Australia’s recent wave of startup success risks becoming a “flash in the pan” if floundering support for early-stage companies is not addressed, Startup Australia chief executive Alex McCauley says.
It’s become an all-too-familiar story for Australia’s burgeoning technology sector. While companies such as Canva and Airwallex have achieved homegrown unicorn status, early-stage startups are inking smaller deals, and less of them.
The number of angel and seed investment contracts in Australia plummeted in 2018-19, down 46%, with just 138 companies raising US$75 million ($109 million), compared to 273 firms raising US$180 million ($262 million) in 2015-16.
That’s according to Startup Australia’s 2020 Crossroads Report, released today.
McCauley says the long list of already successful startups, including Envato, Airtasker and Deputy, which are all chasing their own $1 billion valuations, are driving keen interest from VC firms after sure bets.
But that’s making it harder for new entrants to secure support.
“If you’re an investor and you’re looking at high-growth companies in Australia, you can see 20-30 startups which are post-Series A,” McCauley says.
“They’re really successful businesses that have reduced risk profiles but haven’t reduced their returns. Of course, they want to follow those companies.”
The startup lobbyist says the lack of finance available for early-stage startups must be addressed, else Australia risks its run of technology success becoming a blip on the radar.
“We shouldn’t just sit back and let this happen,” he says.
“If we do that we run the risk of this being a flash in the pan.”
McCauley says while the lack of support for early-stage startups is a cause for “concern”, he’s not panicking, outlining his hope there’s a “market-based fix” on the horizon.
“As some of those successful companies start to issue returns to investors, we’ll see more interest from a wider range of people getting into the space,” McCauley says.
“We’ve seen that in more mature markets like the United States.”
The startup lobbyist reckons there’s a one-three year timeline on a lift-all-boats type of situation for Australia’s startup scene, which he hopes will re-inject much-needed capital back into early-stage firms.
Startup Australia has also lobbed a series of recommendations at the Morrison ‘government, arguing policy changes could improve the prospects of early-stage startups.
First on the list is a request to amend the research and development tax incentive, which has been the subject of much discussion after the tax office started issuing clawback notices to startups.
McCauley wants the government to clear the air by making it clear in legislation that the R&D tax incentive supports software development.
Further, McCauley says early-stage innovation tax incentives introduced in 2016 should be expanded to allow a broader range of young startups to benefit.
“We can always be doing more to support industries which are the lifeblood of Australia’s prosperity,” McCauley says.