The Australian startup sector is at a “tipping point” where it must deliver on its potential in spite of a lack of political love, according to StartupAus chief executive Alex McCauley.
The StartupAus Crossroads 2018 report paints a picture of a sector that has come a long way in recent years and has the potential to continue rapidly growing and contributing to the economy, but one that is facing “serious challenges” and growing hostility from governments and the general public.
The report finds that despite this growth, the sector has fallen off the political agenda and has instead been targeted by legislative crackdowns, and has also been impacted by the turn in public opinion against tech giants like Facebook and Uber.
The local sector has come along way in the last five years, Mr McCauley said, especially in terms of capital on offer.
“Five years ago the biggest reason a founder would move overseas was to raise a round of growth capital – that just wasn’t available here. We lost a lot of great companies to the US for that reason,” Mr McCauley told InnovationAus.com.
“It’s chalk and cheese now with that scenario – there’s a lot of capital here for Australian founders, and lots of great businesses going global from an Australian base,” he said.
“It’s really positive. It’s led to a phenomenon of Australian businesses being successful globally but keeping a major base here. That’s a really positive sign for the ecosystem.
“That has translated into a cohort of companies that have been around for less than 10 years and who have started to hit scale as capital came into the system that are now really maturing and are likely to be billion-dollar businesses over the next few years, and grow a very serious cohort of companies that will take on the world from an Australian tech sector.”
The groundwork has been laid, and now it’s important for the sector to prove its worth, Mr McCauley said.
“All of that means we’re at a tipping point where a lot of the settings are right and a lot of the companies that are coming through are about to be really successful. The settings are right, but we’ve got to realise those gain,” he said.
“A lot of those are still on paper, and we need to focus on helping those businesses reach maturity, realise those gains, lock in the wins and recycle the capital, proving this is a viable business sector for Australia.”
But the sector has fallen off the top line political agenda at a federal level since former Prime Minister Malcolm Turnbull’s “innovation boom” in late 2015. While it’s hard to determine how much this has impacted the sector, the lack of love for young tech companies has led to policies such as the crackdown on research and development tax incentive claims, which has been “squeezing out” tech companies, he said.
“The most identifiable way it is manifesting itself now at the other end of that wave of interest is with the R&D tax incentive.
“We paint a big picture of this in the report – we’ve seen a decline in scope for software claims under the RDTI, and that’s intrinsically linked to the changing view of this at a political level.
“As the enthusiasm for tech comes out of the political narrative, and there are concerns about the costs across the budget, those things have combined to mean that software is now getting squeezed out of the RDTI, and that’s directly linked with how technology is thought about politically.”
Huge global backlash against tech giants like Facebook and Uber has also led to further falling out between the startup sector and the federal government, according to the Crossroads report.
“This narrative shift is in part about disquiet over ‘disruptive’ companies and seismic shifts in economic structures. But it’s also partly about an increasingly hostile political attitude towards tech companies more broadly,” the report said.
“That trend is a global one, but Australia has shown signs it is at the tech-phobic end of the spectrum.”
The sector needs to do better in conveying its worth to the broader Australian economy and wider population, Mr McCauley said.
“It’s really critical that we make the case as a sector for why startups and technology are vital to Australia’s future prosperity – I think we haven’t made that case strongly enough yet. The case is really about jobs,” he said.
“We know high-growth young companies are creating all the jobs in the economy. This is a jobs generation engine – these companies are creating future-facing jobs that will be around for a long time.
“The biggest thing the sector can do is start paying attention to the context in which we sit. A lot of founders have a laser-like focus on generating success for the business, but we now need to start seeing the forest as well as the trees, and start appreciating that the system settings that support business growth are important across the board, and it’s a responsibility of the sector to make the case for why this matters more broadly.”
With federal and NSW state elections to come early next year, the sector is approaching a “watershed moment”, he said.
“It’s an opportunity for Australia to decide what’s important for the future of the country, and this should be top of the list,” Mr McCauley said.
A large chunk of this year’s Crossroads report is devoted to this change in political narrative, and the need for the sector to position itself as a valuable jobs-creator in the eyes of politicians.
Mr McCauley said he hopes politicians reading the report come away with three key takeaways: why the sector is crucial for Australia’s future prosperity, things can be done to make Australia a better place to grow these companies, and how that can be done.
“We need to understand that there has been a lot of success here already. We’re not flat-footed, we’ve got a running start,” he said.
“The sector has grown rapidly and largely organically – we’re at a time when there’s an inflection point and if we really get behind it we can see genuine results for the economy more broadly. It’s an exciting time to be focusing on it from a political perspective.”