By Kate Hill
Partner Deloitte Private
IF you’re considering setting up your own technology business then you should take a look at a new report which discusses the local start-up scene.
The report confirms something that continues to baffle me while working with start-ups in Western Sydney, that government grants and concessions are still being ignored by many Australian start-ups.
The results of ‘Silicon Beach: A study of the Australian start-up ecosystem’* provide great insights for existing or future entrepreneurs. The overall message I took from the report, was that we are doing ok but that we could be doing so much better, a solid B minus, if you like!
Currently, only 4.8% of start-ups in New South Wales and Victoria are successfully scaling to sustainable and profitable businesses. By comparison, 8% of Silicon Valley and 6.6% of New York companies achieve scale. On a more positive note, once Australian start-ups do reach scale, they do seem to have a lower risk of failure.
As a nation we are quite humble about our abilities and our achievements, there is no doubt that Australian entrepreneurs take a more conservative approach. Rather than searching for a truly disruptive product or service, we tend to create complimentary offerings which leverage or complement existing solutions.
The report showed that we only really push ahead with a business or idea that we believe will be successful and have solved a technical problem, found a real market and have the capacity to continue to grow.
The great news for entrepreneurs here in Western Sydney, is that New South Wales is the start-up hotspot of Australia. We have the most established network of start-up founders, investors, and accelerators and incubators.
This means you can more easily connect with a community of successful entrepreneurs for help and advice. It also translates into more locally available startup capital, angel investors and business partners, all of whom are essential in funding your ideas and helping turn them into scalable and hopefully profitable businesses!
New South Wales may be winning the local battle, but on a global scale it is still dwarfed by the tech startup super-hubs of Silicon Valley and New York which produce 6.7 and 2.6 times the number of startups respectively.
A serious concern highlighted in the report is the overall lack of capital available in Australia. By comparison, U.S. companies are raising 4.8 times more capital in the early stages and 100 times more when they are ready to scale their operations.
Considering this lack of capitalisation it is even more surprising that Australian start-ups are still leaving money on the table. Only 39% of companies surveyed had applied for some kind of grant. Programs like ‘Commercialisation Australia’ are still underutilised; only 21% of start-ups in the research that accessed grants have applied for ‘Commercialisation Australia’ support.
However, the R&D Tax Concession has been popular — 79% of start-ups that have applied for grants have accessed the R&D Tax Concession.
The research also found that Australian start-ups find it difficult to offer ESOPs (employee share option plans), due to a complex tax environment that disadvantages start-up employees by taxing them upfront, before their shares hold any demonstrable value. Only 57% of Australian start-ups in the research have a share option scheme.
A dearth of investment capital and not being able to attract and retain enough top talent are disadvantaging local start-ups in what is a highly competitive global tech market.
Those of you who can leverage the local start-up ecosystem to their advantage and fully utilize government grants and tax concessions will be the ones who will succeed and contribute to a stronger environment for innovation in Australia.
A final thought from the report, New South Wales entrepreneurs work 9.17 hours per day. That’s almost as many working hours as in Silicon Valley (9.95). The myth that Aussies spend their days on the beach instead of building their start-ups can now be considered as busted!
* The report co-authored by Deloitte Private, Pollenizer (pollenizer.com), Australian startup publication From Little Things (fromlittlethings.co) and the global Startup Genome Project (blog.startupcompass.co) compared more than 1,000 Australian tech start-up companies with more than 50,000 early-stage companies being tracked worldwide.
Kate Hill is a partner at Deloitte Private, Western Sydney. Contact her at 02 9840 7049 or email khill@deloitte.com.au
