Start-up accelerators foster brain drain

Start-up accelerators foster brain drain

Summary: The local growth in start-up activity and investment has provided a once-in-a-generation opportunity for Australian entrepreneurs to turn their dreams into reality, but it has also accelerated the export of our best and brightest talent and intellectual property.

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The local growth in start-up activity and investment has provided a once-in-a-generation opportunity for Australian entrepreneurs to turn their dreams into reality, but it has also accelerated the export of our best and brightest talent and intellectual property.

Australian entrepreneurs have greatly benefited from the growth of start-up accelerators, which provide intense mentoring over a short period of time to commercialise an idea.

The heads of Australia's leading accelerators recently met over lunch in Woolloomooloo, and the mood was overwhelmingly optimistic about the future of local start-ups.

However, this enthusiasm was undermined by the revelation that the latest batch of Startmate companies were incorporated in Delaware, in the United States.

Startmate co-founder Niki Scevak explained that the primary reason for this was because of the payments infrastructure in Australia, which is managed by the big banks. It is extremely difficult for start-ups to navigate the red tape and bureaucracy involved. The system is not suited to online transaction-based start-ups that live and die by their ability to generate web sales around the world, and to process the corresponding credit card payments.

He said that wasting a lot of time dealing with the Australian process was a harsh lesson learned with the first intake of Startmate companies. A quick and easy solution was to incorporate the companies in the US, which is home to a different payment structure and a range of start-up-friendly Silicon Valley banks.

All 10 Startmate companies took up the opportunity to be registered in America. The move has already paid dividends for Ninja Blocks, which organised a Kickstarter project that raised over $87,000 — a mere pipe dream for an Australian company.

There are other side benefits for an entrepreneur to register their company in the United States, including making it easier to raise money from American investors, and being acquired by American companies.

However, it makes efforts to cultivate the local start-up ecosystem seem futile, because it makes it easier for the best talent and technology to be exported to America.

One example is the acquisition of Startmate alumni Grabble by retail giant Walmart, which saw the local ecosystem miss out on the start-up's talent and technology, and the additional business it would've attracted.

Scevak believes that in the long run, Australia is better off, because entrepreneurs that succeed in Silicon Valley will eventually return home with a wealth of knowledge, capital and networks, which they wouldn't have earned in the local ecosystem.

"Australia will never be as good as Silicon Valley, but Australia can still get better as a start-up community," Scevak said. "I think that if people make money through a company, and they take that money and bring it back to Australia, then everyone wins. I think that the money that people make while in their time in Silicon Valley ultimately ends up in Australia, and generates new jobs and investments in start-ups.

"It's like Harry Kewell playing in the premier league and moving back to the Melbourne Victory. They always move back and come back, but having played on the world stage, they become better people, are learning a whole heap of new skills, and bringing that back to Australia."

To anyone who watches the A-League, it's clear that Harry Kewell's best years are behind him. In his first season back in Australia, he isn't even in the top five goal scorers for the year, which has threatened his team's finals chances.

The argument "to be the best in the world, you have to be in America" has been largely discredited by the recent string of locally based start-up success stories, which built their businesses from the ground up locally and proved their business model in Australia.

The likes of Atlassian, 99Designs, BigCommerce, OzForex and countless others succeeded because they survived the harsh Australian operating conditions — small local market, limited talent and resource pool, very little access to funding — not because they avoided them.

They eventually expanded to America, but the local start-up ecosystem and economy would be much poorer if they'd chosen to relocate their businesses at an earlier point in their lifecycle.

Should we keep Australian start-ups in the country to protect the local ecosystem?

Topics: Start-Ups, Government AU

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3 comments
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  • Other relevant attributes of Silicon Valley:-
    - verticals are bigger
    - Easier to get meetings with corporate execs
    - Corps understand that startups can innovate faster and encourage it
    - more things are broken so there are more opportunities
    - Stanford pumps out innovators
    - far more serendipity
    - Aussies stand out in a good way
    - The exchange rate is really awesome - 2010 BMW M3 for $AU41k. 
    Stuart Argue
  • Thanks Stuart.

    I can't argue with your facts, and there's no doubt that Silicon Valley is the best place in the world for an entrepreneur to work (especially for a BMW M3 at that price!).

    However, I'm just exploring the idea in the context of what's best for the local ecosystem, which I assume would benefit from having more accomplished entrepreneurs actively building their businesses in Australia.
    Mahesh.sharma
  • The main reason we incorporated in Delaware was to have access to new payment gateways coming out of the US. Paypal is the only option for an Aussie online marketplace (i.e incoming and outgoing payments) and unfortunately not a very good one as we learned by having our account permanently shut down after some traction.

    Lauren - Flightfox (2012 Startmate company)
    flmyngo