How tech startups rate Australia

Demo day at Sydney's INCUBATE at the University of Sydney.

Australia’s startup scene has seen fast growth but continues to be held back by risk-averse investors and a lack of government support, local startups told Techworld Australia.

The startups, featured this year in our Australian Startup Snapshot series, illustrated an ecosystem of burgeoning talent but one that is still immature compared to startup scenes in other countries including the US and Israel.

Growth

The good news is growth. Startups have told us that the Australian entrepreneurial scene has expanded substantially in the last two years, particularly in Sydney and Melbourne.

The startup environment in Australia is “pumping” and “definitely growing,” said Mohamad Jebara, co-founder of Sydney e-learning startup, Mathspace.

“We went to a [University of New South Wales] event” to recruit help and discovered many “good graduates preferring to work in the startup world” than big commercial companies, he said.

Kym Huynh, co-founder of education startup WeTeachMe, had high praise for the Melbourne startup scene. “I believe we’re in a very exciting boom stage here.”

Compared to two years ago, there are many more startups, co-working spaces and events for startups, he said. “There’s a lot of support here. People are always happy to have a coffee and advise and mentor and guide.”

While still small, Adelaide has a “burgeoning little startup community” and “people are starting to take notice,” said Savvas Dimitriou, co-founder of indie music store Kicktone.

Demo days held by startup accelerator ANZ Innovyz in Adelaide have attracted investors from other states and abroad, he said. “That’s something that hasn’t happened in Adelaide before.”

Adam Theobald, co-founder of Sydney coffee-ordering app Beat the Q, said he has lately seen much greater collaboration in Australia’s startup scene.

“Something that is really exciting is the emergence of the incubator,” he said.

Co-working spaces such as Sydney’s Fishburners are bringing startups into close contact, startups said.

“It’s good to have events where you pull startups together because the worst thing about a startup is the lonely road,” said Dipra Ray, co-founder of NexPay, a currency exchange startup based in Sydney.

“Anything you can do to bring people together and bounce ideas off of each other” is beneficial to the community and “the more you can encourage that, I think the better for Australia in the long term,” he said.

Funding remains scarce

While the scene may be growing, venture capitalists in Australia remain averse to risk in comparison to VCs in other countries like the US and Israel.

“Here you don’t get funding unless you’ve demonstrated significant traction,” according to Shane Herft, co-founder of Drivelist, an online service that lets car buyers schedule test drives of nearly any vehicle.

Early-stage startups instead have to rely on “the 3 F’s—friends, family and fools,” he said. “That’s the only funding you get.”

Doron Ostrin, co-founder of B2B startup Productify, took a similar view.

“You can get money from friends and family, and then you can get the big VC round of [between] $3 million and $10 million, but there is kind of that gap in the middle where people aren’t willing to take much risk on something that’s not proven,” he said.

Valuation of startups is also much higher elsewhere, Ostrin said. Venture capitalists that have met with Productify told the founders a valuation in the US would likely be $2 million to $4 million greater than in Australia, Ostrin said.

“I think they have it in their head that that’s the case, and therefore they follow it.”

“It’s difficult for startups to get funding,” agreed Jeremy Tobias, head of business development at mobile donations startup GiveEasy. “Raising money on the ASX is difficult enough, but if you’re unlisted and under the radar, it’s tough work.”

The funding problem has driven some startups overseas where money is easier to come by, said Airtasker co-founder Tim Fung.

“We’re losing a lot of startups to the US and Singapore ... We just need to make sure that we give the right environment to keep all these guys here.”

However, other startups said getting funding in Australia is far from impossible.

“There’s never been a lack of funds in Australia,” said Filip Eldic, co-founder of location-based payment startup Bluedot. “It’s just been a lack of companies that have been able to build and run to the standards that they are in the US.”

Nick Cloete, CEO of cash register software maker Kounta, disagreed with those who say money can be hard to find, at least in the early going: “If you’ve got the right product, I don’t think it’s that difficult to find funding.”

However, as the startup grows and needs later-stage funding from venture capitalists, “definitely the US has got a much bigger pool of resources,” he added.

Next: Seeking government support

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Government support lags

Support for startups from the Australian government is “pretty terrible,” said Paul Du Bois, founder of the Brisbane-based B2B startup Tap-To.

“They’ve got great things like Commercialisation Australia which give grants, but all of its predicated on 50-50 [matched] funding.”

“You still have to come up with $250,000 on your own,” he said. “You really have to be at a certain level as a company to even remotely consider that kind of money.”

The Australian government has not been of much help to startups, focusing instead on mining and education, said Matthew Barnett, co-founder of video interview startup Vimily.

“If the government starts to support, that will bring more investors in.”

Government needs to “step up to the plate” to establish a solid local ecosystem of technology startups, said Jonathan Barouch, founder of LocalMeasure, a location-based platform for monitoring social media.

“I certainly don’t think it’s up to the government to fund startups ... but given how early we are, they need to encourage super funds to unlock some super, they need to help get the local [venture capital] industry going [and] get global VCs focused on Australia.”

In addition, the government should “start a public dialogue about why technology companies are really important and maybe more important to Australia’s future than the mining companies.”

Drivelist’s Herft stressed how important it is for the federal government to reverse tax rules preventing startups from giving share options to employees. The new Coalition government is expected to address the problem.

“Making sure founders can have a vesting agreement is so critical for a startup,” he said.

“Many startups get sunk because of it. If you have one founder that decides to walk away and he’s walking away with a third or half the company, it’s like, fat chance getting funding ... No one’s going to fund a company where a third of the value is locked away by someone doing nothing.”

Barouch said startups are rising regardless of the lack of help.

“Despite the best efforts of the government to kill off any possible any possible wave of innovation, we’re like cockroaches—we’re flourishing.”

Seeking success stories

While there are many startups in Australia, a great many are early-stage and there are relatively few stories of massive success.

“There have been some successful startups and that kind of whets the appetite,” said Andy Sheats, founder and CEO of Health.com.au. “But it’s still decades behind the real infrastructure approach that you would see in San Francisco.”

WeTeachMe’s Huynh said he wished there were a greater number of experienced startups to learn from. “The major difference in Silicon Valley is there are a lot more people who have done what I want to do.”

Alexandra Kinloch, co-founder of video app developer Cinch (formerly CaptureUs), agreed that more experience would be helpful.

“The startup scene is far less developed in Australia, which means there are less people overall that can assist in providing and helping new startups with strategic direction,” she said.

Asher Tan, co-founder of Bitcoin wallet CoinJar, said what's missing in Australia "is more global successes."

“It is sort of trendy to get into startups but at the end of the day the stats show not many Australian-based startups have made it to the world stage.”

However, Dave Slutzkin, co-founder of domain flipping startup Flippa, predicted that will come in the future.

“It’s a really exciting space to be in,” he said. “Some of [the startups] are wild and crazy and aren’t going to come to anything, but some of them just might be the next Facebook or at least the next 99Designs or Atlassian.”

Follow Adam Bender on Twitter: @WatchAdam

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