Startups: we’ve come a long way, but there’s more to go
Venture Capital investment in Australian startups continues to trend upwards, but we need to go further, faster if we want to become a global leader.
Investment in startups is an important indicator of a country’s future economic strength. A technology business can rapidly establish market presence and dominance in a new country – a risk but also an opportunity for many global economies.
Take the home food delivery sector for example. Three major players have come to dominate the $2.6 billion Australian market: Deliveroo, Menulog and Uber-eats. Of those, only Menulog was founded in Australia – its AU$855 million sale to UK-based Just Eats in 2015 still ranks as one of our most successful startup exits.
And successful startup exits result in a virtuous cycle that sees an injection of capital and strong entrepreneurial talent injected into the startup eco-system. Just imagine for a second if two or even all three of our home delivery businesses were Australian founded.
That is why we should be pleased to see the amount of capital invested in startups in Australia over the 2018/19 financial year hit a new record of AU$1.7 billion, according to the latest edition of the KPMG Venture Pulse. This level would have been inconceivable just a few years ago. In FYR 2014/15, just AU$593 million in startup investment was recorded.
The latest numbers were spurred by investment in some of Australia’s most successful and promising new global businesses. Airwallex, the Melbourne-founded fintech focussed on enabling cross-border commerce, workplace management platform Deputy, and cloud-based design software company Canva all closed rounds in excess of AU$100mil over the past 12 months.
Compared to ourselves, we are doing great. But unfortunately, in today’s world – business building is not a national sport, it’s an international one.
Traditionally, there have been two behemoths when it comes to startup investment: the US and China. In the last quarter alone, US VC-backed companies raised AU$45 billion, and nineteen companies attained “unicorn” status (a valuations of over $1 billion), while China saw a slowdown, it still saw over AU$10 billion work of startup investment. In the same period, Australia recorded AU$170 million.
Some would argue it’s unfair to compare Australia with the US and China. So, let’s look at a more comparable economy: Canada. Between 1 July 2018 and 31 June 2019, VC investment in Canadian startups exceeded AU$4.4 billion – more than double that in Australia. Yes, Canada will always benefit from its proximity to the world’s largest technology and startup market, the US. But the fact that similar sized economy to ours is seeing twice as much investment in innovative new businesses puts our VC numbers into context.
Supporting startups is a strategic imperative for any economy. Jobs and growth may not have been a successful political slogan, but it is a serious reality in a digitally enabled world where billion-dollar businesses are being created in record time.
Thanks to the dedicated work of early founders and investors, Australia’s startup sector has started to emerge. Our most successful startup, US-listed Atlassian, now has a market capitalisation that would rank it in the top 10 Australian companies on the ASX. We now have multiple examples of high-growth, global leading technology ventures that prove it can be done.
Now it’s time for more capital to be deployed, and for more resources and support to be applied to building Australian startups. Yes, AU$1.7 billion is a good start, but we are only scratching the surface of what is possible to create the Australian economy of the future.