The Ascent of the Ecosystem Down Under
The 2010s will go down in history as a formative time for strong new startup ecosystems around the globe. Most interestingly, these ecosystems haven’t become miniature copies of the Valley lifestyle, but rather unique reflections of their surroundings and local ambitions.
Perhaps surprisingly, one such transformation has happened in Australia. Whilst the country has been a global economic superpower for long, young scalable ventures have only truly become part of the equation during the past decade.
What happened, what sets the Aussie ecosystem apart, and what could the future hold?
A barren outset
In 2013, there were four active accelerators in Australia. That’s one accelerator per 5.8 million people. Early-stage funding was equally scarce; in that year, the three domestic VC funds cumulatively raised a meagre $155M. Entrepreneurial academic programs were unheard of. What’s more, governmental support for tech was minimal, and community initiatives sparse.
In short, Australia lacked both the mentality and the structure that compose a fertile ecosystem.
In that same year, PwC stated that: “The Australian tech startup sector has the potential to contribute $109 billion or 4% of GDP to the Australian economy and 540,000 jobs by 2033 with a concerted effort from entrepreneurs, educators, the government and corporate Australia.”
Fast forward seven years, and that effort might just start to be there.
The remarkable leap
Since 2013, Australia has undergone transformational change on all accounts. In 2018, the cumulative venture capital raised stood at $1.3B—up nearly tenfold from six years prior. Today, there are dozens of accelerators spread across the country, and success stories to match those.
Similarly, the government has woken up to the need to facilitate and support innovation. Perhaps the most impactful governmental program has been the Accelerating Commercialisation (AC) grant, set up in 2014. The program provides up to $1M in non-dilutive funding—doubling whatever the company has managed to raise privately. The grants are awarded based on a competitive process, and over the first five years, have totalled more than $200M.
Much like no hoofed animals natively trek Australia, no home-grown Aussie had built a tech unicorn at the start of the decade. That all changed in 2015, when the bootstrapped enterprise software company Atlassian went public at a $5.8B valuation. Since then, both Canva and Airwallex have joined its ranks. In what could be seen as a remarkable indication of the pace at which the ecosystem has matured, Atlassian needed 12 years to hit a billion, Canva got there in six and Airwallex managed in just three.
Canva’s Co-founder and CPO, Cameron Adams, spoke about their remarkable product journey at Slush 2019.
An important common denominator of the funding rounds that took Canva and Airwallex over the billion-dollar mark is that they were led by Sequoia’s Chinese arm. In fact, alongside the surge of national funds, an influx of foreign investment has been decisive for the funding climate. Later rounds in particular have seen heavy participation from the global giants of VC.
A tale of two cities
Countries quite typically have one hub that clearly eclipses the rest. In Australia, the situation is rather more dualistic; both the Sydney and Melbourne ecosystems are well-established. The cumulative value of the two stands at $8.9B.
In terms of pure numbers, Sydney is the larger hub. Last year’s Global Startup Ecosystem Report (GSER)—by Startup Genome— puts it in the “late globalisation phase” basket, and ranks it particularly high; 4th worldwide, in “local connectedness”. One of the more ambitious recent initiatives to spur that connectness has been the government-backed Sydney Startup Hub, set to become the largest of its kind in the southern hemisphere.
Melbourne, in turn, is described by GSER to be in the “early globalisation phase”. Whilst it is a less established hub, it is growing rapidly. Some local officials have argued that the city’s internationally recognized “liveability” is drawing startups to Victoria’s capital.
In terms of tech unicorns, both hubs have made contributions. Atlassian and Canva were built out of Sydney, Airwallex in Melbourne. Likewise, big international tech companies have opted both ways when first opening up shop in Australia.
More importantly however, in am age where startups are increasingly forced to think globally from the get-go, it would naive to think of the rivalry between the two cities as a zero-sum game. All of Australia stands to gain from the sustained well-being of these two, distinct ecosystems.
Sally-Ann Williams, CEO at Cicada Innovations, a Sydney-based deeptech incubator, has said: “Australia is too small as a market to get into a Sydney vs Melbourne vs Adelaide fight”.
An eventful growth story
Another remarkable—and related—growth story of the past decade has been that of Australia’s startup and tech events.
One of the spearheads of that constellation, Pause Fest, is coming up in Melbourne on February 5–7. Founded in 2011, Pause has grown into a three-day festival of business and creativity, attracting over 2,000 visitors.
As a testament to the success community-driven initiatives like this, the Australian ecosystem is rapidly becoming more networked.
As any young ecosystem, Australia still faces some shortcomings. Studies have pointed to the country’s secluded location as a cause for the trailing international outlook of its young ventures, and whilst the funding ecosystem has improved, there is a lingering lack of experienced local VCs.
At the same time, the global economy is in a state of flux. New superpowers are rising at an astounding pace, and old ones face being left behind. PwC predicts that Australia will fall out of the G20 by 2050, and some have interpreted underinvestments in the knowledge economy to be the root cause for this.
In other words, going into the 2020s, Australia, like many other developed economies, can’t afford to overlook the power of scalable young companies as a force of change and growth in society.