Australia’s startup community has enjoyed a record-breaking year of achievement but still...

Australia’s startup community has enjoyed a record-breaking year of achievement but still needs better access to global talent

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Alex McCauley, CEO StartupAUS

Australia’s startup community has enjoyed a record-breaking year of achievement, but improved access to global talent is critical to the growth of an internationally competitive local tech sector, according to the fourth annual Crossroads Report, released recently by StartupAUS, Australia’s national advocacy group for startups.

Since the first Crossroads report was released in 2014, the industry has moved well beyond the fledgling stage with key 2017 milestones including a record of $1.32 billion raised in Venture Capital, significant State Government investment in innovation precincts, strong growth in the number of accelerators, incubators and coworking spaces and the attraction of high-profile events and investors.

Releasing the comprehensive review of the nation’s startup ecosystem, StartupAUS CEO and lead author Alex McCauley said a laser-like focus on a number of key areas will ensure Australia continues to build momentum as a top-tier global player.

“Startups are now recognised as leading job creators worldwide and high-growth startups are the primary driver of Australia’s new jobs growth. Startups have the potential to contribute as much as $170 billion to Australia’s economy by 2020.

Visas and the R&D tax incentive still pain points

However, Mr McCauley said the many successes of the sector in the past 12 months had been put at risk by stagnation or backwards movement in some areas, particularly when it came to visas and the R&D tax incentive.

“Australia has come a long way in a relatively short space of time and we are pleased to see the momentum building. What we must also recognise is the speed of our global competitors and the intensity with which governments are focusing on supporting startups around the world. It’s clear that by pulling a few big policy levers we could rapidly shift Australia’s startup economy to the next level of maturity and potential – making it one of the best places in the world to build a tech startup. But if we don’t act now, particularly on visas, we risk getting left behind.

“Talent is the single biggest challenge facing Australian startups, and there is currently no mechanism for these fast-growing tech companies to attract overseas workers to fill a range of high-demand digital roles, particularly in product development and management. At a time when Australian startups are crying out for talent and top-tier tech workers are considering roles outside the US, this gap requires immediate attention,” said Mr McCauley.

The report’s foreword, contributed by Atlassian co-founder and Co-CEO Scott Farquhar, also highlights visas as an area for urgent reform. Mr Farquhar notes “there is a global gold rush at the moment that is generating intense international competition to attract the best tech talent, and Australia needs to lift its game.”

What does Australia need to do for its startups?

The 2017 Crossroads Report outlines that, to compete internationally, Australia needs to:

  1. Produce larger numbers of startups;
  2. Ensure some of these startups go on to achieve significant global growth; and
  3. Ensure the most successful startups retain a sufficient connection to Australia so the nation can benefit from their success.

The StartupAUS Crossroads Report 2017 is supported by a broad consensus of corporate and community partners, including StartupAUS’s Leadership Partners, Google and UTS, alongside leading investors, scale-ups, and established corporates. It features a State-by-State brief on the progress of local ecosystems, an analysis of the effect of innovation-boosting measures already in place, and milestones for Australian startups.

The 2017 Report makes nine key recommendations to address issues holding the industry back:

  1. State Governments should continue to build and connect innovation precincts
  2. The Federal Government should pay the R&D Tax Incentive on a quarterly rather than annual basis
  3. The qualification criteria in the entrepreneur visa should be altered and simplified
  4. Options issued under Employee Share Schemes should be exempted from the 20/12 Rule
  5. The skilled worker visa should be expanded to include digital skills and reflect startup needs
  6. Federal and State Governments should work together to expand the school curriculum for digital skills, giving students more options in computer science and computational thinking
  7. A copyright safe harbour for all online content providers should be implemented
  8. Entrepreneurship programs should be implemented and expanded in high schools and universities
  9. Governments should establish dedicated policy teams focused on emerging technologies

What is the state of venture fundraising in Australia?

