Despite having the fundamentals in place to support a flourishing startup ecosystem, Australian startups are facing significant challenges from talent shortages, constrained research and development support, and a cooling attitude toward technology among voters and politicians. 

That’s according to Crossroads 2018, a comprehensive review of the nation’s startup ecosystem by StartupAUS, Australia’s national advocacy board for startups.

Crossroads 2018 lead author and StartupAUS CEO Alex McCauley highlighted the milestones that have defined our maturing ecosystem in the five years since forming StartupAUS in 2013.

“We have seen powerful organic growth over the past half decade - startup formation rates have exploded and new precincts, hubs and programs have emerged to support this. We have also seen our next generation of world-class, global technology leaders emerge including Aconex, Wisetech Global, Envato and Atlassian along with growth companies Canva, Culture Amp, Airwallex and Afterpay.  Venture capital has risen dramatically, providing unprecedented growth opportunities for Australia’s best and brightest startups. And at least two billion dollars of extra funding has been directed towards startups and innovation through the National Innovation and Science Agenda and state government innovation funds.

“These successful tech brands have generated thousands of jobs and are producing billions of dollars in new value for our economy. Despite this unambiguous success, our startup sector faces unprecedented global competition and has started to lose its lustre politically. We need to address those challenges if we want to continue to grow quickly,” Mr McCauley said. 

Watershed moment for emerging tech sector

Mr McCauley said numerous leadership changes in recent years had affected the innovation portfolio and an apparent tightening of the R&D Tax Incentive scheme for software claimants, combined with a promised ‘crackdown’ on the scheme, had the potential to cripple Australia’s emerging tech sector if left unchecked.

“This is the single most important program any government in the country delivers for startups,” Mr McCauley said. “It has been a core part of the success we’ve seen in the tech sector over much of the last decade. This is a program that was introduced in 2011 specifically to help software development get the same support as other forms of R&D. It would be hugely damaging to have that slip away.

Mr McCauley said as much as 25 per cent of the Australian economy - A$524 billion of GDP - could be directly impacted by software by 2025. 

“This is a watershed moment for Australia. We have a chance to set ourselves up for the economic change that we all know is coming, but right now our R&D spending is below the OECD average and falling. At a time when we really need to be thinking ambitiously about R&D we are tightening the belt. That’s something we urgently need to address.”

Increasing availability of venture capital

But it isn’t all bad news, with figures revealing an increase in the availability of venture debt, broadening the types and sources of funds startup founders are able to access. Estimates show Australian venture firms held about $3.3 billion in unspent growth capital in mid-2018, suggesting this availability is likely to remain strong.

“The availability of venture capital is critical for startups to move beyond the fledgling stage and expand whether that be their products, national scope, or reaching out to lucrative international markets,” McCauley said.

Report Recommendations

The 2018 Report makes ten key recommendations to address issues holding the industry back:

1.    Amend the R&D Tax Incentive to more clearly support software claims
2.    Introduce copyright safe harbour protections for technology companies
3.    Improve speed and certainty for startups under the Export Market Development Grant
4.    Make targeted amendments to legislation affecting Employee Share Schemes
5.    Broaden the early stage tax innovation company tax incentives
6.    Increase access to public data sets and fund strategically-coordinated, large-scale data collection efforts
7.    Develop and fund a national Entrepreneurship Academy
8.    Improve Australia’s entrepreneur visa to make it competitive
9.    Introduce a collaboration incentive for corporates to invest in startup programs
10.    Invest in an Innovation Ambassador tasked with attracting cutting-edge R&D projects from global tech firms

Read the full report here. 

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