Home Strategy Start-ups hit record high in 2017, potential to add $170m to economy: report

Start-ups hit record high in 2017, potential to add $170m to economy: report

Australia’s start-ups have had a record year in the 2017 financial year, with the industry raising a record $1.32 billion in venture capital and predicted to have the potential to contribute as much as $170 million to the economy by 2020.

But despite the positive report by StartupAUS, the advocacy group says access to global talent is critical to the growth of an internationally competitive local tech sector in Australia.

It also warns that Australia could be left behind by its policies on visas and needs to pick up its game on competing with other countries to attract talent into the start-up sector.

StartupAUS chief executive and lead author of the report, Alex McCauley, says the start-up sector in 2017 has attracted significant state government investment in innovation precincts, strong growth in the number of accelerators, incubators and coworking spaces, and the attraction of high-profile events and investors.

“Start-ups are now recognised as leading job creators worldwide and high-growth start-ups are the primary driver of Australia’s new jobs growth. Start-ups have the potential to contribute as much as $170 billion to Australia’s economy by 2020,” MCauley forecast.

But he said the many successes of the sector in the past 12 months had been put at risk by stagnation or backwards movement in some areas, particularly when it came to visas and the R&D tax incentive.

“Australia has come a long way in a relatively short space of time and we are pleased to see the momentum building.  What we must also recognise is the speed of our global competitors and the intensity with which governments are focusing on supporting start-ups around the world.

“It’s clear that by pulling a few big policy levers we could rapidly shift Australia’s start-up economy to the next level of maturity and potential – making it one of the best places in the world to build a tech start-up. But if we don’t act now, particularly on visas, we risk getting left behind.

“Talent is the single biggest challenge facing Australian start-ups, and there is currently no mechanism for these fast-growing tech companies to attract overseas workers to fill a range of high-demand digital roles, particularly in product development and management. At a time when Australian start-ups are crying out for talent and top-tier tech workers are considering roles outside the US, this gap requires immediate attention,” said McCauley.

The report’s foreword, contributed by Atlassian co-founder and co-chief executive Scott Farquhar, also highlights visas as an area for urgent reform.

“There is a global gold rush at the moment that is generating intense international competition to attract the best tech talent, and Australia needs to lift its game,” Farquhar says.

The 2017 Crossroads report makes nine key recommendations designed to address issues which StartupAUS says are holding the industry back:

(1)    State governments should continue to build and connect innovation precincts;

(2)   The federal government should pay the R&D Tax Incentive on a quarterly rather than annual basis;

(3)   The qualification criteria in the entrepreneur visa should be altered and simplified;

(4)   Options issued under Employee Share Schemes should be exempted from the 20/12 Rule;

(5)   The skilled worker visa should be expanded to include digital skills and reflect start-up needs;

(6)   Federal and state governments should work together to expand the school curriculum for digital skills, giving students more options in computer science and computational thinking;

(7)   A copyright safe harbour for all online content providers should be implemented;

(8)   Entrepreneurship programmes should be implemented and expanded in high schools and universities; and

(9)   Governments should establish dedicated policy teams focused on emerging technologies.

The report points to figures from the Australian Private Equity and Venture Capital Association revealing the 2017 financial year is the second consecutive record year for Australian venture fundraising, with about $1.32 billion raised since July 2016 – compared to a record high in 2016 of $568 million, compared with $154 million in 2013.

According to AVCAL head of Policy and contributing author, Christian Gergis, for Australia to firmly establish itself as a leading location from which to grow a global technology company, venture capital investment as a percentage of GDP must increase.

AVCAL’s research report, The Venture Capital Effect, states this investment is 0.023%, less than half the OECD+ average, and less than a tenth of the size of Israeli or US markets, leaving Australia ranked 18 out of 30 OECD+ nations.

“While the recent growth in local venture has been significant, it must be acknowledged that it is coming off a very low base… [the] Australian venture capital sector remains small, both in absolute terms, and relative to its international peers,” said Gergis.

And according to McCauley, ambitious high-growth young companies will lead Australia’s move onto the world stage, “and a thriving local venture capital sector is critical to supporting their growth and helping them remain in Australia. The data in this year’s Crossroads shows for the first time that Australian start-ups are now much less reliant on overseas investors, which is a very positive step in the right direction.”

McCauley says Crossroads 2017 was backed up by original research from StartupAUS looking at a cohort of 47 of the country’s most successful scale-ups, and provided a statistical snapshot of what Australia’s most successful young companies look like:

  • 92% of companies are backed by angel or VC investment;
  • 86% of businesses are looking to hire international talent within six months;
  • 91.3% of start-ups are claiming the R&D Tax Incentive;
  • 29.8 years is the average age of start-up founders;
  • 57% of start-ups were founded by immigrants or children of immigrants;
  • 15% of start-ups have at least one female founder;
  • 4% of start-ups have an all-female founding team;
  • 57% of all start-up founders had at least one previous business; and
  • 76% of start-ups have at least one founder with a previous business.

This year’s report also includes a “deep dive” on the start-up sector of NSW, in partnership with the NSW Government, highlighting key growth areas including fintech which has attracted 25% of all NSW capital since 2015.

The report also notes the continuing emergence of new NSW technology sectors with Health and Life Sciences, Software as a Service (SaaS) and Sharing Economy/Marketplace businesses all attracting significant levels of investment.

The NSW ecosystem now extends substantially beyond Sydney, with more than one in ten NSW start-ups now based regionally, the report says.

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

 

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