The Rising Success of Startups Down Under: InsideAustralia’s Entrepreneurial Ecosystem

 

Zack Weisfeld

 

The Australian startup scene is booming.

 

Australia is a vibrant country with an exciting energy, as I quickly discovered on a recent trip to experience firsthand the country’s burgeoning ecosystem. Sydney is the largest of the Australian startup hubs with 35% of the nation’s startups, followed by Melbourne at 14% and Brisbane at 9%.

 

Over five days, I had over 30 meetings with Australian influencers, startup founders, VCs including visits to startup accelerators and co-working spaces, and attended two industry events. Connecting with the people on the ground gave me keen insights into the Australian startup ecosystem.

 

Australia’s strong economy

 

Everyone agrees:Australia’s economy is strong. It’s the world’s 13th-largest economy with the ninth-highest per capita income. The job market is solid, salaries are high, and the minimum wage is $18.22 AUD ($14.48 USD). Amazingly, it hasn’t had an economic recession in 26 years. Homeownership rates are high despite elevated prices, particularly in Sydney and Melbourne. State Governments support a robust public education system. Forty out of 43 universities inAustraliaare public universities and the government provides generous student loans and subsidies.Australiahas an enviable universal, public health system and high standard of care.

 

It is a thriving economy, but can it sustain a blossoming startup ecosystem?

 

Obstacles identified

 

From speaking to influencers, it became clear to me that three hurdles would have to be cleared for the Australian startup scene to take off.

 

Culture: The business culture inAustraliais ripe for change. There is a strong sense of national humility, with displays of success sometimes met with unpleasant hostility. This phenomenon is known as the “tall poppy syndrome” – which refers to a flower that grows taller than the other flowers around it and should be cut down to size. The Australian startup community is working together to counteract this syndrome by creating a culture of shared success and collaboration.

 

In addition, startups thrive best with founders that have a deep passion and “hunger” to succeed. I was told most startup founders inAustraliaare older and already financially comfortable. At Fishburners, a not-for-profit dedicated to scaling Australian startups, the average participant age is 36. Founders are generally executives in their mid-30s or 40s that have worked in the top 4 global accounting firms or banking environments for over a decade before seeking a change from corporate life (or taking a redundancy). This follows a cultural norm that celebrates a school to university to corporate job career path. As a second act, they decide to enter the exciting world of startups. In order to succeed, founders will need to fight the “comfortable” business atmosphere and inject hustle and high levels of energy into their work.

 

Risk-Averse Investing: Startups need investors. Venture capitalists inAustraliahave historically been risk-averse, which is problematic since VCs are supposed to be in the business of supporting high risk.

 

Despite a healthy economy, investment in local startups remains low. Generous tax incentives result in an unusually high level of investment in property, even by young people.

 

Government mandates people save for retirement through employer-provided superannuation – a compulsory arrangement to put retirement savings into a fund that is not accessible until retirement age. The superannuation is taxed at a lower rate.Australia has one of the world’s largest superannuation funds at $2.3 trillion, yet, only 0.011% is invested in local venture capital. In contrast, US pension funds commit around 2% of funds under management to this asset class, representing a 180 times multiple relative to Australia.

 

Nevertheless, there’s a shift occurring. I met with some of the top VCs, including Blackbird Ventures, Airtree Ventures, Square Peg Capital, and One Ventures, and learned of the positive changes happening in Australia.

 

Feeder & Exit Routes: One of the critical components for a thriving successful startup ecosystem is access to talent feeders and exit routes. Multinational global R&D centers are an optimal exit strategy as they grow through acquisitions. Looking at MNC global R&D as talent feeders for experienced product and managerial talent, who learned for years how to develop products at scale, is equally important.

 

Australiahas very few multinational R&D centers. For reference,Israelhas 300 multinational R&D centers.

 

Thriving startups

 

Despite these challenges, Australian startups are thriving.

 

Natalie Nguyen, CEO of Hyper Anna, a founder possessing true grit and strong leadership capabilities, believes she’s been able to accomplish more in Australia than she ever would’ve been able to in the Valley. She estimates she could’ve gotten a 30% higher valuation outside of Australia, but she wouldn’t have been able to afford the high-quality talent needed to compete with Google, Facebook, or other brand name Silicon Valley startups. Being in Australia – at least while she’s still working on her product – provides access to high-quality, affordable talent from all over South East Asia.

 

As tightening immigration laws in the UK and the US are making it harder for tech talent to enter their borders, Australia has a real opportunity to benefit. Australia is an English-speaking country in South East Asia, which is a strong magnet for high-quality talent. This talent pool may eventually help change some of the risk-averse culture. Immigrants, after all, are risk takers. They’re people who leave everything behind for the chance of creating a better future.

 

Government support

 

Still, a little government support can go a long way. Fortunately, governments in Australia are taking bold actions to bolster support for startups.

 

The Australian Federal government is investing in startups through tax incentives and support programs, including the Australia’s R&D Tax Incentive, which encourages companies to engage in R&D in Australia by giving generous incentives. Other programs include the National Innovation and Science Agenda, a plan to help startups get funding, and the Incubator Support Initiative Entrepreneurs’ Programme, which makes sure startup founders are getting the advice and support they need.

 

The New South Wales government created an organization called Jobs for New South Wales with a brief to make the NSW economy as competitive as possible, and therefore, help create new jobs across the state. Much of its work is focused on supporting the startup ecosystem.

 

Becoming a scene

 

For a startup ecosystem to thrive, it must become a scene with meetups, startup activities and networking events that will support the local community. The volume and velocity of startup activities is crucial for a thriving ecosystem and the creation of “cool” startups. Here, local government in Australia is planting the seeds for this to happen. South Australia has brought Techstars to Adelaide. In the hope of growing the Sydney startup ecosystem, Jobs for New South Wales has committed to investing an impressive $35 million over five years in the Sydney Startup Hub, a 17,000 square meter 11 floor space located in the center of the city. The facility will house startup co-working providers Stone and Chalk, Fishburners, Tank Stream Labs, and The Studio to create an “epicenter of local tech activity”. This is exactly the type of environment that will enable startups to flourish. My impression from just 5 days in Australia is that there is a countrywide effort underway to help grow the nation’s startup community. Stay tuned to see how it develops down under...