StartupAus’ 2017 Crossroads report: Where the Australian startup ecosystem is winning and losing

Asked if the fourth consecutive Crossroads report paints a positive or negative picture of Australia’s startup ecosystem, StartupAus chief executive Alex McCauley says it’s a “tough question”.

“We’ve seen a lot of really positive forward movement coming out of the ecosystem at all levels, and there’s a lot of dry powder, government support, and fantastic stuff happening,” McCauley tells StartupSmart.

But to be competitive globally, McCauley says Australia needs to be moving fast in the space, with a huge wave of startups set to hit our shores over the next 30 years. The 2017 Crossroads report, released today, shows Australia is well positioned to receive that wave, but significant work must be done to ensure new startups can prosper, grow, and represent the country on a global scale.

This report McCauley hopes will highlight the importance of startups to Australia’s overall economy, not wanting it to be something where “people who like startups talk about why startups should be helped”. He wants the report to reflect the startup ecosystem’s contribution to the economy and the knock-on effects of its success for the overall success of Australia.

And those potential knock-on effects are significant, with an estimated contribution of $170 billion to Australia’s economy by 2020 coming from startups, and an ever-increasing amount of jobs growth. In the six years leading up to 2011, new firms created over 1.44 million jobs in Australia, compared to a reduction of 400,000 jobs from established firms over the same period.

“It’s time to bridge the divide on Australians’ understanding of the economic benefits of startups. We need to get people to understand the sector is critical as a job-creating force across the economy, and that startups are important for everyone’s future in our country,” McCauley says.

Our wins

McCauley believes Australia sits just behind the internationally revered startup ecosystems in the UK, Israel, and North America, saying the country has a tendency to downplay our successes, and we should recognise we’re “almost” in line with the best of the best.

The Crossroads report highlights a significant number of areas where the startup ecosystem is booming. Australian startups are overwhelmingly backed by angel or venture capital investment, with 93% falling into that category and $586 million in venture fundraising being carried out over the 2016 financial year.

The average age of a startup founder is 29.8, and these founders are pouring their efforts into some key sectors in Australia, the biggest of which are fintech, agtech, and edtech.

“There is a firm fintech scene in Australia, especially in NSW where it accounts for a very substantial percentage of investment in the state,” McCauley says.

“That’s the sector I think we view ourselves as a country as having the most strength in, and it’s really propelled off the back of the strong financial services sector in Australia.”

FinTech Australia chief executive Danielle Szetho. Source: Supplied

In the report, FinTech Australia chief executive Danielle Szetho noted that Australian fintech had had a “very good year”, but warned an increase of international competition and a lack of collaboration between traditional financial institutions could affect the industry, saying the next 12 months will “make or break” Aussie fintech.

Business-to-business startups have also begun to flourish, with it being heralded as one of Australia’s “biggest strengths” in the wake of the dot-com boom. Companies such as Atlassian have lead the way, says McCauley, leading to a significant number of local startups contributing to the B2B space.

The report also reveals a number of Australian startups are taking things to the next level, either pursuing international growth via expansion into markets such as the US or moving to the next stage locally and listing on the Australian Securities Exchange.

Our losses

But even with the numerous positives displayed from Crossroads and the recent Startup Muster report, McCauley and StartupAus are calling on the government with a number of recommendations at a policy level, which he believes are necessary to ensure ongoing growth and allow young companies to thrive.

The most prominent of these suggestions looks to solve an issue that has continued to worry startup founders and industry leaders for years: a lack of access to talent.

While this is often pegged to the government’s recent 457 visa changes proposal, StartupAus’ recommendations surround a more all-encompassing solution, petitioning the government to extend schemes such as the Digital Technologies Curriculum and create entrepreneurship programs in schools to help produce local talent.

However, visa changes are still firmly in the advocacy group’s crosshairs.

“Access to a global pool of talent is the single biggest constraining factor for Australian startups. Once upon a time, this wasn’t true — the issue was capital availability. But now we’ve changed the picture on capital, talent has risen to the top as the main issue,” McCauley says.

“It’s a challenge for ecosystems all over the world as these sorts of people are in huge demand globally. But people really want to come live and work in Australia, and we have a unique opportunity now with the US and the UK restricting their intake of migrants.

“We should be setting ourselves up for the next 30 years of growth.”

In a foreword for the report, Atlassian co-founder and advocate for positive 457 reform Scott Farquhar said there is a “global gold rush” attracting furious competition to attract the best tech talent, and Australia will need to lift its game if we want to participate.

Scott Farquhar

“If we want to take advantage of the huge wave of prosperity that technology is set to deliver over the coming decades, we need to focus right now on making Australia a home for the best and brightest in the world, regardless of where they were born,” Farquhar said.

Reinforcing the visa debate away from a “usual” migration debate is essential says McCauley, strongly reinforcing an increased access to talent is about creating jobs. He uses the example of a strong international product manager growing a startup by double digits, leading to “20-30 new jobs for Australians”.

“It’s a total no-brainer,” he says.

The report recommends the government expands the jobs that skilled worker visas are available to, with a focus on “recognising new-economy jobs such as specialists in product management, user experience and interface design, and digital growth”.

“The current system is not flexible enough. These jobs were only created in the last few years, and now most of them are critical to high-growth companies,” McCauley says.

The report also recommends a number of changes to encourage and increase exposure to entrepreneurship in education, calling for state and federal governments to work with schools to implement programs which encourage entrepreneurship. StartupAus also wants to make computer science and computational thinking mandatory in year 10, and an elective subject in years 11 and 12.

“It’s important to drive people towards entrepreneurship, but it requires a cultural shift that comes with successful role model companies. Those companies only happen by removing what’s restraining their growth and letting them become big success stories,” McCauley says.

Our bright future

But despite the challenges, McCauley reinforces Australia’s startups can look forward to a bright future, in part fuelled by significant growth in up and coming sectors such as agtech, healthtech, constructiontech, and blockchain-based companies.

Companies have also applauded Australia as a perfect place to test and launch a startup, which McCauley agrees with, picking out benefits such as the R&D tax incentive, easily accessible government grants, prevalence of the English language and closeness to Asia as reasons why startups would be picking Australia as a place to launch.

“These are just a few good reasons why we’re a great place to launch a global company,” he says.

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