Startups will save the Oz economy: Silicon Beach

The Australian economy is heading for a crisis, and the only way to save it is to pivot from digging up minerals and ore to investing in startups that can create a self-sustaining ecosystem, according to the heads of a new Google-led initiative to foster "Silicon Beach".

Over 50 Australian entrepreneurs from startups have gathered for two days of crisis talks at a Silicon Beach Summit this week, making the short term sacrifice from their businesses to examine the future of the Australian startup ecosystem as a whole.

Google is one of the leading parties of the Silicon Beach Action Group, and it has commissioned PricewaterhouseCoopers to undertake a study of Australian startups and how they compare to what other countries in the area are doing.

While the full results from the study are not yet available, Google Australia director of engineering Alan Noble told journalists on Wednesday morning that the Action Group would focus on three areas: raising awareness, supporting those already within the startup community, and ensuring the next generation of entrepreneurs are suitably educated.

Noble was fairly optimistic of what Australia could achieve if these three areas were addressed and the improvements made so far in startup community in the past five years. Action Group stablemate and Freelancer CEO Matt Barrie was less so, indicating that Australia is failing on all three fronts.

Awareness

"The Australian government and Australian public are blissfully unaware that the economy, I think, is heading into absolute crisis," he said.

"There is absolutely no way that we will be able to, as a population of 22 million-or so people, be able to sustain our way of life that we are accustomed to in the future, unless we think about what are the industries we are going to build when the rocks that we dig out of the ground run out. We don't even elaborately transform that dirt into anything like manufactured goods any more."

Barrie believes that there is no better industry in which Australia can use to multiply its productivity than technology. He pointed to the examples of some of the largest organisations in the world, and how each of them relies on technology as a basis for their success.

"The biggest marketing company in the world is a software company — it's Google. The fastest growing telecoms company is a software company — it's Skype, which is Microsoft. The book seller, the biggest shoe seller in the world is a software company — it's Amazon, soon to be the biggest retailer in the world. I can't think of a single industry that's not turning in some way, shape, or form, into a software business."

Noble said that people were often unaware of the potential of technology and how it contributes to all walks of life, and that building that awareness was the first step in building up Silicon Beach.

"One of the the most important things I'd like to see come from this is essentially something, or a number of somethings, that conveys that message that this is an opportunity for the country, this is an opportunity for our kids, this is an opportunity for our economy," Noble said.

"If we don't do it, yes, we're going to be hosed because we can't continue to rely on the same old industries."

Support

Support for startups is also a sorry story, according to Barrie, highlighting the stark difference between being financed in the US and Australia.

"Look at the venture capital industry in Australia. It is dead. Last year, the entire Venture Capital industry as a whole raised AU$40 million total across three funds," Barrie said.

"A company like Atlassian, for example; it's last financing was US$60 million. The entire Australian Venture Capital industry did not raise enough to even do that round in one company."

The lack of local support for startups has meant that startups are more likely to leave Australia and follow the money by going to the US, according to Barrie. He said that this then leads to good startups eventually listing on US stock exchanges, or simply incorporating in US states from their inception.

Shoes of Prey Co-CEO and Co-Founder Michael Fox, who is also part of the Action Group, said that this was the same predicament he found himself in when searching for $3 million in Series A funding for his startup. He called it a "hugely lengthy and distracting process", given that it ran for 18 months and involved a total of nine investors.

"We had seven investors from Australia, we had a couple of VCs who were coming to the end of their funds so they didn't have a lot of money to put in, we had some angel investors, and then we had to go to the US, and get a US VC fund and a US angel investor involved," Fox said. This was in addition to the co-founders' own bootstrap investments to keep the business running for its first three years.

Even then, some US investors were only interested if Fox's startup left Australia behind.

"We had people say ... we like your business, we like what you're doing, we like all of your success. We'll give you the 2-3 million dollars that you want to raise, but you need to pack up and move to the US," Fox recalled.

"We're getting a brain drain, where our entrepreneurs and our great technology success stories are essentially ending up overseas," Barrie added.

Noble acknowledged that sometimes startups come back, bringing benefits to the local ecosystem, but that was usually circumstantial.

"They come back because they miss their families, [for example]. They're not necessarily coming back for career opportunities or to grow their businesses," Noble said.

"They're also not building their team here, so you're not getting that high tech skill set being nourished and growing here," Barrie said.

"It's still good if they come back with their network and their money — that's still a positive — but it would be way better if they built their business here," Fox said.

Education

Barrie was highly critical of Australia's education system, but unlike many that speculate from the sidelines, he is more than qualified to judge on the issue, being an adjunct professor at the University of Sydney.

"It's gone from a system which is really geared towards local Australian bachelor students, etc, which go through and want to contribute to the economy in the future, to basically one which is serving the lucrative business of providing education for overseas business," Barrie said.

"I think it's a real problem when I walk into my class, which I do every Friday ... and basically I'm teaching technology entrepreneurship ... to dozens of overseas students. They're going to go home, and they're going to start businesses, and they're going to compete against us."

Fox highlighted that some of the education issues were actually awareness ones, with many parents or young students stuck in the traditional mindset that medicine and law were the steady track to a successful career.

"If you come out as a really good graduate in computer science, we'll hunt you down to give you a job; we'll pay you a small fortune; we'll provide an office environment that's way better than working as doctor or a lawyer. I'm an ex-lawyer; I can vouch for that for sure," Fox said.

"There's not many industries where a 28-year-old can create a US$70 billion company in eight years," Barrie said, highlighting Mark Zuckerberg's success with Facebook.

"We do know from the [preliminary PwC reports] that 29 percent of founders of technology companies have CS degrees. If we can increase the number of people studying CS, those are the types of individuals that will go out and start companies," Noble said.