A few years ago, we published the first iteration of the Australian tech companies with $100M+ valuation chart. Since then, things have only accelerated, and we’ve got the numbers to back this up.
In 2018, Australia had a solitary unicorn — Canva. At the time of publishing, over a dozen companies had joined the unicorn club, and we know there are a bunch of soon-icorns included in the chart below.
Research from the recently formed Tech Council of Australia found that:
- The tech sector’s economic contribution has increased by 79% since 2016, outpacing average growth in the economy by more than four times;
- The sector contributes $167 billion to GDP, equivalent to 8.5%. By 2031, the Australian sector could contribute $244 billion annually to GDP; and
- Tech jobs grew more than twice as fast as average employment in the last decade. By 2025, the tech sector could employ 1 million Australians.
We’re lucky to have a front-row seat to this spectacular display of ambition and innovation. So, what have we learnt and observed along the way? And what do we hope to see from here?
Here’s the view from AirTree
Success is a virtuous circle
When I was running my startup in 2013, there were only a handful of companies you could point to as breakout successes — now, there are almost too many to keep track of!
It’s especially great to see that more and more of our top startups are recognised as global category leaders. From Canva in design to A Cloud Guru in cloud security training, and Go1 in enterprise learning. These companies are well and truly putting Australia on the map as a top ecosystem for tech innovation.
It’s clear to me that there’s a self-reinforcing loop of success begets success — with industry success encouraging:
- More startup formation, as founders see starting a startup as a viable path;
- More scale-ups, as founders and employees of successful startups share their knowledge and expertise; and
- More investment, not only from funds such as AirTree but also from founders and employees who exit and re-enter the ecosystem through angel investing.
I’m particularly excited about companies transforming the way we live and work — especially if COVID has accelerated those behaviours.
A couple of companies I work with that hit the nail on the head here include:
- Mr Yum — who are championing the shift to contactless ordering; and
- Chemist2U — who are changing the way people purchase medications.
I’ve also been digging into the climate tech space and would love to see more AUS breakout companies there. There’s a huge market opportunity, that’s also important for our society. If you’re building anything interesting in those spaces — I’d love to chat!
A magnet for top talent
Whenever I see this chart it reminds me of Matt Clifford’s excellent history lesson on the “Technologies of Ambition”:
“What the most ambitious people choose to do with their lives has a profound impact on society, the economy and culture.”
Centuries ago, the most ambitious young people joined the church or the military. More recently, they chased finance and consulting. In the last few years, the technology of ambition shifted to entrepreneurship.
This chart demonstrates what we notice in our meetings with founders every week — the most ambitious people are increasingly choosing to start companies, and the companies they’re choosing to start have greater ambitions.
The chart is a lagging indicator. Considering the acceleration in the quality and aspirations of early-stage startups in Australia and New Zealand that AirTree is meeting and investing in today versus in 2014, I would expect those logos to increase exponentially in the years to come.
Our silent unicorns
It’s a great time for the Aussie tech scene, and it’s only going to get better. Successful tech startups breed the next generation, creating a snowball of talent, angel investors, mentors and innovation. We saw this happen in Silicon Valley, Tel-Aviv, London, Beijing and Berlin.
Australia excels at Cloud software (e.g., Atlassian, Canva and Xero, our Kiwi friends), lifelong learning (e.g., Go1, ACG, SCW) and fintech (e.g., Afterpay, Synthetix), especially when the product is global from day one.
Aussies tend to outperform on the global stage — just look at our Olympics results — and this also applies to our startups! I have a hypothesis that this is because we have a bias towards product-led growth (with Atlassian being the pioneer) over sales-led growth, as we place less cultural value on sales and don’t have global sales teams on the ground from day one.
I hope our government sees this out-performance and invests more into this economic engine. Atlassian and Afterpay’s current market capitalisations would place them into the ASX 10 and 20, respectively, alongside Xero, with Canva not too far behind. R&D grants are very helpful to startups, but the government could fund much more, e.g., computer science and machine learning education.
So, where to next? I think more talent will move to tech and startups, particularly earlier in their careers. More capital will be allocated to the sector as investors see the sector’s track record, diversify investments and search for yield. Australia and NZ will continue to build global leading Cloud SaaS (e.g., no code productivity tools, cybersecurity), lifelong learning (e.g., adaptive micro-learning) and fintech companies (e.g., DeFi, InsureTech). I’d love to meet you if you’re building anything in these spaces!
