Anyone who has expressed interest in creating a startup in Australia has undoubtedly come across concerned parties who warn that the chances of success are slim, or to brace for repeated failure. But a new report has attempted to highlight exactly what percentage of Australian startups succeed, and whether the Australian startup movement, Silicon Beach, is viable.
The report, Silicon Beach: A study of the Australian Startup Ecosystem (PDF), paints a poor picture of the local startup industry.
Developed by Deloitte Private, Pollenizer, and startup publication From Little Things, it shows that only 4.8 percent of startups in Sydney and Melbourne are successfully scaling up.
If it paints the picture that Australian startups are small, it should. The report found that in terms of size, Sydney is undoubtedly the central place to be for startups. Sydney's startup scene is over twice the size of Melbourne's startup scene, six times the size of that in Brisbane, and almost eight times that of Perth's. However, even New York's rising startup scene eclipses Sydney by around 2.6 times, and Silicon Valley itself is 6.7 times the size of Sydney.
When considering the population differences of each state — New York's population is 2.7 times the size of all of New South Wales, and California is 5.1 times bigger — this difference doesn't seem so bad, but the money required to give startups their chance at success simply isn't equal when considered per capita.
The report found that Silicon Valley startups raise 4.8 times the amount of capital in the first three stages of development, and New Yorkers raise five times the amount. When moving to scale their businesses, New Yorkers are on par, raising about 1.6 times the amount of funding, but startups in Silicon Valley are receiving 100 times the amount of funding that Sydneysiders are.
"The startup investment market in Australia is undercapitalised. Consequently, Australian companies will continue to struggle in their efforts to scale. Unfortunately, this will see more companies fail, many of them potentially good ones, due to resource exhaustion; or, alternatively, they will re-incorporate overseas to attract offshore capital," the report said.
Australian startups aren't helping themselves out, either. The report found that only 39 percent of startups are taking advantage of any form of an Australian grant.
Of those that are, 79 percent have applied for the Research and Development Tax Concession, 53 percent for the Export Marketing and Development Grant, and just 21 percent have sought the support of Commercialisation Australia.
A possible reason for the lack of hands asking for grants is that the Australian entrepreneurs are not as ambitious, according to the report. Instead, Australians look for smaller niche markets that represent lower risks, resisting the urge to dream big.
"Australian entrepreneurs tackle niche markets 14 percent more often than entrepreneurs in Silicon Valley, and 10 percent more often than New York entrepreneurs. This is not surprising, given that Australian startups, with a smaller market base, need to focus on clearly defined niches to gain traction early in the startup process."
The only respite that Australians seem to have is that even if they had the money and the culture of Silicon Valley, it doesn't automatically spell success, whatever the location may be. Just 8 percent of Silicon Valley's startups go on to become successful, while New York entrepreneurs are at 6.6 percent.