Majority of Victorian startups were generating revenue within their first 12 months: Report
Thursday, August 24, 2017/
The majority of Victoria’s high-growth startups began generating revenue within their first year of operation, according to research into the state’s startup ecosystem published this week.
The Mapping Victoria’s Ecosystem report surveyed 1600 companies across the state and was funded by LaunchVic in collaboration with dandolopartners and Startup Victoria. Of these 1600 firms, 1137 met the survey’s definition of a startup, which was “any business with high impact potential that uses disruptive innovation and addresses scalable markets”.
The report found startups in Victoria are monetising their businesses very early in their journey, with 60% of Victorian startups stating they were revenue positive in their first year, and almost 80% saying they were generating revenue by year two.
Startup Victoria chief executive Georgia Beattie believes this drive for early monetisation is indicative of a cultural difference between the Australian and US startup ecosystems.
After attending college in the US, Beattie returned to Australia to found Lupé Wines and Single Serve Packaging, while her fellow classmates founded startups in the US. Beattie recalls her US classmates “had very a different [entrepreneurial] journey” in that they were able to raise capital, have a “cash burn” for some years, then achieve a “significant exit” from their companies.
“They had this risk tolerance and the ability to have a longer cash burn period,” Beattie tells StartupSmart.
Beattie says her experience as a founder in the Australian startup ecosystem was quite different.
“When I started my business in Australia I needed to be generating revenue and become profitable very quickly — my investors were not comfortable with me generating losses,” she says.
Beattie believes startups and investors have a “different risk tolerance” in Australia, which sees startups “trialling revenue models and testing whether they are profit generating” rather than “having a big swing in a particular space”.
“We sort of take smaller measured steps,” she says, adding that this reflects the “character of our entrepreneurial personality in Australia”.
Beattie also says having revenue-focused early stage startups works in the ecosystem’s favour, because “it’s an attraction for investors”.
“We do look at the P&L [profit and loss] very differently to the States, with more of a focus on the product side,” she says.
Of the Victorian startups surveyed, 11.9% reported earning between $1,000 and $10,000 annually; 22.8% said they are earning between $10,000 and $100,000; and 28.1% are posting annual revenue of between $100,000 and $1 million, according to the report.
The report found 14% of startups make annual revenue in the $1 million to $10 million bracket, while 2.1% of Victoria’s startups have annual revenues greater than $10 million.
These revenue figures are notable considering the report found that one third of all startups in Victoria, including startups in later stages of development, are bootstrapped. Those that did seek external investment received a median amount of $250,000 in investment raised from angel investors, and $1.5 million from venture capital, with both sources of funding taking between five and six months to raise from investors.
Three Victorian ‘unicorns’ — startups valued at more than $1 billion — are highlighted in the report: the $8.7 billion real-estate advertising company REA Group; recruitment platform Seek, valued at $5.9 billion; and car-selling platform carsales.com.au, with a valuation of $2.8 billion.
Early-stage Victorian companies — which the report defined as having a revenue of between $1 million – $10 million and a staff size of between six and 30 employees — were found to be experiencing particularly strong growth, with 26.3% of early-stage companies experiencing “high growth” in the last three years.
High growth is defined in the report as startups that have grown employees, revenue or their customer-based by an average of more than 20% per year for the past three years.
Key startup sectors
While fintech may appear to be a leading sector in the Victorian, and also Australian startup ecosystem, the report found health, enterprise and corporate, and media and entertainment are the three largest sectors in Victoria’s startup ecosystem.
Health-based startups were found to be the biggest contributor to jobs in the ecosystem; the report found health startups contributed a “disproportionately large number of jobs for the number of firms in the sector”, driving 26% of total employment in Victoria’s startup ecosystem.
Need for diversity
The report found that the disparity between male and female founders in the startup ecosystem is pronounced, with males making up approximately three-quarters of Victorian startup founders.
Beattie admits Australia has “a pipeline problem” when it comes to “getting enough women with those [tech] skills into the workforce”.
She says Startup Victoria is continually trying to educate the next generation of female entrepreneurs, aiming to show that tech isn’t necessarily “Mark Zuckerberg in a dark room coding”.
“What we do regularly is talk to high schools and show women what other sort of female leaders look like in the ecosystem, and what type of people are in this space,” she says.
“You can’t be what you can’t see.”