In an Aussie startup? You're going to have a bad time: Deloitte

In an Aussie startup? You're going to have a bad time: Deloitte

Summary: Australian startups live in a smaller ecosystem, receive less funding, don't put their hands up for funding, and don't think big. So how can they survive compared to Silicon Valley giants?

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TOPICS: Start-Ups, Australia
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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.

Topics: Start-Ups, Australia

Michael Lee

About Michael Lee

A Sydney, Australia-based journalist, Michael Lee covers a gamut of news in the technology space including information security, state Government initiatives, and local startups.

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2 comments
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  • Entrepreneurism is challenging

    Little surprise early stage capital and angels have a focus on Silicon Valley; given the tech successes from the area.

    Changes to the R&D Tax Concession (morphed into the R&D Tax Incentive) has left many bewildered. Currently its saving grace is AusIndustry is as confused as anyone; you might be able to slip one passed them.

    Software R&D has always attracted the attention of AusIndustry and the ATO. The qualification of Rome2rio's expenditure for these grants on the basis of "the technology doesn't exist" shows a shallow understanding of the requirements of the new program.

    Unlike the self assessment of the R&D Tax Incentive, Commercialisation Australia grants are very competitive. EMDG useful once your well on your way. The later two require considerable effort, the former new rules radically alters eligible projects.

    Grants are no substitute for an entrepreneurs enthusiasm and a wealthy swinging di*k to financially support the business through the early stages. Even then it's a risk, it's a very competitive market out there. Those prepared to give it a go have my respect, good luck.
    Richard Flude
  • Get a good tax specialist

    Great point on Australian grants. Aussie startups need a good tax specialist to help with the early structures and expenses to maximize any investment (financial or sweat equity). Early structures are so important to success that even getting the equity structures setup wrong can cost startup founders voting power once money rolls in from VCs.

    If solid founders (it isn't for everyone) focus on building a great product that solves a real world pain/need and can execute fast with a MVP (minimal viable product) demonstrating to angels that they can get shit done faster then the world is their oyster. That's when the money starts rolling in. Not with just an idea. The reality is you need something to show how good the team is and that your idea has some legs. Ideas change (as seen from Founders at Work book) but founders attitude and drive are what remains as the company pivots and grows.

    Go at it Aussie startups! Ping me offline (ernestsemerda.com) if anyone needs to bounce ideas. I am an Aussie founder on my 2nd startup in Silicon Valley (4 years now) after selling the 1st.
    Ernest W Semerda - ernestsemerda.com