Rebuilding the startup sector post-COVID

Denham Sadler
National Affairs Editor

Australia should look to improve its sovereign tech capability and provide more support for startups and entrepreneurs as part of its recovery from the COVID-19 pandemic, according to StartupAUS chief executive Alex McCauley.

Like most Australian businesses, startups have been hit hard by the ongoing crisis, with many forced to shed employees, lost funding opportunities and others fighting for survival.

But there are opportunities for tech entrepreneurs to assist with the post-COVID recovery, Mr McCauley said, and further support is needed to help startups emerge unscathed.

“We’ve had our winter and we’re probably getting into spring in terms of the virus. In spring you see new green shoots and startups are those new green shoots,” Mr McCauley told InnovationAus. “I know that founders I’ve spoken to have been very hungry to deliver what the country needs in terms of new products and services to meet shifting demand.”

Alex McCauley
Alex McCauley: Startups are build for fast growth and will help the recovery

“There’s a real sense of optimism looking forward to the opening back up of the economy and what opportunities and challenges present themselves. Now entrepreneurs can rebuild new businesses or shift existing businesses to meet those opportunities.

“This is a sector with businesses [that are] built for speed and built to meet new forms of demand. In the chaos that will be the result of lots of the hard stuff that has happened, there are lots of opportunities for people willing to try to grab them.”

The COVID-19 pandemic has shone a spotlight on Australia’s sovereign capability across many sectors, and there needs to be a movement to support more homegrown tech companies, he said.

“There’ll be a strong conversation about sovereign capability and Australia’s ability to provide for itself. One of the things that we historically haven’t done well is build technology here,” Mr McCauley said.

“We’ve been big consumers of technology in Australia but we have stuck for the most part to less complex goods when it comes to the export basket and what we produce locally.”

“This will make us rethink whether or not we can rest with that being the state of affairs or if we support the growth of a domestic technology sector more fulsomely. There’s a real momentum behind some really strong Australian technology businesses. That will be very clear to people who will be taking another look at the sector over the next little while.

“The overarching message and vibe that I get from my conversations is one of open optimism about what is coming. That’s the great thing about the sector, people are always looking for what they can do next and how to build the next thing. It’s a chance to build lots of new things that are going to help people.”

While later-stage tech firms are likely to make it through to the other side of the pandemic, early-stage companies will be hardest hit, Mr McCauley said, with fears there will be a “COVID gap” in the local ecosystem.

“We’re a bit worried we’re going to see a COVID gap in the funnel of companies being produced, there’ll be a six to 12-month period where it’ll be pretty difficult to get a business off the ground because of COVID.”

“That will play out down the track when companies are coming out of the growth stage,” he said.

“Where we have not had enough support and maybe have a potential problem down the track is at the early-stage.”

These early-stage firms are also likely to be most hard hit by venture capitalists and other funders backing away from high risk propositions, Mr McCauley said.

“What we’re hearing from VCs is they’re keen to continue to fund, but in reality, that probably means companies with a track record that have already had funding. They’re the companies that will still be able to raise during COVID.

“But I imagine that the situation at the early-stage end – seed and Series A – will probably be a bit difficult during this period,” he said. “Those companies are a riskier proposition and these are uncertain times, and risk and uncertainty don’t mix well together.”

The JobKeeper wage subsidy has been greatly beneficial for many startups, Mr McCauley said, but much more could be done by the federal government to help these companies survive.

“Other countries have introduced matched funding for early-stage investments – speciality COVID funds for early-stage investors to try to boost the money in that part of the deal-flow pipeline,” he said.

“There are options and one of those options is to make sure that coming out of the crisis we’re really strong supporters of entrepreneurs, because they’ll be at the forefront of rebuilding the economy.”

Do you know more? Contact James Riley via Email.

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