Australia’s startup scene could add $109 billion to the economy and 540,000 new jobs over the next 20 years, if fostered properly, according to a report released today by Google.
Google commissioned the report, which was written by PricewaterhouseCoopers (PwC). The search leviathan has been exploring how it can help Australian startups and is about to formalise a not-for-profit industry group called #startupAUS.
The PwC data will be used by #startupAUS as a starting point as the group finds its direction, said Google ANZ engineering director, Alan Noble, at a media briefing in Sydney.
The startup sector “has potential to become a huge or a much bigger part of the Australian economy,” he said.
The report estimated that the sector could contribute 4 per cent of gross domestic product by 2033. PwC economist Jeremy Thorpe said while there are many assumptions involved, the report’s $109 billion estimate is modeled around a “most likely scenario.”
PwC used a model that assumes 1 percent of startups reach $200 million in revenue and that a successful startup reaches $200 million per annum in its eighth year and generates $300,000 per employee. To reach 4 per cent GDP, there would need to be 600 Australian startups with $200 million annual revenue plus 5000 younger firms, PwC said in the report.
“You will see some very small number [of startups] be wildly successful and a long tail of mediocrity and failure,” Thorpe said. “It’s why you need the critical mass so that over time you do get sufficient volume so you get those successes,” he said.
In Australia, about 40 per cent of failed startups try again, Thorpe said. And successful startups tend to spin off new startups. The combination of those two factors leads to compound growth in the startup sector, he said.
The PwC research defined a startup as a disruptive company with less than $5 million at launch that has technology at its core and intellectual capital.
There are at least 1500 startups in Australia today, the report found. Most (64 per cent) are concentrated in Sydney, with 24 per cent in Melbourne and 7 per cent in Brisbane, he said. In addition, more than 75 per cent of Australian startups target the information media and telecom sector, it found.
While there is “no single solution” to encouraging startup growth in Australia, Thorpe said two key areas are education and building an open and inclusive startup community.
Australia must reverse a decline in computer science skills, he said. In addition, a strong entrepreneurial spirit must be taught at a young age to encourage more risk taking, he said. Australians have a greater fear of failure than people in the US and Canada, the report found.
General Assembly, which provides training for startups, recently said that education is critical to developing Australia’s startup scene.
Meanwhile, more startups must view other startups as collaborators rather than competitors, Thorpe said.
“The community is what is going to ultimately determine success,” added Noble. “No one is seeking handouts. No one is seeking social support.”
Access to venture capital continues to be a gap for Australian startups and a problem that sometimes drives them overseas, Noble said.
It’s “pretty easy to get angel funding these days” in Australia for the first $5-10 million, he said. “Where it’s difficult is when you need to go out and raise $50 million.”
Australia invests about US$7.50 per capita in venture capital per annum, compared to $75 in the US and $150 in Israel, the report found.
Other areas for improvement include tweaking the tax code and opening government and industry procurement to startups, said Thorpe.
Noble sees no inherent problem with multinational corporations such as his own company, Google, acquiring Australian startups, he said. Last week, Twitter acquired Brisbane music startup, We Are Hunted.
“To me, it’s a validation that [Australia] produced a company that has technology worth acquiring,” he said.
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