The evolution of the Australian start-up ecosystem

It is only when you sit back and take stock of how busy you have been do you realise how much the entrepreneur ecosystem has evolved, especially in Australia.

In the past 10 months AirTree Ventures has had 400 entrepreneurs come through our doors seeking funding. During that time we have made six investments with another three that will close in the next month.

Doesn’t seem like many investments to you? Well, if I take you back to our last fund where between 2005 and 2011 we saw 550 potential businesses and we invested in just one that came through the traditional VC route. That’s right, one investment. The other eight investments were in businesses we had to partner or incubate (in the period after incubators were cool and before accelerator were fashionable.

So, what has changed? Let’s take a look first at a local market place — Pawshaketo illustrate the difference in start-ups today. Pawshake is a market place for pet owners and pet minders. Think if it as Airbnb for pets. DogVacay and Rover have pioneered this model in the USA and Bill Gurley described this as a High probability, high potential market place in his blog.

Pawshake has the largest network of reviewed and approved pet minders in Australia and is the leading pet minder market place in 11 other countries including the United Kingdom, Canada and New Zealand.

So, we had some comfort that the business model would work if executed well and we had faith in the entrepreneurs.

The founders, Dries Coucke and Tanguy Peers, had held senior roles in market place business and an understanding of the pets vertical (eBay and b2build, an award winning online marketplace business). This combination of an intuitive sense of how to build trust and community in a market place combined with previous start-up experience and understanding of pets, gave us a lot of comfort that this is the right team.

In our view, the Pawshake model aptly displayed how the best market places can create enormous efficiency by freeing up previously underutilised supply and delivering a step change in customer experience on the demand side.

The founders were also able to solve the ‘chicken and egg problem’ that is marrying the sides of supply and demand in the right cadence, which is often a real challenge in the early stages of developing a market place. One key factor is their understanding of how to build trust and how to use clever curation, ratings and reviews to maintain quality, which then allows pet owners and pet sitters to make informed decisions.

The trend towards almost free (and variable) storage, bandwidth and computing power and low cost/free software has been well chronicled. To put this in perspective, when I started my first online travel company in the UK in 1998 it costs £5m for servers, operating systems, software and bandwidth. During our last fund (netus) from 2005 to 2011, it cost $1–1.5m. We are now seeing businesses get to a reasonable scale for $20,000 on a credit card.

This is allowing start-ups to focus on great product and beautiful UX, obsess over the customer, and expand marketing channels that are far more sophisticated than spending on SEM to develop stronger business models, which can then be exported around the world from day one.

The entrepreneur ecosystem has evolved at a rate that no one expected and it is exciting to be part of that journey. The ability of a niche business to thrive in a local and global market has never been so accessible and we here at AirTree are happy to be part of that evolution.