Figures from the Australian Private Equity and Venture Capital Association (AVCAL) reveal the 2017 financial year is the second consecutive record year for Australian venture fundraising, with around $1.32 billion raised since July 2016.  Venture fundraising reached a record high in 2016 of $568m, compared with $154m in 2013.

According to AVCAL Head of Policy and contributing author, Christian Gergis, for Australia to firmly establish itself as a leading location from which to grow a global technology company, venture capital investment as a percentage of GDP must increase.

AVCAL’s research report, The Venture Capital Effect, states this investment is 0.023 per cent, less than half the OECD+ average, and less than a tenth of the size of Israeli or US markets, leaving Australia ranked 18 out of 30 OECD+ nations.

“While the recent growth in local venture has been significant, it must be acknowledged that it is coming off a very low base… [the] Australian venture capital sector remains small, both in absolute terms, and relative to its international peers,” said Mr Gergis.

“Ambitious high-growth young companies will lead Australia’s move onto the world stage, and a thriving local venture capital sector is critical to supporting their growth and helping them remain in Australia. The data in this year’s Crossroads shows for the first time that Australian startups are now much less reliant on overseas investors, which is a very positive step in the right direction” added Mr McCauley.

Key startup statistics from the StartpAUS Report

Crossroads 2017 was backed up by original research from StartupAUS looking at a cohort of 47 of the country’s most successful scale-ups. The research provides a statistical snapshot of what Australia’s most successful young companies look like:

  • 92% of companies are backed by angel or VC investment
  • 86% of businesses are looking to hire international talent within six months
  • 91.3% of startups are claiming the R&D Tax Incentive
  • 29.8 years is the average age of startup founders
  • 57% of startups were founded by immigrants or children of immigrants
  • 15% of startups have at least one female founder
  • 4% of startups have an all-female founding team
  • 57% of all startup founders had at least one previous business
  • 76% of startups have at least one founder with a previous business

This year’s Report includes a deep dive on the startup sector of NSW, in partnership with the NSW Government, highlighting key growth areas including fintech which has attracted 25 per cent of all NSW capital since 2015. It notes the continuing emergence new NSW technology sectors with Health and Life Sciences, Software as a Service (SaaS) and Sharing Economy / Marketplace businesses all attracting significant levels of investment.  The NSW ecosystem now extends substantially beyond Sydney, with more than one in ten NSW startups now based regionally.

Commenting on the report’s release, NSW Deputy Premier and Minister for Small Business John Barilaro said: “We want start-ups and people with great businesses ideas to know that Sydney, not just Silicon Valley, is a place where their entrepreneurial spirit can thrive and their vision can become a reality.

“Sydney is already one of the top three start-up locations in Asia, but we are working hard to establish Sydney as a start-up capital on a global scale. The investments we’ve made in the Sydney Startup Hub and the newly opened Sydney School of Entrepreneurship are just two examples of the work we’re doing in this space.

“At the end of the day, we know no government can do everything on its own. Rather, a good government is one that brings smart people from various sectors together, and provides them with the support and the strong economic conditions they need to develop their ideas and bring them to market.”

Engineering Director, Google Australia Casey Whitelaw said: “Australia’s startup community is an engine of job creation, supporting the creativity and innovation that will help Australia thrive as technology changes.”

Professor Attila Bungs, UTS Vice-Chancellor and President, said: “This timely report once again highlights the key issues facing the Australian startup sector, most crucially talent attraction and retention alongside bolstering vibrant precinct’s remain the biggest issues facing startups. Precincts are critical to provide the cultural and infrastructural support to startups, as well as providing energising links to the surrounding communities.

“I welcome current efforts by government and industry to boost the sector; we need to maintain our focus on this and work quickly to ensure Australia remains a leader in this space. Initiatives like R&D tax incentives and to expand and co-ordinate startup precincts are vital; we must continue to do more. We are training the next generation of entrepreneurs – we need to ensure they have an environment in which they can thrive here in Australia,” said Professor Bungs.

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