Denham Sadler
October 22, 2018

Active startups now in decline

StartupLand

Active startups now in decline

Murray Hurps: Australia has a problem with the front end of the funnel

The number of active startups in Australia has declined along with the number of women involved with the sector, a “massively concerning” new report has revealed.

Startup Muster, an annual online survey of those involved with startups, future startup founders and startup supporters, paints a negative picture of the sector for the first time in its five years of existence.

The organisation, which is backed by the University of Technology Sydney, Atlassian, Google, the federal government and MYOB, worked with Data61 to create an estimate of how many startups there are in Australia based on its last five years of reports.

It found that while there were 1,675 startups in 2017, this number dropped to 1,465 in 2018, a 12.5 per cent decrease in one year. It also found that while there 1,291 startups launched between the 2016 and 2017 report, there were only 712 launched in the last year.

In further bad news for the sector, the number of startups being founded by women dropped by more than 3 per cent to just 22.3 per cent of all companies.

Startup Muster chair Murray Hurps said he was shocked by the downward trend – and disappointed.

“I was amazed. Everyone looks around them and says there are lots of programs and spaces so there must be more startups, but that’s not actually happening. If you look at the age of the average startup it has gone up from 19 months to 36 months over the last four years,” Mr Hurps told InnovationAus.com.

“We’re surrounded by more established companies but the front end of the funnel isn’t being fed. There’s not the same enthusiasm for starting a startup as there was. I’m massively concerned.

"I think anyone that cares about the future prosperity of Australia should be massively concerned about these findings.”

The report also shows a decline in startup activity in Victoria for the fourth year running. In 2015, 18 per cent of startups were based in Victoria, but only 13 per cent are now primarily located in Australia’s second biggest state, according to the survey.

Nearly 3500 people or organisations participated in the survey, the largest number to date. The organisation received 140,259 answers in total from 1,617 founders, 803 future startup founders and 1056 supporters.

Following an “exhaustive post-survey validation process” and manual reviewing of the participants, these numbers were reduced to 777 verified startup founders, 321 future startup founders and 654 startup supporters.

Startup Muster’s definition of a startup is an “early-stage business that has a large addressable market that utilises technology to capture that market quickly”, looking at scale, speed, timing and technology.

The most concerning aspect of the report is the decline in the number of new startups being launched, Mr Hurps said.

“Atlassian took 13 years from founding to IPO – who is starting the Atlassian of 2031 today? Based on these results, fewer people are doing that than there used to be. Fundamentally the problem in Australia is the number of people deciding to launch startups,” he said.

“If more people decide to pursue this path then more people gain experience and skills to become good entrepreneurs and founders, there’ll be more good startups and that will mean more support that will attract people into the industry.

“The front end of the funnel is the problem in Australia – we need far more people than the few thousand we’re seeing now.”

According to the survey, nearly 80 per cent of Australian startups were launched by men. The number of female-founded companies has dropped by more than 3 per cent from last year.

It is the first Startup Muster report to paint a negative picture of the startup ecosystem and revealed a number of downward trends in important areas.

“If you’ve got a report showing good results year-on-year then it’s very easy to become complacent. People think the industry will take care of itself, so they sit back and enjoy the wonderful, impactful companies that come from it. But at some point you have to look at the results and think that help is needed, that the industry won’t continue growing on its own,” he said.

While the ideas boom under Malcolm Turnbull put unprecedented attention on the startup and tech sectors, leading to a rapid growth in the number of companies being launched, this spotlight has now waned, and a lack of government action has contributed to the decline, Mr Hurps said.

“I think people leave things up to the private sector a little too much. The private sector doesn’t have an incentive to help people launch startups. There’s a place for schools, parents, government and for Australia to a do a whole lot more than they have been doing to get people launching startups,” he said.

“If you want things to keep going in the right direction, then it’s not enough to leave investment and support where it is, you need to increase it over time to have increased results.”

Nearly a quarter of all surveyed startups had at least one employee on a visa, with the majority of these on a temporary working visa.

Nearly half of all surveyed startups were based in Sydney, compared with nearly 40 per cent last year. Only 12.4 per cent of the startups were based in Melbourne, a drop from 13.4 per cent in last year’s report.

For the first time, artificial intelligence is the most popular sector for startups, with 20.6 per cent of startups operating in the space, followed by FinTech, education and Internet of Things.

Alarmingly, 20 per cent of the startups have only six months or less in financial runway, and only 6 per cent have more than two years. More than 40 per cent of the startups said that what they need most in the next six months is “media exposure”.

In the report’s forward, federal Industry Minister Karen Andrews attempted to put a positive spin on it, saying it showed an “encouraging picture”.

“Startup Muster was founded to draw attention to the progress, opportunities and challenges for Australia’s startup ecosystem. Since 2014, its reports and the quality data sets that underpin them have helped us to paint a clearer picture of the strengths and weaknesses of this growing sector,” Ms Andrews said.

But shadow digital economy minister Ed Husic said the government was much to blame for the disappointed results in the Startup Muster survey.

“This is a Coalition government funded report proving the Coalition government’s failing startups – and our future economic prospects. If the growth of new, smart firms is going backwards we’ll go backwards down the track,” Mr Husic told The Daily Telegraph.

“Startups have not only proven their power in quickly growing new jobs but they also deliver smarter ways of doing things for businesses in the wider community,” he said.

“If we are seeing the number of startups fall you can just imagine what that means for our economic and jobs future.”

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