Why Australia is the best place to build a company over the next decade 🇦🇺🚀

7 years ago, in 2015, when I first started working in venture capital at LocalGlobe — it was still not obvious that you could build significant multi- billion dollar technology businesses out of the UK.

There were some early signs that the multi-decade dominance of Silicon Valley was being broken with the likes of Zoopla, Farfetch and Shazam emerging from the UK but the tech ecosystem was still in its relative infancy and the investment landscape in the UK consisted of a handful of ‘global’ funds — Balderton, Index & Accel and a smattering of seed funds that had grown organically (Episode 1, Connect, Passion etc).

My former boss & business partner, Saul Klein — had been banging the drum for the UK for a while — starting Seedcamp back in 2007, helping to create ‘Silicon Roundabout’ and later coining the term ‘New Palo Alto’ to describe the emerging tech ecosystem in Kings Cross but it was far from a consensus view and I remember several slides of that initial pitch deck making the non-consensus case for venture capital in London.

As the UK tech ecosystem has transformed over the past decade — led by breakout successes from Deliveroo to Revolut and Babylon to Zego — it is clear that there has been a major inflection point caused by a perfect storm of success, talent, capital and timing.

The amazing thing to see, now living in Sydney & meeting and investing in startups every day — is that we seem to be hitting a similar inflection point here in Australia.

In the past week, two of the best and most successful venture funds, Squarepeg & Blackbird — have announced record breaking new funds. The consensus view is shifting, several category-leading companies have been built from Australia and the next decade is setting up to be a unique and exceptional one for Australian startups. There has never been a better time to start a company in Australia.

There are a few reasons why we are so damn excited:

1. Success breeds success

The ‘first’* generation of breakout companies such as Canva, Atlassian, Afterpay, Airwallex, Immutable, Linktree are now category-leading global businesses. There are now thousands of operators in Australia who have experienced high growth, global success either in these 🇦🇺 scale-ups or at the likes of Uber, Amazon, Stripe and other leading 🇺🇸 tech companies who have built a presence here. These operators are now starting their own startups better equipped than ever to build.

2. Some of the best universities & IP creation in the world

Australia has 5 of the top 50 universities in the world and produces more research papers per $ of R&D funding than anywhere else in the world. There is significant untapped IP in universities ready to be commercialised by the right teams.

3. Emerging venture ecosystem

The first generation of successful venture funds have now returned capital to their investors and, in some cases, are on track to be some of the best performing funds globally. This has increased institutional confidence in the venture market and also enabled these institutions — the likes of Blackbird, Squarepeg & Airtree — to raise $500M-$1BN funds that in large part need to be deployed into Australia over the next few years — creating a pile of dry powder waiting for the Australian startups that are able to reach product market fit and some kind of breakout velocity.

At the earliest stages, there is a new breed of emerging and established investors providing more options for founders than ever before including the likes of Tidal, Possible Ventures, Daniel Gulati, Afterwork, Archangel and Side Stage.

4. Standing on the shoulders of immigrants

Immigrants have started more than half (319 of 285, or 55%) of America’s startup companies valued at $1 billion or more, according to a new National Foundation for American Policy (NFAP) analysis. Almost 80% of America’s unicorn companies have an immigrant in a key leadership role, such as a CEO or vice president of engineering.

There is strong evidence that immigrants are a key driver behind many outlier businesses. With a foreign born population in Australia of 29.1%, over double that of the US (14.3%) — Australia is well placed to benefit from the hunger, determination and grit of its sizeable immigrant population.

5. Efficiency

Several years of limited venture funding has led to Australian companies building a reputation for being leaner and more efficient than their US competitors. Atlassian famously raised their first funding round 8 years after starting the business with a $10k credit card and there is some evidence to suggest this is more widespread. It took the US $5 Bn of Seed capital invested to reach 25 unicorns, the UK $2 Bn but Australia hit the same milestone with just $1Bn invested at Seed.

6. Supportive, ambitious Governments and tax incentives

For startups, Australia has one of the most supportive R&D tax credit systems in the world — enabling many tech and bioscience startups to offset up to 43.5% of R&D spend.

Investors can invest in any one of several tax advantageous ESVCLP funds that offer tax-free capital gains and optimise for investment in Australia-based companies.

In addition, all the state Governments have been investing substantially in the tech and venture ecosystem not least the Victorian Government investing $2 Billion AUD through Breakthrough Victoria and LaunchVic.

7. The post-covid, Remote World.

Finally, Covid has really changed the game here.

Now that you can build a company from anywhere, run remotely, sell and raise money on Zoom — it really is possible to build a business from anywhere. When you can build from anywhere, the pull of ☀️ Australia is stronger than ever.

So, we are increasingly seeing some of the best founders, who historically may have felt the need to move overseas to start their company, stay or even return to Australia to build.

A note of caution:

Having said all this — it’s fair to say there is still room for improvement…

• Australia is not immune from the forces that have affected startups globally — it’s going to be a hard 12–24 months for many startups both here and abroad — particularly those that are highly capital intensive, have suspect unit economics or that have raised at lofty 2021 valuations.
• The venture ecosystem — whilst evolving — still has a long way to go to reach the level of depth, ambition and risk appetite of the US & Europe
• There is still not enough successful founders re-investing in the ecosystem. We need to build a culture of founders & operators (not just those that have had $Billion exits) re-investing and supporting the next generation of founders.

Ultimately though — the combination of world class experienced talent, an evolving ecosystem of supportive universities and governments, unprecedented later stage capital and the new reality of a post-covid world means that there really has never been a better time to build in Australia.

At Side Stage Ventures, we’re bringing together a community of experienced founders and operators backing the next generation of outlier founders in Australia.

If you are starting something new, would like to invest with us or are just as so damn excited about the future as we are please get in touch! You can reach me via Twitter, LinkedIn or email.

Photo by Liam Pozz