Currently the Australian startup scene is small, but they are have potential for massive growth. The fledgling Australian tech sector composes of approximately 1,500 firms created in the last several years. There were previously few startups created between 2001 to 2006, but a significant increase of activity from 2007 onwards has created many of today’s Australian startups. According to Google Australia and Pwc’s 2013 report, the Australian tech startup sector has the potential to contribute $109 billion or 4% of GDP to the Australian economy and 540,000 jobs by 2033 with aggregated efforts from venture capitalists (VC), the Australian government, and startup accelerators.
Four cities rapidly developing startup ecosystems – Sydney, Melbourne, Perth, and Brisbane – will become the heart of Australia’s economy. According to Startup Muster’s 2015 Report, New South Wales is the startup capital of Australia with 46.5% of ventures choosing the state as their headquarters. Sydney has the largest proportion of startups with 44% based in the city compared to Melbourne with 17%. Sydney as the largest of the four exhibits many of these conditions that fosters a pro-entrepreneurship culture successful startups and predecessors role models as more startups reach maturity and exit IPOs.
The issue with Australia’s startup scene is still that the nation growing at a slow pace when compared to developing countries with their own bustling startup scenes. Startup Compass’ 2015 Global Startup Ecosystem Report states that Sydney ranks 16th from 20 cities on the Startup Ecosystem Index. While Sydney and Melbourne are building larger startup ecosystems, but startup industry is growing slower and performing worse in terms of economic outcomes when compared to all other Western nations.
Australia’s startup culture also appears to be an isolated organism. The nation absolutely have the means to become a tech powerhouse since the economy boasts a $1.376 trillion GDP and they are 12th largest in the world. But as the continent is far away from the rest of the world, the distance makes it difficult to build a global business and with a small market as a base. Australians are conditioned to take less risks in the market and as a result, this is one of the main factors for why they are globally in the lower ranks.
According to The Australian Private Equity & Venture Capital Association Limited (AVCAL), Australia’s total private equity and venture capital investment for the financial year ending in 2015 came to $3.1 billion in FY2015, approaching the same levels as three years ago. However, the number is quite dismal compared to India at $7.2 billion or Israel at $2.6 billion.
This ecosystem is growing in scale and strength and the next wave of startups can drive it to the next level of maturity.
|City||Founded||# of Employees||VC Raised (M)||Market|
|Shoes of Prey||Sydney||2009||10-Jan||$24.05||eCommerce|
|The Iconic||Surry Hills||2011||10-Jan||$72.00||eCommerce|
|Society One||Sydney||2011||Nov-50||$28.74||FinTech, P2P|
|Tyro Payments||Sydney||2003||101 – 250||$103.59||FinTech|
|Prospa||Sydney||2012||101 – 250||$42.18||FinTech|
|Campaign Monitor||Sydney||2004||101 – 250||$250.00||Software|
Analysis of the 20 startups previously mentioned indicated several trends:
- Australia definitely has a competitive advantage when it comes to financial services and easily carries over to the FinTech sector, as 14% of more than a billion dollars raised by FinTech startups around the world in December 2015 were raised by Australian FinTech startups. Factors include the nation’s strong middle class, smartphone penetration of almost 90%, rapid adoption of electronic-payment technology, and the Big Four Banks with a combined total asset $2.66 trillion, or about 200% of Australian GDP in 2011. Australian banks are working in partnerships with fintech startups to proliferate growth and offer a variety of convenient banking services. Westpac states that almost $3 billion in contactless transactions for 2015 and 47% of face-to-face payments are contactless, making Australia one of the most advanced online and cashless payments systems in the world. Australia FinTech startups are dabbling successfully in the specialized financial services, real-time payment software, wealth management platforms market space. Successful startups include peer-to-peer (P2P) lender SocietyOne, EFTPOS provider Tyro Payments, and automated investment manager Stockspot.
- Retail eCommerce is strong in Australia, with eCommerce sales topping $16.8 billion. According to the 2015 Global Retail E-commerce Index released by AT Kearney, Australia ranks 10th in terms of overall online market attractiveness, right behind the U.S. Australia’s thriving e-commerce market is only expected to grow stronger due to high smartphone and Internet penetration, highly efficient logistics infrastructure, and the unparalleled convenience of online payment services provided. Online fashion retailers The Iconic and Shoes of Prey will continue to thrive.
Australia currently has a weak state of entrepreneurship, causing mass scarcity in VC funds and making it difficult for new startups to enter the market. The continent has one of the lowest rates of venture capital investment in the world despite a First World status. Currently, early stage funding is in very short supply. Australia invests about $7.50 per capita in venture capital per annum, compared to $75 in the US and $150 in Israel. For Australia to gain a bigger market share, the region needs improvement at global marketing and partnership. Investors, constrained by a limited capital base compared to startup giant Silicon Valley, are too risk averse as they continues to make small gambles which generate minimal value for investors and for the target market.
Effective government regulatory policy would enable startups to grow rapidly and efficiently. In 2012, the Australian Government had procurement contracts totalling $41 billion, 39% of which of contracts were awarded to Small and Medium Enterprises (SME). And one of the active initiatives to help startups is the Federal Government’s $484 million Entrepreneurs’ Infrastructure Program, the largest attempted effort for startups, has appeared as very ineffective so far. The fund appears to actually support SME-type businesses rather than new startups, and the government already eliminated Commercialisation Australia, an organization that was there to support startups from early stage right through to acquisition. If government spending stimulated capital funds for VC firms and startups would help influence a significant change for Australian entrepreneurship.
Since there is an inherently high failure rate for startups in general, VC investments are definitely difficult to attract in Australia. The large absence of VC funds and other forms of backing may in fact be encouraging local tech entrepreneurs to develop a compelling market offering early on in their businesses’ life cycles, giving them no other option but to establish a profitable model from the outset.
Very few scale-stage investments are made in Australia, illustrating that the startup investment market in Australia is way undercapitalised. Atlassian is Australia’s only unicorn with over $1 billion in valuations. Yet unlike many other pre-IPO tech firms, Atlassian has proven a consistent profitable track record before their record-setting December 2015 exit. On the other hand, many other Australian startups remain grossly under-exposed to VC investment dollars. Australian companies must strive to be innovate Atlassian was turning a profit for years before receiving its first substantial external capital raising round. Startups that followed a trajectory towards success where the business model is validated through early to late stages before scaling. Several other successful startups such as Campaign Monitor ($250 million in total VC funds), Big Commerce ($152.2 million), Invoice2Go ($25 million) and Canva ($27.6 million) have followed suit.
A significant and persistent effort is required, since Australia already contains the capital and entrepreneurial talent. Startup scenes around the nation are thriving, but to scale rapidly, they need crucial support from the government and from VCs. Australia is sure to see many more successful tech IPOs in the years to come.