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Less than 5% of Australian startups manage to scale up


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21 November 2012: Only 4.8% of Australian technology startups grow into successful, global companies whereas many more Silicon Valley (8%) and New York (6.7%) based startups reach scale, according to new research released today, Silicon Beach: A study of the Australian Startup Ecosystem.

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.

The objective of the research was to help startup founders, investors, policy makers and industry leaders understand what factors contribute to creating a healthy startup ecosystem.

The research identifies four main startup hubs in Australia: Sydney, Melbourne, Brisbane and Perth.  Sydney is home to the greatest number of tech startups in Australia — 1.5 times more than Melbourne, six times bigger than Brisbane and eight times larger than Perth.

In comparison, the Silicon Valley startup ecosystem is 6.7 times the size of Sydney.  On a global scale, the closest startup hubs to Sydney (based on size) are Paris, Tel Aviv and Singapore.

Startup Sydney
According to the research, Sydney entrepreneurs are 86% less likely to want to get rich, 45% less likely to want to change the world, and 37% more likely to want to build a great product, than their counterparts in Silicon Valley.

“Without a doubt, Sydney is the largest startup ecosystem in Australia. We’re seeing some good companies come out of Melbourne and the other capital cities, but Sydney demonstrates the most established network of startup founders, investors, and accelerators and incubators,” said Joshua Tanchel, a co-author of the report and Partner at Deloitte Private.

“We’re seeing lots of people now starting their own businesses, but the startup ecosystem is relatively young,” said Mr Tanchel. “There are some constraints that make it harder to launch a global company here than in the U.S. We think this report contains some useful information to help build that ecosystem.”

Capital chasm
Phil Morle, report co-author, and co-founder of the start-up incubator Pollenizer, said the scale of the longitudinal study had identified some clear trends for Australian startups:

“Australian companies are struggling to thrive, raising 100 times less investment funding than those in the U.S. once they’re ready to grow. However, when our companies do scale, they are strong.

“We hope this report provides a starting point for startup founders, investors, government and industry to address the areas which are currently holding back Australian entrepreneurs.”

Grants to grow
The research also shows Australian companies are failing to maximise grant opportunities: only 39% of companies in the research have applied for some kind of grant. Programs like ‘Commercialisation Australia’ are still underutilised; only 21% of startups in the research that accessed grants have applied for ‘Commercialisation Australia’ support.

Considering the failure of Australian companies to achieve growth, the data suggests more work needs to be done to reach a greater number of startups. However, the R&D Tax Concession has been popular — 79% of startups that have applied for grants have accessed the R&D Tax Concession.

The research also identified that it’s still very difficult for startups to offer ESOPs (employee share option plans), due to a complex tax environment that disadvantages startup employees by taxing them upfront, before their shares hold any demonstrable value. Only 57% of Australian startups in the research have a share option scheme.

This report began with From Little Things hosting Startup Genome co-founder Bjoern Lasse Herrmann in Sydney as part of Vivid Sydney (May 2012) and is released in parallel with a global study of ecosystems available from blog.startupcompass.co  

Key findings

  • 4.8% of Australian startups are scaling into sustainable, global businesses;
  • 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;
  • Sydney is the largest Australian startup hub — 1.5 times larger than Melbourne, six times larger than Brisbane and eight times larger than Perth;
  • Australian entrepreneurs are less ambitious than those in Silicon Valley and New York, and tend to tackle much smaller markets. They tackle niche markets 14% more often than entrepreneurs in Silicon Valley;
  • There are very few females starting companies in Australia, accounting for just 4.3% of those included in the study;
  • Silicon Valley startups create 2.6 times more jobs than Australian startups in the early stages of development;
  • Sydney entrepreneurs are 86% less likely to want to get rich, 45% less likely to want to change the world, and 37% more likely to want to build a great product, than their counterparts in Silicon Valley.

From 21 November the full report can be accessed at:
www.deloitte.com/au/siliconbeach
http://fromlittlethings.co/

NB: See our media releases and research at www.deloitte.com.au

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Contacts

Name:
Joshua Tanchel
Company:
Deloitte Private
Job Title:
Partner
Phone:
Tel : +61 2 9322 7258 / 0425 360 611
Email
jtanchel@deloitte.com.au
Name:
Zach Kitschke
Company:
From Little Things
Job Title:
Phone:
+61 4 0002 9077
Email
zach@fromlittlethings.co
Name:
Phil Morle
Company:
Pollenizer
Job Title:
Phone:
Mob: +61 4 3046 0780
Email
phil@pollenizer.com

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