The problem I see is precisely the point you raise " Given that Australian venture funds don't see the opportunity it isn't at all clear why the government would think differently"
Is there a way to help venture funds find the startups that are actually happening here in Australia. Unfortunately not all of us have the opportunity to reach out overseas for funding
I don't think finding them is a problem. I think that venture funds in Australia (generally speaking) don't have the skills to evaluate software/internet startups and there isn't a track record of Australian startups providing large enough financial returns for venture funds to be interested.
My view is that Australian venture funds aren't an interesting source of capital - they can't add value beyond investing money at best. Angel funding is where the action is in Australia, and there are some interesting groups doing good work in that area (StartMate, PushStart, Pollenizer, Innovyz(maybe?)).