Demo day at Sydney's INCUBATE at the University of Sydney.
Australia’s startup scene has seen fast growth but continues to be held back by risk-averse investors and a lack of government support, local startups told Techworld Australia.
The startups, featured this year in our Australian Startup Snapshot series, illustrated an ecosystem of burgeoning talent but one that is still immature compared to startup scenes in other countries including the US and Israel.
The good news is growth. Startups have told us that the Australian entrepreneurial scene has expanded substantially in the last two years, particularly in Sydney and Melbourne.
The startup environment in Australia is “pumping” and “definitely growing,” said Mohamad Jebara, co-founder of Sydney e-learning startup, Mathspace.
“We went to a [University of New South Wales] event” to recruit help and discovered many “good graduates preferring to work in the startup world” than big commercial companies, he said.
Kym Huynh, co-founder of education startup WeTeachMe, had high praise for the Melbourne startup scene. “I believe we’re in a very exciting boom stage here.”
Compared to two years ago, there are many more startups, co-working spaces and events for startups, he said. “There’s a lot of support here. People are always happy to have a coffee and advise and mentor and guide.”
While still small, Adelaide has a “burgeoning little startup community” and “people are starting to take notice,” said Savvas Dimitriou, co-founder of indie music store Kicktone.
Demo days held by startup accelerator ANZ Innovyz in Adelaide have attracted investors from other states and abroad, he said. “That’s something that hasn’t happened in Adelaide before.”
Adam Theobald, co-founder of Sydney coffee-ordering app Beat the Q, said he has lately seen much greater collaboration in Australia’s startup scene.
“Something that is really exciting is the emergence of the incubator,” he said.
Co-working spaces such as Sydney’s Fishburners are bringing startups into close contact, startups said.
“It’s good to have events where you pull startups together because the worst thing about a startup is the lonely road,” said Dipra Ray, co-founder of NexPay, a currency exchange startup based in Sydney.
“Anything you can do to bring people together and bounce ideas off of each other” is beneficial to the community and “the more you can encourage that, I think the better for Australia in the long term,” he said.
Funding remains scarce
While the scene may be growing, venture capitalists in Australia remain averse to risk in comparison to VCs in other countries like the US and Israel.
“Here you don’t get funding unless you’ve demonstrated significant traction,” according to Shane Herft, co-founder of Drivelist, an online service that lets car buyers schedule test drives of nearly any vehicle.
Early-stage startups instead have to rely on “the 3 F’s—friends, family and fools,” he said. “That’s the only funding you get.”
Doron Ostrin, co-founder of B2B startup Productify, took a similar view.
“You can get money from friends and family, and then you can get the big VC round of [between] $3 million and $10 million, but there is kind of that gap in the middle where people aren’t willing to take much risk on something that’s not proven,” he said.
Valuation of startups is also much higher elsewhere, Ostrin said. Venture capitalists that have met with Productify told the founders a valuation in the US would likely be $2 million to $4 million greater than in Australia, Ostrin said.
“I think they have it in their head that that’s the case, and therefore they follow it.”
“It’s difficult for startups to get funding,” agreed Jeremy Tobias, head of business development at mobile donations startup GiveEasy. “Raising money on the ASX is difficult enough, but if you’re unlisted and under the radar, it’s tough work.”
The funding problem has driven some startups overseas where money is easier to come by, said Airtasker co-founder Tim Fung.
“We’re losing a lot of startups to the US and Singapore ... We just need to make sure that we give the right environment to keep all these guys here.”
However, other startups said getting funding in Australia is far from impossible.
“There’s never been a lack of funds in Australia,” said Filip Eldic, co-founder of location-based payment startup Bluedot. “It’s just been a lack of companies that have been able to build and run to the standards that they are in the US.”
Nick Cloete, CEO of cash register software maker Kounta, disagreed with those who say money can be hard to find, at least in the early going: “If you’ve got the right product, I don’t think it’s that difficult to find funding.”
However, as the startup grows and needs later-stage funding from venture capitalists, “definitely the US has got a much bigger pool of resources,” he added.
Next: Seeking government support