On DeFi, the global deployment of Web3 and crypto is an area where we could excel. We have several ‘silent unicorn’ teams (token market cap >$1 billion) who are pioneers in the crypto space (e.g., Synthetix). Now, younger crypto projects are receiving more and more global investment (e.g., Zeta, Acala*, VHS Labs).
Firepower to back our most ambitious founders
The local ecosystem has drastically improved over recent years to support more world-class Aussie companies to succeed on the global stage.
A thriving local startup ecosystem needs:
- Ambitious founders with the vision, resilience and determination to create a global category leader from Australia;
- Exceptional talent to help bring that vision to life; and
- Depth of capital to support those ambitions.
We’ve witnessed incredible growth across each of these areas over the past decade in Australia. But when it comes to the depth of capital, historically there wasn’t the quantity and quality of local venture funding to support our most ambitious founders.
There are several companies on this chart founded pre 2010 that never raised venture capital from Australia — Atlassian, Invoice2go, Campaign Monitor — to name just a few. In 2014 when AirTree raised our first fund, only US$200 million of Australian venture dollars were raised across that entire year. By last year this had grown six times to US$1.2 billion. AirTree’s funds under management grew 10x in this same period from $60 million in 2014 to over $600 million now. We’ve been privileged to invest in and partner with many companies listed on this chart during that time. I’m excited that the quantity and quality of local venture funding is increasing to better support our most ambitious founders. There has never been a better time for founders to create a world-class company from Australia.
Looking to the future, Australia remains in the bottom half of OECD countries for venture capital investments as a percentage of GDP, so there is still plenty of room for growth from here. One sector I’d personally love to see better represented on this chart is elder care. With an ageing population and increasing social isolation issues due to COVID-19, I’d love to see technology playing a meaningful role to improve the human experience for our elderly.
Our next breakout star could come from anywhere
As VCs, we’ve long hoped that the startup ecosystem could play a major role in helping drag the Aussie economy into the 21st century (and away from our dependence on digging stuff out of the ground). It’s fantastic to see this starting to play out.
I get asked all the time how we can accelerate this growth — particularly how we can replicate the success of Israel (the Startup Nation — and where I spent much of my early days as a VC). I feel like the answer is always a bit disappointing. While we can learn some great things from Israel’s culture, chutzpah and general attitude to risk, they also have a massive structural advantage that we don’t — compulsory military service. 18 year olds all perform military service, and the best of the best join Unit 8200, Israel’s equivalent of the NSA or GCHQ. This acts as a nationwide startup incubator and pumps out a huge pool of trained technical graduates. It’s a very effective way to increase the number of startups — but it’s probably not that politically popular in Australia…
Instead, I think a better analogy for the Aussie startup ecosystem currently is the UK back in 2015. There were around half a dozen startups that had broken through the $1 billion mark (including Farfetch, Just Eat, Zoopla), and just like Australia, they had hit a clear inflection point. 5 years later, the number of UK-based unicorns has increased 8 fold, dominated by fintech and machine learning companies.
We can learn a lot from these comparisons, but our ecosystem is emerging with a uniquely Aussie flavour. Go back 10 years, and you’d never expected Australian startups to dominate in areas like graphic design (Canva) or developer training (A Cloud Guru). It’s important to remember this because the next generation of breakout Aussie startups could come from anywhere and any sector. The key is to support great founders and be open-minded about the problems they’re solving.
It takes a village to raise a startup
My very first foray into startupland was as a uni student entering a startup competition in 2010. During the networking session, I met someone who told me about this new and revolutionary concept called the ‘startup coworking space’ and that I should check out a soon to be launched initiative — Fishburners.
Today, Fishburners has empowered over 1,000 entrepreneurs. The Sydney Startups Facebook page has over 23,000 members.
We now have hundreds of coworking spaces, accelerators, early-stage investment funds, educational programs, government grants and grassroots startup communities. We even have a newly established Tech Council to represent our industry.
Successful startups don’t happen in a vacuum.
Behind this infographic of impressive fast-growing companies is a whole village of passionate and talented superstars actively contributing to a vibrant ecosystem.
Thanks to every single one of you for creating this magic!
This article was first published on Medium.