quantum Strategy in May 2023, with goals that include investing in, connecting and growing Australia’s quantum research and industry to compete with the world’s best. [18] Homegrown innovators such as Quantum Brilliance and PsiQuantum have been making strides this year. Quantum Brilliance teamed up with Germany’s cyber innovation agency to help deliver the world’s first mobile quantum computer and PsiQuantum signed a $1 billion deal with the Australian Government to build the world’s first ‘useful’ quantum computer. The UN has proclaimed 2025 as the International Year Of Quantum Science And Technology. And if quantum computing delivers on its promise to transcend and deliver a step-change in today’s computing power, it will not only be one of the defining innovation trends of 2025 but also the 21st century.
Post-COVID equilibrium
The human connection and its importance took centre stage in 2024. While world authorities can’t quite agree on whether COVID-19 is still a pandemic, businesses and individuals took matters into their own hands. This year in-person was in, and Zoom and Teams were finally forced to take a back seat. This trend showed up in different ways, including mandated return-to-office orders by some large organisations. But mainly it resulted in a surge in event participation and in-person group activities in the workplace.
The interesting thing from an innovation point of view is that all this happened without entirely abandoning opportunities to connect online. Most businesses have embraced a hybrid approach with working from home days and options to attend meetings online as well as in person. So much so that this year most Australian businesses were enjoying the best of both worlds. We would appear to have finally arrived at the elusive ‘new normal’ and a post-COVID equilibrium that — new pandemics aside — will endure in 2025. And innovation will be the winner through lower barriers to entry and a lower cost base for innovation businesses, fused with the ability to connect in-person with innovation ecosystems. The exception to this trend is events. In-person connections are back and here to stay. At heart, humans are social beings and no number of pandemics, and no amount of digitalisation can change that.
Funding in 2025
The mid-point of the decade is an exciting juncture with long-term innovations from biotechnology to climate tech thriving in a post-COVID-19 world. Despite the continuing economic and geopolitical uncertainty, innovation ecosystems are continuing to flourish in Australia and around the world. So we’re curious to see what the new year brings. If you have some downtime over the festive season or during a summer break, why not browse through the resources section of our website? It contains a wealth of information about how to fund your innovation and tips on how to grow and scale your start-up. And it could make all the difference to you and your business in 2025.
[1] Statista. (n.d.). Top countries by R&D expenditure as share of GDP worldwide 2020. [online] Available at: https://www.statista.com/statistics/732269/worldwide-research-and-development-share-of-gdp-top-countries/.
[2] OECD. (n.d.). Gross domestic spending on R&D. [online] Available at: https://www.oecd.org/en/data/indicators/gross-domestic-spending-on-r-d.html.
[3] Ministers for the Department of Industry, Science and Resources. (2024). Govt R&D up, overall R&D needs uplift: New report | Ministers for the Department of Industry, Science and Resources. [online] Available at: https://www.minister.industry.gov.au/ministers/husic/media-releases/govt-rd-overall-rd-needs-uplift-new-report
[4] Hendry, J. (2024). Record low R&D spending growth in higher education. [online] InnovationAus.com. Available at: https://www.innovationaus.com/record-low-rd-spending-growth-in-higher-education/
[5] Ministers for the Department of Industry, Science and Resources. (2024). Press conference announcing a review of Australia’s research and development performance | Ministers for the Department of Industry, Science and Resources. [online] Available at: https://www.minister.industry.gov.au/ministers/husic/transcripts/press-conference-announcing-review-australias-research-and-development-performance
[6] Agence France-Presse (2023). ChatGPT Sparks AI ‘Gold Rush’ in Silicon Valley. Industryweek.com. [online] doi:https://www.industryweek.com/technology-and-iiot/article/21260367/chatgpt-sparks-ai-gold-rush-in-silicon-valley
[7] Wiggers, K. (2024). Investors are growing increasingly weary of AI. [online] TechCrunch. Available at: https://techcrunch.com/2024/04/15/investors-are-growing-increasingly-wary-of-ai/.
[8] 2024 Tech Fast 50 Winners Report. (2024). Available at: https://www.deloitte.com/content/dam/assets-zone1/au/en/docs/industries/technology-media-telecommunications/2024/Tech-Fast-50-2024-Winners-Report.pdf
[9] Forbes. 2022. What The High Interest Rates Mean For Startup Founders. [ONLINE] Available at: https://www.forbes.com/sites/forbestechcouncil/2022/05/04/what-the-high-interest-rates-mean-for-startup-founders/?sh=6186a9066691.
[10] Cutthrough.com. (2024). Cut Through Quarterly 3Q 2024 | Insights. [online] Available at: https://www.cutthrough.com/insights/cut-through-quarterly-3q-2024
[11] Marr, B. (2024). The 5 Biggest Technology Trends For 2025 Everyone Must Be Ready For Now. Forbes. [online] 23 Sep. Available at: https://www.forbes.com/sites/bernardmarr/2024/09/23/the-5-biggest-technology-trends-for-2025-everyone-must-be-ready-for-now/
[12] Cancherini, L., Lydon, J., Santos da silva, J. and Zemp, A. (2021). Biotech is riding a wave of growth in funding. What’s next? | McKinsey. [online] www.mckinsey.com. Available at: https://www.mckinsey.com/industries/life-sciences/our-insights/whats-ahead-for-biotech-another-wave-or-low-tide.
[13] Nello Cristianini (2024). AI was central to two of 2024’s Nobel prize categories. It’s a sign of things to come. [online] The Conversation. Available at: https://theconversation.com/ai-was-central-to-two-of-2024s-nobel-prize-categories-its-a-sign-of-things-to-come-240954.
[14] Publishing, H.H. (n.d.). Harnessing CRISPR to stop viruses. [online] Harvard Health. Available at: https://www.health.harvard.edu/diseases-and-conditions/harnessing-crispr-to-stop-viruses.
[15] Yee, L., Chui, M., Roberts, R. and Issler, M. (2024). McKinsey technology trends outlook 2024 | McKinsey. [online] www.mckinsey.com. Available at: https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-top-trends-in-tech#tech-trends-2024.
[16] Ruggeri, A. (2023). Could Giant Blankets and Other Extreme Actions Save Glaciers? [online] Scientific American. Available at: https://www.scientificamerican.com/article/could-giant-blankets-and-other-extreme-actions-save-glaciers/.
[17] ScienceDaily. (n.d.). Scientists call for a ‘major initiative’ to study whether geoengineering should be used on glaciers. [online] Available at: https://www.sciencedaily.com/releases/2024/07/240711111528.htm.
[18] Australian Government Department of Industry, Science and Resources (2024). State of Australian Quantum report 2024. [online] Industry.gov.au. Available at: https://www.industry.gov.au/publications/state-australian-quantum-report-2024.