Sydney and Melbourne both dropped places in the just released Global Startup Ecosystem Report by Startup Compass. Who cares how Australia ranks in a global study of tech startup ecosystems? You should.
It’s an indicator Australia may be failing to transition our economy from primary industry to information and technology. We’re making progress, and viewed from a solely Australian perspective, the progress looks good. But the very things that allow a team of entrepreneurs to build and scale a tech startup business to a ‘unicorn’ billion dollar valuation in a few years also mean we’re competing on a global scale. Or rather, as report suggests, failing to compete.
As Marc Andreesen wrote in his 2011 oped for The Wall Street Journal, “software is eating the world” — new businesses are rapidly and inexorably disrupting transport, professional services, retail, banking, hospitality and even mining and agriculture by using technology to out-compete. In the 10 biggest companies by market value today, it’s basically technology companies, oil and banks. None of the technology companies is much more than thirty years old — about a fifth of the time required to build the banks in the list, a third of the time it took the oil companies and about half the time it took Warren Buffett to remodel Berkshire Hathaway. It’s important for the future of Australia to rank in tech startups where we rank in building mining companies, banks and education — in the top 10, aiming for the top five.
The 2015 report shows that while Sydney and Melbourne are building larger startup ecosystems, our startup industry is growing slower — and performing worse in terms of economic outcomes — than almost all other Western nations.
That’s a problem because the best Australian tech startup founders don’t have to start building a billion dollar company here. Tech startups are uniquely easy to move to whichever nation has the most supportive economy to maximise their chances of success.
Moving an AUD30M early-stage Australian tech startup from Australia to Silicon Valley, Tel Aviv, London or Berlin is a relatively simple matter of arranging working visas, registering online for a Delaware “C Corp” and doing some legals and banking. You don’t have to apply for a banking license, lease an office building or build a factory, silo or railway line.
Most of the startup’s customers are already be outside Australia, and most of that company’s assets will already exist wholly with the cloud, that amorphous layer of globally-distributed computing and storage that enables an Uber, a Facebook or an Atlassian to service customers globally at effectively the same cost of sale. The business can be managed from wherever the founders open their laptops and connect to wifi.
If you’re prepared to take a risk as a tech startup entrepreneur and leave your previous career to take a stab at building a billion dollar business in less than a decade, are Melbourne’s liveability and Sydney’s beaches really going to hold you back from moving somewhere you have a better chance of getting a better investment valuation or faster growth?
It’s not all bad news — we’re getting better at creating new startups. The report says Sydney’s seed investment activity grew 33% over the past three years, but against Bangalore’s 53% growth, it helps to explain why Sydney fell from 12th to 16th in the global rankings and Melbourne dropped off altogether.
At the end of the startup value chain, Sydney represents a puny 0.1% of the estimated global exit events by value. Montreal sees three times that, Singapore eight times and Tel Aviv an extraordinary 65 times. In case you’re thinking it’s a question of scale, don’t — Tel Aviv has a population of less than 500,000.
The report is encouraging about Australia’s depth of experienced tech startup founders and advisors, and our growth in early stage seed capital (which until very recently was sourced from that same community of experienced tech startup founders).
Australian banks and corporates are beginning to venture into a relatively small amount (globally) of startup investment. Later this year you can expect to hear the first news of Australian superannuation funds participating in some of the more established early-stage tech funds here.
But what we’re really lacking — and why we’ve fallen so far behind, so fast — is concrete support from government, which in other markets is offering tax concessions and investment in local tech startup activity at a level that dwarves support in Australia.
It’s not like we don’t know how to do this — Australia’s primary industries have thrived on a global scale for decades thanks to deep and broad subsidies, concessions and infrastructure investment. And although both Australian government and opposition have promised further startup support in the years to come, it pales in comparison to the efforts undertaken to lure our best and brightest overseas.
We don’t need billions of dollars of ore loading facilities, rail lines, or cheaper diesel. But we do need more of a helping hand.
Full global startup ecosystem report available from http://blog.startupcompass.co
This is an edited version of an opinion piece originally published in The Australian Financial Review.